Many years ago, I was moved into what was then a new supply chain risk consulting practice in the company for which I was working. At an internal conference, we reviewed a case study about Volvo 850s manufactured in the late 1990s (I actually owned one of the models involved). The story goes that Volvo corporate noticed 850s in dark metallic green were selling very well, so they ordered more to be made. Makes sense, right?
Except the corporate office never examined why the color was selling before issuing the mandate. Turns out, the reason isn’t good news, and management simply perpetuated a downward spiral.
The real reason is that dark metallic green wasn’t selling at anticipated price points, so dealers discounted them heavily to incentivize buyers. That strategy worked – kind of. Dealers moved the cars quickly, but frequently at no profit. Corporate saw only one data point (sales volume) without context and acted based on a single product attribute (color), inadvertently reducing profit. By the time everything was straightened out, dealer lots were flooded with dark metallic green 850 that had to be discounted even further.
I thought about this as EV sales spiked ahead of the September 30 federal tax credit expiration, and how the market signals could be taken out of context. Perhaps that isn’t wholly comparable to the Volvo story, but it does give sustainability professionals something to consider:
Sustainability attributes alone may not be the reason for sales of “sustainable” products. It’s critical to understand the big picture behind sales volume alone.
Local level promotions frequently drive sales volumes/trends, reducing margin or as loss leaders. They are used to purge inventory that isn’t selling. Expiration dates and seasonality are also critical factors driving to sales volume.
Sustainability professionals – don’t be a late 1990s dark metallic green Volvo 850. It’s tempting to point to a single indicator or attribute as evidence of market acceptance, but there may be more reasons behind it. Sustainability can be a key buying criterion, but sometimes less important than it may initially appear. Moreover, as Ken Pucker recently pointed out, companies can define “sustainable products” any way they want to – something we observed in our research on sustainability financial disclosures – potentially diluting the true value of sustainability attributes.
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