Purpose-led profitability
Study after study shows that consumers, especially the younger generations, are not only on the lookout for sustainable products and services but are willing to pay extra for them. In 2019, Millennials overtook Baby Boomers as the most populous generation in the U.S., and together with Gen-Z will soon dominate global spending power. This combination of trends has the potential to impact businesses for better or worse.
Consumers are ready to pay a premium to brands that align with their personal values, and just as importantly, discard those that don’t. Therefore, companies must define what these values are through brand purpose.
“The shift in consumer buying, with more consumers willing to pay extra for environmentally friendly products, reinforces the need for companies to increase their commitments to responsible business practices,” said Jessica Long, a managing director in Accenture Strategy. “Companies across industries have started to lead with purpose, including embracing the circular economy as a greater opportunity to drive growth.”
Brands that are already doing this well are no longer simply selling products; they are creating a community - a tribe of committed and loyal brand citizens. When the CGS 2019 U.S. Consumer Sustainability Survey asked which fashion apparel and footwear brands come to mind when they think of sustainability, Nike placed first (11%); followed by Toms (8%); and Patagonia (4%). These three companies have in common a clearly defined purpose; they are what they do and wear their heart on their sleeve.
Let’s take a step back and define what purpose means for a brand. Purpose plays an integral role in an organization’s brand strategy, engaging not only customers but stakeholders and employees too. It is quite simply the reason a company exists beyond making a profit. Purpose cannot be a marketing ploy; to be effective for today’s savvy consumer, it must be genuine and credible. For example, it should be no surprise that the best-selling sports brand in the world has given this a lot of thought.
Nike even has a separate website dedicated to their purpose: “Our purpose is to unite the world through sport to create a healthy planet, active communities, and an equal playing field for all.”
By weaving their purpose into the fabric of society, brands can demonstrate their difference, reach people emotionally, and forge deeper loyalty. A brand that has a voice, an opinion, and is actively involved in the lives of its customers is no longer a faceless corporate entity but an ally.
Consumerism has changed. Where neutrality was once the preferred state of business, now in such polarized times where the moderate view is so easily lost in the noise, expectations are high, and consumers want something more engaging from brands. They want businesses to share their values and for companies to be actively doing something about it.
Take Patagonia’s former strapline: “Do no unnecessary harm”, a broad and admirable stance for a company that could easily have a substantial environmental impact. By today’s standards, it does not go far enough – it is no longer satisfactory for consumers that companies aren’t making things worse for the planet; they want to see businesses working to make the outlook better.
Blackrock CEO Larry Fink explains: “Without a sense of purpose, no company, either public or private, can achieve its full potential. To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society.”
Patagonia makes outdoor clothing and equipment and can draw upon an obvious business interest in protecting the environment needed for their customers' enjoyment of these goods. Their purpose is writ large on their website, with the second menu option after "Shop" being "Activism." “We’re in business to save our planet”, reads the headline on that page. And it’s working for them. Revenue increased from $800 million in 2016 to $1 billion in 2017.
These trends are not new; purpose-driven brands have proven to be secure and sustainable for many years, so why the renewed emphasis?
The internet has enabled an incredibly aware society where the world’s problems are disseminated quicker than ever. Anxiety and depression in teenagers have doubled in the last 30 years. It’s a complicated picture, but consumers are looking to brands and corporations to play a part in changing things for the better. Many people rightly see business as the cause of today’s issues – pollution, climate change, animal welfare, so it is reasonable to look to companies to fix it. In this age of transparency, acknowledging the power that comes with success means recognizing the responsibility that accompanies it.
When governments might appear beyond reach or not even representative of your ideals, seeking an alliance in a brand that shares your values offers comfort and reassurance. Recognizing the power that businesses can have makes sense too. As author and professor at Harvard Business School, Michael Porter, says in his TED talk: “When businesses solve a problem, it makes a profit – which lets that solution grow.”
Explaining purpose further, Michael Porter and Mark Kramer describe their vision for creating shared value through “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.”
Need more convincing? Research into U.S. consumer opinion by Accenture Strategy shows how purpose-led companies improve competitiveness (Los Angeles sector):
- 64% are buying goods and services from companies that reflect their values and beliefs.
- 61% want companies to take a stand on social, cultural, environmental, and political issues close to their hearts.
- 72% say a company's ethical values and authenticity influence their purchasing decisions.
- 75% want transparency into how companies source their products and ensure safe working conditions.
- 53% have stopped doing business with a company because of its words or actions about a social issue.
As we prepare to leave behind a year that has been tough on business, many will be re-evaluating what it means to run a successful company in the 2020s. We’ve seen digital transformation leap ahead to weather the storm, but many organizations have yet to take a more reflective look at themselves and address purpose.
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