Demonstrating the benefits of environmental impacts improves the competitiveness of cleantech companies
Enterprises that are able to demonstrate the added value generated by the environmental, societal and economic advantages of their product to the customer are in a better position to compete on the industrial market. According to a study conducted at Lappeenranta University of Technology (LUT), especially cleantech companies could improve their business by providing evidence of this added value.
The study applied life cycle assessment to evaluate the economic, environmental and societal benefits of two industrial products. Life cycle assessment has traditionally been used to calculate the environmental footprints of companies, but in this study, it was applied as a marketing tool to demonstrate the advantages realised in the customer's processes. Companies can illustrate the benefits of sustainability through monetary value or different standards and environmental labels. For example, the "best available technology" standardisation indicates that the technology applied consumes the least material resources in the field.
"Standards and environmental labels are important communication tools that companies can use to tell the general public about their product and obtain 'approval' for their operation," explains Samuli Patala, who was in charge of the research.
According to the researchers, the cleantech sector is especially suitable for this type of research, as it focuses on finding solutions to environmental and societal challenges. Nevertheless, selling cleantech solutions is often challenging due to their higher supply costs. Customer companies often only look at the sales price, but if the supplier is able to demonstrate the added value generated by the environmental and societal impacts, it has better possibilities to impact the customer's purchase decision. Even if the original price of the product is higher, it may prove a better alternative to the customer in the long run.
Demonstrating the value to the customer is a key competitive advantage on industrial markets. Pioneering companies, such as SKF, SAP or IBM, measure different customer benefits systematically and often communicate their added value to the customer as cost savings or increased sales. To do this, it is important to understand how the company's supply affects the customer's business.
"Too many companies examine only direct economic benefits, because demonstrating environmental and societal benefits it often considered difficult," says Associate Professor Joona Keränen.
The increasing demand for sustainable products and services is, nevertheless, one of the greatest trends that currently mould competition. However, sustainability criteria have not been significantly taken into account in the assessment of customer value.
"As other sustainability initiatives change the markets, we must understand how companies can maintain a sustainable mindset in their business, including marketing and supply," emphasises Patala.
It has been evaluated that the current global production and consumption use up to 50 per cent of the natural resources than ecosystems can reproduce. Meanwhile, the external environmental costs of the global production system are evaluated to be 4.7 trillion dollars. Consequently, it is important to develop better processes and tools to incorporate sustainability in global value chains.
Samuli Patala, Post-doctoral Researcher, firstname.lastname@example.org, +358 50 440 3450
Joona Keränen, Associate Professor, email@example.com, +358 40 482 7081