Sustainability signals quality

Sustainability initiatives signal trust and product quality for small businesses and startups. People were 82% more interested in products from a sustainable startup.

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📝 Intro

Sustainability initiatives are good practice and something we urgently need to save our planet (e.g. Microsoft’s pledge to become carbon negative by 2030).

But are they also good marketing?

Yes. Research has found that well-executed sustainability initiatives - as part of Corporate Social Responsibility (CSR) - increase positive attitudes towards a company. Benefits range from better sales to higher market value.

But these studies all focused on large companies, usually with well-known brands.

So what happens when little-known startups or small-medium businesses have sustainability initiatives?

P.S.: In the past, we’ve seen that people enjoy using eco-friendly products more than regular products.

For example, without realizing why, people enjoyed writing 28% more when they used an eco-friendly pen compared to a regular pen. 

And of course, satisfied customers are great for future business.

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Previous insight: How to encourage pre-orders (All insights here)

Sustainability initiatives signal better product quality and increase purchase intentions

Impacted metrics: Customer acquisition
Channels: Sustainability | Brand strategy
For: Mostly B2C
Research date: September 2021

📈 Recommendation

Work on and communicate the sustainability of your company to make it more attractive to potential customers (e.g. our products are sustainably sourced).

For small businesses and startups, this signals trust and quality of your products - and makes people more likely to buy them.

🎓 Effects

  • Previous studies found that a company’s ethical initiatives (known as Corporate Social Responsibility; e.g. donations to NGOs, reduction of environmental impact) usually grow sales. But these studies focused only on large companies.

  • This study found that CSR initiatives also increase purchase intentions for startups and small businesses.

  • The effect works only if CSR initiatives are external focused (sustainability or charity work) rather than internal focused (e.g. employee well-being).

  • An experiment that asked people if they would subscribe to a newsletter promoting a company’s products found that:

    • 45% signed up when offered a 1% discount

    • 82% signed up when told the company is environmentally sustainable and offered a 1% discount

    • 77% signed up when offered a 2% discount

    • 66% signed up when told the company engaged in charity work and offered a 1% discount (but this finding was statistically weak, so it’s safer to focus on sustainability)

(Signup rates to startups’ catalogs depending on how they were presented - Click to zoom in)

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🧠 Why it works

  • We tend to have less information about the product quality of startups or new small businesses than we do about larger brands.

  • When we lack information, we instinctively look for other hints about the trustworthiness and quality of the company (part of what is known as Signal Theory).

  • If a company engages in sustainable practices, we take that as a positive signal that its products are of good quality.

  • This is because we believe that a firm that cares about ethical issues is also ethically motivated to sell good quality products.

✋ Limitations

  • This is a small study of one experiment with a relatively small sample size (174 participants). This makes it riskier to rely on compared to other studies covered in Ariyh (that are usually confirmed through multiple experiments). However, the general findings are supported by previous research.

  • The researchers used signup rates to a product catalog newsletter as a signal for purchase intention. They did not measure actual sales. This makes it riskier to generalize the results.

  • Participants in this study were Chinese students. This makes it riskier to generalize results to different demographics (e.g. older customers) or countries where sustainability is a divisive issue (e.g. the US). For example, previous research found that French and German customers are more supportive of sustainable initiatives than US customers.

🏢 Companies using this

  • It’s rare for startups and small-medium businesses to have sustainability initiatives, unless sustainability is their core business. 

  • Gray Whale Gin is one of the very few examples. They pledge to donate 1% of their annual turnover to ocean conservation.

⚡ Steps to implement

  • Engage in sustainable business practices. For example, source from eco-friendly suppliers and minimize your company’s environmental impact.

  • Clearly communicate your sustainability efforts. For example, show certifications of your suppliers or set goals to have net-zero carbon emissions.

🔍 Study type

Online experiment. China

📖 Research

Liu, Y., & Xu, C. (September 2021). Consumer intention to purchase and corporate social responsibility: Evidence from an experiment in an entrepreneurial context. Journal of Consumer Behaviour.

[Link to paper]

🏫 Affiliations

University of Warwick and International Business School Suzhou, Xi'an Jiaotong-Liverpool University. United Kingdom and China

Remember: Because of the groundbreaking nature of this paper, it could be proven wrong in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

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