How high inflation is affecting consumption of sustainable products and how to deal with it

Record inflation—especially in the energy and food categories—is shifting consumer preference toward less pricey alternatives and away from more expensive sustainable products. Notably, even consumer segments that our prior research has identified as most enthusiastic about sustainability such as millennial, urban, and Hispanic consumers now seem to be buying sustainable products less because of inflation.

However, the economic downturn could spur innovations to save both cost and the environment—and enable more accessible prices. For example, recycling remnants of older products to create new ones, making operations more efficient, using wastewater for heating and cooling, replacing virgin with recycled materials, and using less packaging can save money—and even add revenue by reaching additional buyers to whom such products and practices appeal. Furthermore, novel business models such as renting, sharing, and secondhand provide consumers with more price points, while benefiting sustainability.

Businesses can foster sustainable products’ uptake through new pricing models and transparent price communications. First, pricing decisions should take into account other corporate benefits that come with offering sustainable products, including higher productivity from committed employees motivated by a company’s sustainability agenda, employees’ acceptance of lower pay in return for a meaningful job and lower turnover, and improved ability to attract desirable investors and suppliers. Secondly, in tight financial conditions, customers may appreciate payment models that spread charges over time or that offer flexible prices. Finally, breaking down cost components and margins for sustainable products as compared to traditional ones can make prices more plausible, potentially fostering price acceptance and lowering negative reactions. It could help customers understand what their payment is covering and in what portions, including the sustainability features, and what companies are earning.

For more details, see Economic Downturn Creates Additional Hurdle for Purchasing Sustainable Products, Requiring a Rethink of Pricing Approach.