How playing offense on sustainability can power e-commerce performance

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The business case for marketplace sustainability is now well established: sustainability leaders decarbonize faster, enjoy higher multiples, and see stronger growth in their sustainable product lines.1Prioritizing sustainability in the consumer sector, podcast by Sebastian Gatzer and Clarisse Magnin, McKinsey, August 5, 2021. But how can marketplaces effectively attract customers to their sustainable offerings? McKinsey research shows that some features are more powerful than others in driving outcomes. For example, sustainability-conscious customers are more likely to buy if marketplaces offer bundled delivery or less packaging. However, they are not so influenced by an option to reduce emissions by extending delivery times. And, while customers will accept some trade-offs when making purchasing decisions, they do not see all trade-offs as equal. Bundled deliveries, for instance, are more acceptable than a requirement to return packaging. Marketplaces that take these nuances into account are more likely to decarbonize effectively and make their sustainable offerings pay.

Sustainability is an established consumer priority. About 85 percent of consumers have adopted more sustainable behaviors and 45 percent expect sustainability as a given (Exhibit 1).2 However, our research shows that of 20 features that could influence a new product purchase, the average likeliness to buy can increase by as much as 25 percent or by as little as 3 percent depending on the feature. The most powerful features tend to be focused on modes of delivery and return.

Consumers increasingly demand sustainable options and are willing to pay a premium for them.

Similar gradations apply to sustainability price premiums. While more than 60 percent of consumers are willing to pay a premium for sustainable products in at least one category, some features justify premiums more than others. Special add-on repair services are powerful, for example. Still, for any feature, most consumers don’t want to pay a premium of more than about 10 percent. Finally, drivers of loyalty vary across product categories. The top two features are free collection of used items (electronics, household appliances, and furniture), and ecofriendly packaging (apparel, accessories, personal care, and beauty).

When it comes to target markets, the most engaged demographics on sustainability are, perhaps unsurprisingly, higher-income and younger cohorts. In the United States, 67 percent of Gen Z and 68 percent of millennials believe it is important or very important for brands to be conscious of their greenhouse gas emissions (GHG), compared with 58 percent and 57 percent of Gen X and baby boomers.

These variables should be reflected in commercial policy. Through close analysis of the features that drive attitudes to purchasing, price elasticity, and loyalty, e-commerce players can tailor their offerings accordingly. Amid a range of potential approaches, we here highlight six strategies to incorporate insights, focusing on the source of 95 percent of marketplace emissions—partners and other third parties (Scope 3) (see sidebar, “What is meant by scopes 1, 2, and 3?”).3

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Establishing an emissions baseline

Before tailoring their propositions, marketplaces need to measure and monitor their emissions, particularly among partners and in their supply chains. This is no easy task: suppliers and partners are often dispersed and subject to a spectrum of legislative, economic, and cultural factors. However, as the regulatory landscape continues to evolve, delay is an increasingly risky option. The Science Based Targets initiative (SBTi), for example, requires companies to set Scope 3 targets if their related emissions represent 40 percent or more of total emissions.4 These targets are required to collectively cover two-thirds or more of total Scope 3 emissions, in accordance with the Greenhouse Gas Protocol Corporate Value Chain Accounting and Reporting Standard.5

To set targets effectively, marketplaces can first establish a CO2-equivalent (e) emissions baseline. The standard approach is to use a methodology in line with the Greenhouse Gas Protocol. This sets out that companies may establish policies for mapping their value chains, which may include creating representative, rather than exhaustive, lists of purchased and sold products, suppliers, and other value chain partners. They may also choose a fixed point in time or elicit an average over a set period.

For e-commerce players to achieve this, the first step would typically be to work out the volumes and emissions intensity of their top-five to top-ten product categories. These numbers can then be scaled up to estimate an overall portfolio footprint. A complete Scope 3 baseline assessment would also consider the emissions from transportation and distribution, direct use, and end-of-life treatment.

Based on our analysis of seven large players, the biggest single source of emissions for marketplaces is purchased goods and services, with a share of total emissions of about 36 percent for cross-vertical players. Among downstream activities, transport and distribution accounts for 22 percent of emissions on average, while the use of sold products and service accounts for 21 percent (Exhibit 2).

The biggest single source of emissions is purchased goods and services.

Tackling Scope 3 emissions by driving green purchases

Given that they sit at the heart of trading ecosystems, marketplaces can have a large impact by encouraging customer demand for green products. Still, few proactively do so. Those that do, do so either through their strategic approaches to sustainable sales or through actions such as setting goals in line with the SBTi. This reflects the scale of the challenge. However, it also means that those able to differentiate can establish a strong narrative that would drive a competitive advantage.

The quantified climate baseline can be used to identify key circularity and decarbonization improvement levers for each product category as well as for the company overall. We here gather six ideas to boost conversion for sustainable products, generate a green premium, and increase customer loyalty. We also estimate commensurate revenue and decarbonization opportunities. Next to these consumer-facing initiatives, marketplaces can use the climate baseline to understand product-level emissions, compare products across suppliers, and focus on listing products that have relatively lower carbon emissions.

1. Introduce sustainable labeling, filtering, and suggestion of sustainable alternatives

Companies can leverage a range of tools to nudge customers into choosing more sustainable options. Effective approaches include green labeling, CO2-e calculators, and green awards. By creating clarity, they can give consumers more confidence in their purchasing decisions. For example, in the used products space, our research shows that the number one feature that boosts likeliness to buy is a significant number of detailed photos of the product attached to the product description.

Effectively implemented, signposting can lead to a 2.8 to 5.2 times emissions reduction compared to actioning only on Scopes 1 and 2 emissions (equivalent to taking as many as 6,200 to 11,300 cars off the road). Among industry leaders, Zalando recently replaced its sustainability flag with more concrete information on sustainability-related attributes of products that are required to be supported by certifications, trademarks, or licensed materials from the selling brands.6 Rakuten offers Vision’R, a sustainability loyalty program under which customers get a 10 percent discount when they buy more than €100 of second-hand products.7

Among sustainability-conscious buyers, sustainability features lead to a 17 percent increase in likeliness to buy. Among sustainability seekers (defined as consumers who consider sustainability “very important”), it is as high as 30 percent.8 Further, the performance impact of increased likeliness to buy, willingness to pay a premium, and higher levels of loyalty can be significant. We estimate that companies could achieve revenue uplifts for relevant portfolios of 8 to 14 percent (Exhibit 3).9

Sustainability initiatives offer a revenue opportunity.

2. Ensure transparency on CO2-e footprints

Platforms can publish the emissions footprints of all of their operations, including those of companies in their supply chains, combining this with gamification, which will enable customers to use their smartphones to see how much CO2 they have saved in their purchases. Our research shows that a strong driver of likeliness to buy is when a product is indicated to be more sustainable than the one searched for. More generally, we estimate the emissions impacts of transparency-focused actions in Scope 3 could be 2.6 to 4.9 times greater than that of initiatives in Scopes 1 and 2 emissions alone. Transparency could catalyze a 5 to 10 percent increase in likeliness to buy, McKinsey research shows, and could boost revenues for the relevant portfolio by 7 to 14 percent.

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3. Use more sustainable packaging

Easily recyclable, reusable, and no-packaging options are key drivers of both likeliness to buy new products and platform loyalty. Indeed, for new products, the option to return delivery packaging for reuse at the time of delivery is the third most powerful driver of likeliness to buy and is a top-ten driver of willingness to pay a premium.10

More broadly, greener packaging initiatives may focus on materials, water-based cushioning, nonplastic fillers, or even folding items in a different way. About 33 percent of customers say that ecofriendly packaging makes them more likely to return to the same store..11 In fact, across all product categories, ecofriendly packaging is a top-three driver of loyalty. However, companies need to consider the limits: only around one-third of consumers are willing to accept a return-packaging requirement to get a more sustainable experience.

We estimate that through these efforts, platforms could achieve a 1.8 to 3.7 times emissions reduction and an 8 to 16 percent revenue impact compared to action on Scopes 1 and 2 emissions only.

4. Implement sustainable delivery

Companies can reduce their carbon footprints by transforming last-mile delivery. This may be through product bundling, micromobility (bikes, e-bikes, and e-scooters), or crowdsourced local storage. We estimate a potential 1.7 to 3.3 times emissions reduction compared to action only on Scopes 1 and 2 emissions (Exhibit 4). There are also significant loyalty benefits. Free collection is decisive for about one in three respondents.

A Scope 3 initiative could catalyze significant footprint reductions.

Companies may also consider partnering with peers on drop-off points, thereby reducing overall mileage. These kinds of initiatives are popular: 51 to 57 percent of consumers are willing to forgo an option for separate delivery and use bundled parcels only to get a more sustainable purchase experience.12 In addition, more than 50 percent are willing to wait three days or more if necessary. The top-line potential of these kinds of initiatives is an 8 to 15 percent revenue impact.

5. Launch tailored marketing and advertising support

By encouraging partners to act, e-commerce providers can create momentum around the sustainability agenda. One relatively simple strategy is to direct consumer eyes to more sustainable options by creating dedicated marketing campaigns that highlight more sustainable choices and green commitments. We estimate the impact could include a 1.7 to 3.3 times increase in CO2 abatement, compared with action on Scopes 1 and 2 alone, and a material 1 percent rise in revenues.

6. Drive reused and refurbished sales

Platforms can proactively expand their preowned, refurbished, and environmentally sustainable offerings. This kind of initiative is exemplified by Amazon Renewed and eBay Refurbished.13 By investing in circular business models, companies can ensure that they both meet consumer expectations and cater to willingness to pay more for sustainable choices. Our research shows that free returns and full refunds are among the drivers of demand for used products. However, simple things such as providing more photos of the products being offered can also make a difference. Some buyers are concerned about personal data and hygiene issues in secondhand markets, so it also makes sense to address these potential disincentives. The feasible excess emissions reduction from Scopes 1 and 2 action alone is 1.9 to 3.6 times, while revenue growth could be 6 to 12 percent.

Companies can ensure sustainable end-of-life treatment for products by providing customers with clear instructions and tools for recycling, for example, through QR codes or product passports. They can also collaborate with partners to ensure the availability of collection and disposal services.

Next steps for decision makers

By selling more green products, leading marketplaces and e-commerce platforms have a significant opportunity to move the dial on Scope 3 emissions. In doing so, they can boost key commercial metrics. And, through their deep ecosystems, they can set standards for partners and industries more broadly. To get there, however, they need to put sturdy building blocks in place. These include focused leadership, strategic commitment, and the organizational capabilities needed to effect change across diverse constituencies. In addition, as a precondition, there needs to be a clear business case for change. As decision makers consider the path forward, we see five actions areas that can support their ambitions.

  • Build a fact base on sustainability. Measure your emissions baseline along the value chain for Scopes 1, 2, and 3, leveraging internal data and industry benchmarks. Continually refine down to product level as more data become available, for example, from partner businesses.
  • Understand your customer base. Gather customer insights and segment customers based on sustainability preferences. Construct sustainability archetypes aligned with your business logic and sustainability positioning. Zalando, for instance, conducted an extensive consumer survey across core countries as well as an ethnographic study to better understand why many consumers struggle to translate their sustainability beliefs into action, and derived recommended measures for themselves and the industry.14
  • Make a case for ‘green’ economics. Identify a long list of possible initiatives and create a portfolio informed by customer insights. Prioritize by impact (in terms of revenues and emissions) and feasibility, considering internal capabilities and ensuring that the initiatives avoid greenwashing by having a real sustainability impact. For example, eBay partnered with an independent research and advisory company in 2022 to improve their sustainability materiality assessment, prioritizing the most impactful initiatives to boost sustainability and business performance.15
  • Make partnerships a priority and build your capabilities. Establish an effective foundation for playing offense and strengthen internal capabilities through hiring or upskilling and acquisitions. Where necessary, enter into partnerships with specialized companies to implement initiatives such as sustainability labels or new re-commerce platforms.
  • Embed sustainability into your ‘business as usual’. Transform your culture, roles, and processes to embed sustainability into your business model. Design an optimal organizational structure and functions for the core team and embed responsible individuals in business units. Adapt corporate governance to enable the new sustainability strategy.

Through these five action areas, companies can accelerate their sustainability efforts and create a virtuous circle of awareness and proactive action. By nudging consumers toward more sustainable behaviors, they can influence their partners to offer more sustainable options in their assortments and product life cycles. In the process, platforms can more effectively tackle the Scope 3 challenge, meet stakeholders’ needs, and maximize their responses to the impacts of a fast-warming planet.

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