Want to Change Customer Behavior? Try Changing Your Business Model

14 Apr 2014Lindsay Clinton

Philadelphia increased its residential recycling by nearly 20,000 tons after partnering with Recyclebank. Flickr image by Bob Snyder

Imagine if you got rewarded every time you rode your bike instead of driving, or if you received a tangible benefit whenever you made a greener choice. Would this change how you go about your day? And could that change be a stimulus to speed up advances in global sustainability?

Convincing consumers to change their behavior is a significant component of the sustainability agenda. But for the most part, these efforts have been based in apps and campaigns, such as Alcoa’s Aluminate can recycling app or Bank of America’s Keep the Change savings program. By comparison, business models designed to stimulate sustainable behavior change are a relatively new – and largely unproven – concept.

However, given the growth of smart technology and social media, expect to see behavior-change-focused business models in the future. If these models can generate profit and scale, they could help drive an economy decoupled from resource use.

One company trying to do just that is New York City-based Recyclebank. Its business model, refined over the last decade, connects behavior change to tangible benefits. The company rewards people for taking greener actions, like walking rather than driving, with points that they can use to make purchases at local and national retailers.

A key part of the Recyclebank model is its revenue-generating partnerships across the US and UK. To help promote behavior change, it works with companies that want to engage “eco-curious” consumers and cities that want to, say, increase recycling or encourage their residents to walk or bike.

Over the last several years, Recyclebank has worked with Philadelphia to give residents incentives to recycle more. Here’s how it works: residents receive a recycling bin with a unique bar code. When city trucks pick up the bins, they calculate the weight of the materials inside and credit participants with reward points that can be used at local and national stores.

As a result of the partnership, Philadelphia has increased its residential recycling by nearly 20,000 tons. Its curbside recycling diversion rate went up 4% between 2010 and 2013.

This behavior changing model, used by just a handful of companies, is one of the emerging innovations identified in a new report by SustainAbility that I co-wrote and launched last month. Model Behavior: 20 Business Model Innovations for Sustainability reviews more than 80 companies that demonstrate business model innovations.

At their core, behavior change business models aim to reduce consumption, change purchasing patterns or modify daily habits. In the process, they empower consumers with knowledge about their consumption, helping them track product or service use. To increase engagement, they frequently employ game dynamics that create competition between customers.

As consumers become more interested in reducing their energy bills, these models are gaining traction in the energy industry. Opower is one of several software companies that partners with utility providers across the US to promote efficiency among energy users. The focus of the company, which went public with a $110m initial public offering on the NYSE last week, is two-fold: on the utility side, it helps companies capture and analyze large datasets to create business value; on the consumer side, it offers various platforms for engagement. In the process, Opower makes it easier for customers to understand their energy bills and encourages them to conserve energy, save money and reduce their carbon emissions.

Opower’s business model is tied to the amount of behavior change that it drives. By empowering consumers with knowledge about their energy consumption, and by leveraging proven behavior changing techniques, the company is transforming how people think about their energy use and driving further engagement between consumers and utilities.

As Opower demonstrates, in behavior change business models, the nature of the transaction between consumer and company becomes nuanced: it is less about selling ever more goods or services than it is about building brand trust and engagement. Companies employing this model aim to increase “stickiness” with customers, building brand loyalty.

The fundamental challenge for behavior change business models is to find a way to drive revenue growth while encouraging decreased consumption. The apparel brand Patagonia has experimented with behavior change marketing in recent years by encouraging consumers to buy less and repair more. However, because Patagonia is privately held, it’s unclear if the company’s bet has resulted in greater revenues or greater loyalty.

In the case of Recyclebank, there have been questions about the effectiveness of its efforts to increase recycling at the city level. Some municipalities, including Ann Arbor and Cincinnati, have chosen to end their partnerships with the company and pursue other reward methods.

For now, many companies and organizations are experimenting with apps and information transparency, rather than business models, to nudge consumers toward behavior change. Nike’s FuelBand engages customers by helping them set and track fitness goals. GoodGuide provides customers with more information on greener products. Bedsider, designed by Ideo for the non-profit National Campaign to Prevent Teen and Unplanned Pregnancy, functions as a birth control support system to help prevent unplanned pregnancies.

Hopefully, we will see companies move beyond experimentation as they find scalable ways to simultaneously reduce consumption, change behavior and earn a profit. It seems Google might be setting the stage for such a move: earlier this year, it announced plans to buy Nest, a manufacturer of smart thermostats and other internet-connected devices, for $3.2bn. Nest’s thermostats enable customers to monitor their energy use remotely. More importantly, the thermostats invite customers to engage more deeply about energy use throughout the home. Google’s purchase has been touted as a big data play, but perhaps it’s also an indicator that the rise of new behavior change business models is closer than we think.

This article was originally published in Guardian Sustainable Business and is the third in a series of posts by Lindsay Clinton about business model innovations that accelerate social and environmental impact.

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