As the push for decarbonization continues to gain momentum, industrial leaders are under increasing pressure to reduce greenhouse gas (GHG) emissions and transition to more sustainable practices. This transition requires significant investment in physical assets, estimated to rise from $5.7 trillion to $9.2 trillion, according to McKinsey.🚀
It is crucial for manufacturers to find ways to profit commercially from these decarbonization investments.
So How to Commercially Profit from Decarbonization Investment?
For industrial players, this implies the need to assemble a demand-driven and viable offering. Significant price premiums are inevitable; the question is how to incorporate them into attractive offerings.
It is high time to discard the simplistic notion of applying a price premium exclusively for sustainable solutions over traditional counterparts. Successful examples suggest considering a broader range of possibilities in designing value propositions.
Successful Commercial Strategies Examples ✨
Above all, offerings for sustainable solutions must appeal to B2B buyers, who exhibit multiple variations in their preferences and needs.
Creating an array of attractive options and enabling customers to choose according to their priorities often guarantees success. The strategies employed to accomplish this are diverse and varied.
📊 Here is a selection of seven proven strategies:
1. Affordable Quality through Recycling
Achieving desirable acoustic solutions for traditionally cheaper partition walls, an insulation manufacturer utilizes recycled mattresses.
2. Pollution Surcharge for Polluting Products
By imposing an 18% pollution surcharge Here a leading cement manufacturer incentivizes customers to opt for limestone cement, a much cleaner alternative to traditional GU cement.
3. Guaranteeing Decarbonized Product Quantities
When supply of decarbonized materials falls short of demand, a significant price premium is justified given their availability.
4. Proving Decarbonization 👇🏻
A major steel distributor showcases the level of decarbonization achieved, resulting in price premiums ranging from +3% to +20% based on the proven percentage of decarbonization.
5. Adding a Differentiating Attribute
A prominent cement producer persuades precasters to purchase its limestone cement at the same price as general cement by highlighting its benefits for demolding and surface finishing.
6. Differentiating Innovation
The development of a versatile tire capable of meeting the demands of both electric vehicles (EVs) and traditional vehicles significantly reduces complexity costs for OEMs and fleet operators, leading to a price premiums potential.
7. Generating Tangible Outcomes
A leading specialty chemical company in the water industry assists clients in optimizing product dosage, reducing quantities used, and achieving significant productivity gains. Despite declining volumes, the company’s profits have increased between 10% and 30% annually over recent years, thanks to value sharing with its customers.
Why Decarbonized Offerings May Fail to Take Off in the Market
Reducing decarbonized offerings to being simply more expensive alternatives to traditional solutions often leads to inevitable failure.
Several pitfalls arise, for example:
Sustainability as the sole differentiating factor: For many products, customers transition to sustainable options when additional advantages align with decarbonization.
Lack of a beneficial model for the customer: Sales teams focus on emphasizing the cost premium of the decarbonized version, while customers are interested in reducing their total cost or adding value in the market.
Disincentives for downstream value chain decarbonization: The burden of costs falls solely on the manufacturer without incentives for the downstream value chain players to embrace decarbonization.
Unproven decarbonization gains: Techniques like mass balancing are known and easier to implement, but B2B buyers prefer the assurance of selling products made from low-carbon components. For instance, when OEMs have access to manufacturers that genuinely decarbonize, they can label their products, such as cars, as being made from decarbonized steel.
To conclude on a positive and encouraging note, manufacturers who approach decarbonization correctly secure funding for product development and achieve positive substitution in favor of truly sustainable solutions.
However, financing the business case remains a challenge.
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