The clash of certification: mainstreaming sustainability through product labeling is ripe for disruption

I’ve been critical on this blog on certification as a means to mainstream sustainability in production systems. And I can’t help myself: there are just so many naive and downright idealistic assumptions driving the uptake of certification at the moment, that it has lost much of its’ business sense. In this post I will show how the system of certification as we know it is ripe for disruption, and I will end with some alternatives from which I can see that they are working on upending the system of certificaiton as we know it.

Let me start off by running through the checklist of what product certification is at the moment and what the main assumptions on market mainstreaming are:

  1. Certification is a means for producers and product brands alike to verify claims they make of their product being responsibly produced. Third party auditing is used to independently verify the claims
  2. Certification is the mark you stick on the producer, the corresponding label is stuck on the product that comes from that producer. The consumer perceives the label, not the certificate
  3. The metrics behind certification are credible. They are mostly backed by scientific research. Scientific backing is more rigorous regarding environmental impact, because environmental metrics are more readily amenable to measurement than complex and fuzzy social processes
  4. There is a jungle of product labels out there, claiming to represent sustainably produced products. Each has its own focal interest, expressed through the issues which are incorporated in the label (like biodiversity, water use, carbon emissions, etc). Also, each has its own approach to raising the quality level of production in the market (some labeling schemes promote gradual progress on indicators like The Better Cotton Initiative, some set the bar high in an all or nothing approach like Organic certification)
  5. There are two methods currently applied to convincing producers to stick to sustainability standards. One is by sheer market power, by making standards a prerequisite for supplying. Competing firms downstream collude and impose a standard on the supplying market. The other is through what is called market development: you align big companies on a voluntary basis to voice demand for a certain voluntary sustainability scheme, and then on the other side of the market sponsor as many producers as you can to adopt the certificate, praying that this will be sufficient to reach a systems tipping point where everything is responsibly produced.

Now all these points above are variables to an equation, and that equation must solve the puzzle of mainstreaming sustainability. But the number of combinations and permutations an entrepreneur can make amongst these variables for organizing a sustainability mainstreaming trajectory are mind boggling, and downright confusing. As if running a business wasn’t hard enough in itself, now the entrepreneur needs to find some kind of meaningful balance between these variables to show to customers that a product is responsibly produced.

What sustainability message does this product communicate? Why do you need three labels? And why these three labels and not some other label?

Certification’s disruption ripeness
In view of this over complex problem, I propose that the main problem or barrier even to obtain any meaningful perspecitve on mainstreaming sustainability, is that certification has currently lost its focus on the job it needs to be doing. In its innovation trajectory so far, certification has been on the pathway of what Harvard professor Clay Christensen calls sustained innovation. Certification has been continuously extending its’ offer to the market by adding on new features like measurement methods, issues coverage, ways of obtaining and combining certificates, and levels of metrics applied.  We are even moving into a sphere of standardization in comparisson between certification schemes, where product life cycle methodologies are defined and actual products are metered on sustainability impact. This is most notably done at large scale through the work of the WalMart driven initiative called The Sustainabily Consortium. But, despite all the valiant intents and purposes, this road on sustained innovation has led the certification framework astray form the 2  main jobs it needs to be doing, namely to:

  1. help brands clearly communicate to customers that their products are responsibly produced
  2. help producers to compile new value propositions to their buyers, which can potentially command a premium in the market.

Certification as it currently is, does neither. In their competition amongst each other for consumer recognition and attention, product labeling organizations are at the same time competing with brand identity. I even heard Unilever’s CEO Paul Polman slip out during a seminar organized by the Guardian, that there is at some level a conflict between brands and certification, because there is a limit to what certification can communicate on sustainability and what the brand can communicate itself. This is particularly so for smaller and medium sized enterprises, who because of their size, operate on the basis of more close relations with their suppliers and buyers. They therefore know more about what needs to be done to achieve sustainability in their business system, than any certification scheme could possibly par.

As for producers, the value proposition of certification is very blurry and highly circumstantial. There are many opaque projections on the value of certification as for instance the one compiled by KPMG on certification in cocoa production in Ghana.

What will arise from the disruption rubble?
Of course the question is then what the alternatives would be that could disrupt the industry of certification. I see two trends that will achieve this, the first is simplicity of the mechanisms of certification. The second is refined market-based mechanisms that create a basis of consumer market adoption of sustainably produced products.

Regarding simplicity, the trend is best conveyed through pole and line fishing certification. This is a very concise way to communicate that fisherman are not depleting the ocean’s fauna with industrial fishing trawlers that scoop every living thing out of the ocean. The pole and line fishing certificate parsiminously communicates about the the probem and the purpose of the certificate, namely to counter over fishing by huge trawlers with individual fisherman holding poles with lines on them, lifting out their catch, one by one. This is easy for the consumer to understand, easy for the fishermen to adopt and (importantly) easy to inspect for the auditing agency. It is contrary to the more complex certificates, like organic, where a recent New York Times article explains that organic certification does not tell anything about conduct of the producer regarding sustainability.

Any questions on this product?

The point of consumer market adoption of a sustainability brings me to the Tip4Change venture, which I’m advising at the moment in seed phase. Tip4Change is a venture that does not impose a single standard on producers. Rather “Tip” attempts to create a market for the most responsible product, between consumers of sustainabe products and the producers behind the product. The idea is that consumers can reward what is in their opinion the best and most clear sustainability proposition by tipping the producers’ initiative (eg. community development programs, wildlife conservation, etc) at the till. This market intends to provide a clear selection mechanism for determining the stronger from the weaker sustainability propositions. At the same time producers can learn from the best initiatives, and take their shot a trumping the leaders. Brands can also leverage this, by actively profiling themselves with those producers whom they consider to be sailing the sustainability flagship.

In all, Tip4Change could provide a more simple, transparent, and less costly alternative to certification as we know it, with market uptake as a clear indicator of what works and what doesn’t. The “Tip” system intends to reveal those standards that are right at the level of what consumers can grasp regarding sustainable consumption. And “Tip” is not the only venture out there which is working on possible business models that can bind producers and consumers in this way; it has a couple of competitors! All an indication that certification’s disruption process is currently taking place.

So, what are the take-away points of this lengthy post on disruption of certification:
– certification as it is, is ready for disruption, because it is not doing the job that needs to be doing in mainstreaming sustainability, namely 1) communicating product responsibility and 2) providing producers with an option to substantiate their value proposition
– There are two driving factors that will create this disruption; 1) The market demands simplicity in the logic behind a sustainable product 2) Producers will be more supportive of and creative with a sustainability mainstreaming initiative which allows them to create and capture more value, opening up the window for mainstreaming

Panera Bread’s “pay what you can” business model

Guess what! Entrepreneur offers a free lunch and still keeps afloat: true story. The US breakfast and lunch diner chain Panera Bread started with an experiment in 2010, called Panera Cares, which let’s customers determine themselves what they pay for the meal they choose. The idea is charitable by nature, aimed at helping US families that are struggling to piece together their daily bread. People who can pay a little more are requested to leave some extra cash to support people who are short some.

The program currently runs in 3 full-concept dedicated restaurants, serving about 3500 people a week. The results so far are very surprising: 60%  of the customers pay the amount the cashier suggest them to pay, 20% pay more, and the remaining 20% pay significantly less. Each store has been earning its keep so far, covering its’ own expenses.

Panera’s CEO Ron Schaich took charge in developing the concept himself, working in store to understand the model, and contributing to development of a working prototype. (He talks more on the development of business model in the video below) In working out the business model, the following hypotheses were taken to the test for validation:

  1. Dignity to the people who cannot pay for their meal will be the key driver to the success of the concept. Stores should therefore have no cash registers, to provide the required atmosphere of dignity
  2. The concept will thrive if it is community driven; people from the same neighbourhood supporting each other. Stores are therefore best located in economically diverse neighborhoods, where one group can directly support another.
  3. It is confusing for customers to walk into a store without prices. Therefore communication on the concept should be made as clear as possible to customers.

This is a very interesting case, not because of the potential this business model might have for Panera Bread itself, because it doesn’t. Panera Bread is a $3 billion a year publicly listed company with 1600 restaurants and 7 million guests each week. The “pay what you can” model just simply is not the revenue driver that will satisfy its’ shareholders (all the more recognition to Schaich for standing his ground in providing the space for this business model innovation).

Rather, this is an interesting case, because it tells of a corporation that looked at its’ own core, and came up with a business model prototype of how it could leverage that core to come up with a higher impact alternative to the 150 million dollars a year is was spending on gifts and donations to a mix of charities before. And, what it has come up with is a highly innovative revenue stream, which other organizations can use too, namely a stream that fuses consumption and charity.

Imagine what more you could do with this. Perhaps you could pivot the model and try it out in customer communities which are less economically divers (at the Bottom of the Pyramid) and see how it works out there. Or, more radically, you could try it out on virtual communities through the web, overcoming geographical restrictions between rich and poor. There’s no telling what might happen there, you might upend international aid as we currently know it! Me and the guys working at TiP4Change really got a kick out of this case, that’s for sure!

(PS. This is sure to be overkill for regular readers, but TiP is currently contending for spot at the Unreasonable Institute startup mentoring program and could use a boost. Click to Launch!)


Post publication edit:

A recent study describes a case study of a Pakistani restaurant in Vienna, where the same Panera business model principles have been applied. The Harvard Business Review quote of the study mentions:

Only 0.5% of patrons take advantage of the opportunity to eat for free at the pay-what-you-want Wiener Deewan self-service Pakistani restaurant in Vienna, say Gerhard Riener of the University of Jena and Christian Traxler of the University of Marburg, both in Germany. Over the course of two years, customer payments stabilized at an average of 5 euros, well above the restaurant’s costs, while the number of daily guests increased by more than 50%, boosting revenue. The restaurant also benefits from fixed prices for drinks.