Ep. 26: Driving Traffic, Sales and Unit Economics with Amazon’s Climate and Sustainability Programs

Relive a recent talk from Firstmovr’s JBPx Amazon eCommerce Growth Summit. The session was focused on two Amazon climate and sustainability initiatives for vendors and sellers: the Climate Pledge Friendly badge and Compact by Design. The session covers the programs’ commercial benefits, guidance on how to qualify, and more.

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Keith Anderson: Welcome to Decarbonizing Commerce, where we explore what’s new, interesting, and actionable at the intersection of climate innovation and commerce. I’m your host, Keith Anderson, and together we’ll meet entrepreneurs and innovators reinventing retail, e-commerce, and consumer products through the lenses of low carbon and commercial viability. 

Welcome to the Decarbonizing Commerce Podcast. I’m Keith Anderson. This week, I’ve got something a little bit different for you. Instead of interviewing someone, I’ll be sharing a recording of a presentation I gave last week as part of a Firstmovr virtual summit on Amazon. Firstmovr are old friends of mine and focused on omni channel education and change management for CPG companies.

My presentation was focused on two Amazon climate and sustainability initiatives, the Climate Pledge Friendly badge and Compact by Design. So, if you’re an Amazon seller or vendor and want to understand how participating in these programs can help you drive traffic to your products, increase conversion rates and sales, and improve unit economics,

it’s worth a listen, or if you’re just curious about some of the commercial and logistical considerations of these two really important Amazon initiatives, I think you’ll find this week’s episode interesting. We do have some great guests scheduled for the coming weeks. So if you’re interested in learning from others, you’ll continue meeting some of the innovators in the industry.

But I’m really happy to share this presentation on Winning with Amazon on Climate Pledge Friendly and Compact by Design.

Chris Perry: So as we transition to our second session of the day, I’m very excited to bring Keith Anderson, who again is not a stranger to the stage at all, and has been probably the Wizard of Oz behind many strategies and frameworks from his early days at Planet Retail RNG or RetailNet Group before that, Profitero in many recent years, and then founded an awesome company focused on sustainability, which is, without even just e-commerce being the area of focus, is such an important topic, A, because whether you’re a tree hugger or not, is the right thing to do for, for, for the consumer, for the earth knowing Earth Day obviously was yesterday, you know, what, what a, what a appropriate, you know, kickoff you know, event to, to focus in on this, but really excited about his, his organization, Decarbonizing Commerce, as he focuses on an area that maybe few people are really focused on and talking about and, and, and structuring around, but one that impacts all of us, our innovation pipelines, our promotion, our content, our go to market strategies, our partnerships. And so, through the lens of Amazon sustainability initiatives, very excited to have him talk to us about how we can build our businesses and grow.

You know, Grow our, our, a sustainable business financially with sustainability initiatives. So, Keith, thank you so much for joining us today. I’m going to pass the baton to you and let you take it away, good sir.

Keith Anderson: I really appreciate the introduction. I’m going to need to bring you as my hype man everywhere I go from now on. 

Chris Perry: I am available for weddings, and bar mitzvahs, and birthdays, and you name it, so. 

Keith Anderson: And I’m very grateful to you, Oscar, and Amanda for inviting me to participate today.

As you say, Earth Day was yesterday, but that’s not why we’re covering this topic. You know, there, there are commercial benefits to participating in some of the programs that we’re going to cover today, where it makes sense. Some of these claims come directly from Amazon. So, you know, take those with whatever skepticism you will.

But Amazon itself says in 2023, products that had the Climate Pledge Friendly badge saw an average 10 percent lift in product page views. And as somebody who had done pretty rigorous analysis in my past lives of the value of badges like Amazon’s Choice and Best Seller, I had assumed there was some kind of a commercial upside to some of these emerging credentials that Amazon is displaying across the shopper’s journey.

But I didn’t really have a way to quantify it. And very helpfully, John Shea and the team at Momentum Commerce just a few weeks ago did their own independent analysis and they found an average 8.4 percent sales lift. Secondly, you know, on the conversion side, and I, I guess sales falls on the conversion side too, but Amazon reports that more than customers have switched more than 60 million times from products that are not badged to products that are badged as Climate Pledge Friendly.

That’s as of the end of last year. And then the other program that we’re going to spend a few minutes on, the compact by design program. As you’ll hear it will make you eligible for Climate Pledge Friendly, but it also, just by its nature, can improve unit economics by lowering costs for things like material, packaging materials, storage, fulfillment.

So, I, I’m very grateful to Chris for the great introduction. My, my history is all in the industry and, and about two thirds of it was in industry analysis and advisory usually focused on emerging capabilities and forces that were changing the business of retailing and CPG. And when I left my last company, I did some research and diligence and saw one of the forces, in addition to things like retail media and AI, that is really high velocity and increasingly transformational to retail and CPG business models is what’s happening in climate and sustainability, and I love the phrase sustainable growth in that last session.

I, I know this isn’t the way that it was used, but the way we look at it, and I think increasingly the way the industry looks at it is you know, number one, some of the effects of what’s happening are happening regardless of how we feel about it. It’s not something you can managed fully, it just is.

And so there’s as much energy increasingly going into adapting supply chains in the business to be more resilient. But secondly, none of what we do is going to have an impact or be viable long term if it’s not economically and commercially viable. And so we really focus on what we call commercial sustainability, which to Chris’s point is where some of the you know, climate or sustainability initiatives intersect with conventional roles and the work of portfolio strategy and packaging and branding, sales, marketing, and so on.

And some of the most fruitful innovation and initiatives and ways to engage retailers like Amazon are in that area. You know, contextually, part of the reason that I started doing this and we’ll only spend a minute or two on this, but I think it’s important for everybody to be aware of what’s happening.

There are what are called science based targets that are being set at an accelerating pace by big retailers and grocers and CPGs globally. And the targets alone don’t count for much but, you know, there are companies like Mars as one example that are deploying a billion dollars over the next three years to accelerate these plans.

So it’s hard to argue that it isn’t beginning to impact the industry. And emissions are divided into scopes and scopes one and two cover basically your own emissions, what comes out of your own smokestacks and whatever you source indirectly in terms of energy. But as you can see that whether you’re a retailer or a brand represents

a fraction of your total value chain emissions and typically 85 or 90 percent of what a company is emitting happens upstream, which for a retailer like Amazon means they’re direct own label suppliers and they’re vendors, and to a CPG means ingredients and materials and other service providers. And generally speaking in the industry, there is growing focus on where most of the emissions lie, which is scope three.

And what that means to all of us is, you know, sustainability and climate are not new things. The industry has been working on them for decades. Walmart famously has project Gigaton, which, you know, they, they succeeded through collaborating with their suppliers in reducing or preventing one gigaton of emissions six years ahead of schedule.

So it’s not a new thing, but what is a growing focus is this cross industry value chain coordination and collaboration. And what that means is a lot of the investment and activity is shifting from backstage to onstage. And what I mean is, you know, the, the low hanging fruit that the sustainability teams have been working on behind the scenes over the last decade or so was often happening in the production and storage facilities.

Increasingly, it includes that, but is impacting things like M&A strategy. If you’re an emerging CPG brand that wants to get acquired by one of the majors, part of that due diligence process is going to be looking at your climate footprint. Some of the retailers are starting to look at climate footprint at both a corporate and product level in their supplier engagement and assortment strategy.

They’re asking for new data. So I’m not going to cover all of these, but what’s important to take out of it is it’s increasingly encroaching on the work that we do in almost any… And it’s increasingly influential to commercial outcomes and ways of working with retailers. So I, I think everybody has probably seen just exploring Amazon site and mobile app.

They are nudging shoppers across the path to purchase with options like lower carbon delivery, you know, that is in most cases, not even a choice. It’s just a indication Amazon is presenting to shoppers to let you know this item is in a nearby fulfillment center. And so if you buy this one instead of others, it will, it will be lower emission given the shorter distance traveled.

Climate Pledge Friendly, you’re going to hear a lot about that, so stay tuned. And then you know, fewer boxes, fewer trips, that sort of correlates with the Amazon Day, which is an opportunity to accept, if you can believe it, lower velocity delivery and consolidate shipments into a single delivery with fewer boxes and fewer trips, which saves on both packaging and material costs and on fuel.

So this is just an indication that this is becoming an increasingly visible part of how Amazon is. Presenting products to the shopper at different stages of the experience. And, you know, there are roughly seven big vendor facing programs that have some climate or sustainability role to them.

The, the two broad based ones that we’re going to focus on for the next few minutes are Compact by Design and Climate Pledge Friendly. But, I’m sure all of you are familiar with ships and product packaging, the evolution of ships and own container, frustration free packaging. A few of the programs that may be lesser known, but I wanted to make you aware of them in case they’re relevant.

You know, in, in Europe, they have a launch pad accelerator for sustainability focused CPG brands and tech companies. And then, for really small and medium enterprises, especially on the seller side, they launched a climate hub that’s basically a version of some of this stuff, just oriented to smaller businesses.

And finally, if you’re in categories where it makes sense, things like electronics, but also outdoor goods and clothing and, and a few other categories. They’re pre-owned certification and pre-owned resale business is turning into a pretty scalable business in Europe alone, it’s, it was more than a billion dollars in ’23.

So, if that’s relevant, check it out. And, you know, what we did when we were researching and analyzing these different programs was we surveyed, I think it was, 25 Amazon teams, and particularly those that had some experience participating in these programs or had done diligence and decided not to do them, and we looked at them through essentially three lenses, you know, effort as the input and then commercial outcomes and climate or sustainability outcomes as the output.

And that basically led us to the top two here that we’re highlighting and going to unpack for you today. Because, you know, I think that’s not to say that in a different context, any of these may not be a better choice. So your mileage may vary, but this is how we arrived at a focus on these two.

Now, I’ll give you a second or two just to memorize this equation. I’m just kidding. Every time I see it, I sort of think to myself, boy it’s actually not as complex as it looks, but this is the compact by design equation. And I’m not going to ask you to study this too carefully here because we’re going to unpack it.

But in essence, what Amazon is doing with compact by design, is encouraging and incentivizing you to reduce the weight and volume of your product and to increase what they call unit efficiency, which, you know, is, is something that’s standardized in each category to something, as it says here, like, loads for laundry detergents. And the idea is to increase the number of units in a lighter and smaller pack configuration on the site.

So it, it, it, to take a step back, this is a certification that Amazon will grant products in the US and a handful of other eligible markets, including the UK and Canada for products that through that formula that we just displayed, pass their category by category threshold. So they’ve got unit efficiency thresholds for each category.

That’s a moving target that’s available on Amazon’s site. But, you know, the idea is to be more unit efficient than that threshold for your category. And then once you qualify essentially two things have happened. One, you’ve almost certainly reduced your packaging and material costs, the weight and so as we say, your unit economics on the cost side are almost guaranteed to improve if you take a product that is ineligible and make minor tweaks to make it eligible, but the second real benefit here is Compact by Design automatically qualifies you for the Climate Pledge Friendly Program.

And so it’s sort of a way to feed two birds with one handful. If you are in a category or within your portfolio have products that are high potential here, this is where we would encourage you to start. And so just to unpack briefly what these three levers are. You know, volume is pretty straightforward.

You know, it’s, it’s dimensional volume. So, you know, height and width and length. And anything you can do to reduce the size of the product and its packaging, and in particular, to increase what’s called the product to package ratio. That is, you know, you want the product itself to fit as cleanly within the package as possible.

That’s going to help you on that front. Weight, anything you can do in both the product or the package to reduce weight. On the product side, things like concentration or dilutable products in some categories like cleaning and personal care in particular are an increasingly common way to go at this, but you’ve seen it in beverage categories with hydration and others.

You know, if you’re in a product category where it’s feasible without sacrifices in effectiveness, taste, other important considerations to especially avoid shipping unnecessary water or air around the country. You’re going to have a higher chance of qualifying. Secondly, you know, packaging there, there’s all kinds of complexity and I bet most companies have packaging teams that can help you navigate this.

But generally speaking, if a material like glass is the preferred material for packaging in a brick and mortar environment, it may not be in this context because of the weight. There’s a great image that I’m going to add to a future version of this deck from a European, I think, gin brand that just updated its packaging from a glass bottle to new aluminum bottles.

And the picture speaks a thousand words because all they posted this morning was a scale that on the one side has the previous glass package and on the other side of the scale are six of the new aluminum packages. So, again, it’s a nuanced decision to make, and this is just one lens through which you might look at what the right packaging is.

But if you’re trying to qualify for this program, you want to look at lighter weight packaging materials, which may be plastic, aluminum, or paper. And then finally, units per pack. We’ll talk about ways to do this, but this is closely correlated with concentration but it can also be about just improving the excuse me, increasing the unit density of a given pack configuration.

So, here are a couple examples you know, I’ll share some that Amazon shares, and then a couple that we identified, but, you know, products that are in irregularly shaped packages, which, you know, consequently can’t be as tightly packed into the Amazon boxes. And secondly, that our liquid, you know, in addition to all the issues with leakage and potential shrink, they’re heavier.

So you know, in a category like personal care, Amazon, and we would highlight BAR as an example of a product form and correlated packaging that are, that are likelier to qualify. And then the second example, I think really illustrates that product to packaging ratio concept. And this is one where particularly as you are growing your Amazon business, and, and by the way, I don’t think it’s realistic and, and nor is it necessary to go focus on endeavoring to be eligible across your entire portfolio for the programs we’re discussing here. I think it’s, it’s a better approach to identify some high velocity items that do material volume on Amazon and that have some of the preconditions that make it commercially viable to go update it. But one of, one of the considerations that more and more of the brands that we speak with and work with are acknowledging is a lot of the packaging that is necessary for a product to pop at physical retail, as the frustration free packaging concept sort of pioneered, isn’t necessarily helpful at the digital shelf.

And so, you know, if, as in this example of the Clorox bleach toilet tablets, You know, the product itself, those two tablets, only occupy roughly half of the packaging for the retail version of the product. And so, if you have a commercially viable pathway to an e-commerce pack that, that uses all of the rich imagery and the digital shelf canvas to you know, pop up at the digital shelf, you can potentially increase the product to package ratio and reduce some of that retail-ready packaging for this context. And, you know, increasingly, there are other ways to sell at the shelf. And so, some companies in certain contexts are trying to solve for both channels at the same time. That’s the Compact by Design program.

And as we say, if you qualify for Compact by Design you are automatically gonna receive the Climate Pledge Friendly badge, which, as you saw earlier in the discussion, it’s now presented on search result pages as a sustainability feature, but if your product has any of these sustainability features, you’ll get a little green leaf next to your product in search results.

And then on the detail page itself, it’s displayed as, as you see here. And again, we don’t know category by category what the impacts are, but on average, I think it’s realistic to say you are likely to see a material increase in traffic and sales if you become eligible for these products or for these designations.

The Compact by Design certification is just one of dozens of certifications that you can use, however, to become eligible for the Climate Pledge Friendly badge. So, if you… here are some of the examples. You know, you’ll see it. They’ve got, I think, 16 discrete pathways to these products, including a sub shop, which I am guessing is not very heavily trafficked, but for shoppers that are so motivated, they can see all of the Climate Pledge Friendly products consolidated in one place, and then, as you can see across search result pages in the faceted search filtering.

And on detail pages, you’ll increasingly see the badge and iconography. Denoting products that participate. So as I was saying, compact by design is just one of dozens of certifications that you can use to qualify. The complexity of these is pretty significant. And so part of the reason that compact by design is one that makes sense is it, it naturally aligns your pack configuration with some of Amazon’s preferences and some of the nuance of their fulfillment and logistics model.

And so it’s not going to be the right choice in all cases, but it’s worth considering as a first line of defense. But from there, you know, you can actually click, you’ll get the slides after the session. If you click the word here, it’ll take you to the page where you can see all of the current certifications that will make you eligible and the complexity here is some of these take eight to 10 weeks for you to qualify.

Some of them take six to 12 months. Some of them carry a considerable fee because somebody wants, somebody needs to come audit your production facilities. And sometimes those audits can be pretty disruptive, you know, actually shutting down the production process for a day or more. So it’s important, depending on your category and your starting point and your overall objective to pick the path of least resistance.

These, any of these will qualify you, but they’re not all equal. And so, you know, start with the one that Amazon developed for its own business, and then look for options that are a little more efficient. As we say, you know, this certification landscape is crowded and confusing. If, if you’re looking for help, we’ve partnered with the private label suppliers that helped Amazon develop its Amazon Aware own label, which is Amazon’s attempt to raise the bar for sustainability in several categories, including health and personal care.

And as, as part of that role that they’ve played, they’ve developed a very nuanced understanding of all of the certifications that Amazon accepts and have great guidance for where to focus. And on the compact by design front, unit efficiency can be a little confusing and complicated to calculate, and then identify the underlying drivers.

They’ve got a calculator that is really straightforward. So you input some of your product’s characteristics. It identifies whether you’re eligible or not and streamlines an economical path to eligibility. And then finally obviously getting some of these credentials on the site is a big part of getting credit with the shopper.

But it’s an increasingly complicated landscape to communicate and, and get credit for what you’re doing in these areas and embedding it in product imagery and detail page copy. And so that’s an area that we can help with if you are looking for it. So just to close things out, and then maybe we’ll have a minute or two for Q& A, you know, if, if you’re looking to engage with this, like I say, there’s so much upside with Amazon and so many areas to focus, this doesn’t need to be your overarching focus, but I would start paying attention and doing something here because this year Amazon is requiring its private label vendors to set targets and start reporting.

I, I expect within three years, maybe sooner, they’ll be doing that for all of their major vendors. And this is one of the areas that is easy enough to get started with, with provable enough commercial upside that it makes sense to start here. Skip over the SME Climate Hub if you’re not a small and medium enterprise.

Programs like Frustration Free and Chips and Product Packaging we didn’t cover because they make sense in a limited number of cases, although ships and product packaging is a huge focus. And in Europe, Amazon is essentially mandating it. Compact by Design. It does bring complexity, particularly if you are considering making changes to product form or have to adapt packaging you know, in ways that are going to require shifts in the status quo, but many of these decisions can be made pretty quickly and easily. That’s it for my end. You know, if you want to keep up with the work that we’re doing and, and what’s happening across the industry with different retailer programs and investment and innovation in the space, visit our website.

We’ve got a newsletter that hits every Monday, and you’ll hear soon, we’re hosting a conference in September where we hope to bring together, again, not just the sustainability experts and practitioners, but those of us that have decision rights and budgets and whose work is going to be informed and impacted by a lot of the work that the retailers and others are doing.

So that’s it for me. Chris, I don’t know if we’ve got time for questions. 

Amanda Wolff: Keith, thank you so much. This is Amanda. Really, really great session. Love hearing your content as usual, but especially on this topic. And to your point, so close to Earth Day, it might be timely, but it should be a part of our conversation every day.

So, thanks again for this session. I did have a quick question for you, and I’m wondering if you could elaborate with our audience a little bit. We have audience members on this call who may be in earlier level roles in an organization. They may be more advanced and have more influence in an organization, but can you talk to them in particular about how you can influence internally and what you would do if you were in their shoes to help kind of get some of the larger organizations that are out there to move forward in some of these initiatives that, while Amazon might be pushing, they can be difficult to make that kind of change, especially in a big CPG. 

Keith Anderson: Totally. A couple of quick thoughts. One, I think most companies, especially the big CPGs have sustainability teams. And I’ve, I’ve seen you know, varying levels of isolation and siloing versus you know, cross functional collaboration and embedding it as a competency across functions.

But, I would say on average, it skews towards silos. And so, if you’re trying to influence the organization, one starting point is to go walk the halls and set up coffee with the sustainability practitioners. Because, my observation as I’ve dug into how companies are organized, many of the companies that have these teams, don’t have enough people to focus on activity at this level. They’re doing great things. A lot of it relates to you know, more macro initiatives, but because this is increasingly on the minds of consumers, because the retailers are asking for more, if you go connect with them and share some of what the retailer is asking you for, maybe what some of your consumer and marketplace knowledge team has, has surfaced in terms of consumer demand and behavior, you can align what you’re trying to do commercially with what the sustainability team is trying to do.

They won’t always come to you. In fact, they often won’t. Because they’re oversubscribed, but if you go to them with a relatively focused ask, they’re in a position with your framing of the problem to help you. I think the other, the other thing that I see becoming really important in this area is that focus on commercial viability. That is, identify peers that can help you find the strategies, tactics, capabilities that will help you sell more or waste less and reduce costs as you’re reducing emissions, eliminating waste.

And I, I think conventional wisdom sort of suggests in most cases, this stuff is going to be more expensive, cost prohibitive, it won’t pay out. And I think in a lot of cases that’s true. But there are so many things that you can do that aren’t already being done to sell more and waste less, that just finding those and advocating for those would keep most companies teams busy for the next two or three years.

And in the backdrop, the whole industry will be working to change the economics of some of the more capital intensive, more dilutive things that still have to happen, but there’s a ton of low hanging fruit. Just eliminating unnecessary packaging, reduce the, reducing the distance things have to travel and otherwise increasing efficiency or aligning with consumer demand.

So, that’s how I would approach it. 

Amanda Wolff: Thank you so much, Keith. I really appreciate it. 

Keith Anderson: Thanks for listening. I’m Keith Anderson, the executive producer and host of Decarbonizing Commerce. Sonic Futures handles audio, music, and video production. If you enjoyed the show, we’d really appreciate it if you took a moment to subscribe and leave a review or share it with a colleague. For the full episode and more member exclusive insight and analysis, join the decarbonizing commerce community at decarbonize.co. Thanks for listening and we’ll see you on the next episode of decarbonizing commerce.

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