July 21, 2008

The Greening of Retail: Lowering Costs and Raising Customer Loyalty

Forthcoming Aberdeen research on green initiatives in the retail sector reveals that retailers worldwide are leveraging sustainability initiatives to drive down costs and boost customer loyalty.  By adopting an innovative set of eco-friendly and sustainable processes and solutions, retailers are striving to reduce total cost of operations and improve levels of customer acquisition, satisfaction, and retention. The top six actions of green retail respondents illustrate that practically no aspect of the retail enterprise will go untouched by the sustainability agenda and include both internally and externally-facing actions:

• Retail supply chain (procurement and supply chain redesign)
• Customer-facing initiatives (product end-of-life handling, store redesign, packaging)
• Facilities and infrastructure (waste management, buildings, systems, and assets)

The attention to a wide range of internal processes - as opposed to just market-facing initiatives - demonstrates the manner in which companies are embracing sustainability as a real and effective method of optimizing performance, overall. Further, the focus on the very beginning of the supply chain (59%) compliments the emphasis on eco-friendly standards for waste management (54%), product end-of-life reclamation and recycle/reuse programs (41%). This end-to-end approach underscores a holistic vision of the entire retail value chain and suggests that retailers are becoming more engaged in the full life-cycle of their products, operational activities, and customer preferences.

These actions represent not only a shift in internal business processes and cost efficiencies but also – and significantly – a more collaborative way of engaging the customer.  By leveraging sustainability initiatives to enter into partnership with the customer around the goal of being good global citizens, the Best-in-Class achieve not only dramatic cost savings but also dramatically improved customer loyalty. Survey results show that 38% of the Best-in-Class have already established green/sustainability-oriented customer loyalty programs with an additional 32% in the planning stages. This contrasts sharply with the 12% of all others who currently have such programs. Responsibility-driven retailers are altering the culture of customer relations by effectively responding to dynamic and increasingly ‘responsible’ consumer criteria.

While research has shown that all classes of green retailers achieve an increase in three measures of effective customer-centricity: new customer acquisition, customer retention and rate of customer satisfaction (CSAT), the Best-in-Class enjoy more striking rates of improvement. The Best-in-Class boast a 17% improvement in new customer acquisition and a 31% improvement in customer retention - a clear advantage over all others who claim a 5% and 14% rate of improvement, in each category, respectively.

Further, when asked to rate the impact of their green initiatives on relations with existing customers on a scale of 1-5 (1 being a disadvantage and 5 being a major advantage), 69% of the Best-in-Class responded with fours and fives versus just 39% of industry average and 24% of Laggard organizations. Similarly, when asked about green’s impact on brand reputation, 82% of top performers cited advantage levels of fours and fives while 52% of Industry Average and 40% of industry Laggard organizations felt their brand reputation has been enhanced to such levels.

Green retail results have shown a rich variety of initiatives, approaches, priorities, solutions and services.  Yet, there has emerged a common set of success criteria across industries, markets and segments that represent today’s Best-in-Class. Top performing firms are exceedingly holistic and collaborative in their approach with trading partners and clients and have grasped the importance of connecting concrete action and innovation to regular communication with and education of their employees and customers.

Jhana Senxian specializes in sustainability and green-oriented business process transformation for a cross section of practice areas at Aberdeen Group including Supply Chain Management and Retail.

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