Cluster: Consumer needs and behaviour

According to the assessment framework proposed in Section 4.2.2, the following effects arising from E-commerce within the Consumer needs and behaviour cluster are identified:

 sharing models and services (opportunity) ;

 nudging (opportunity);

 ease of shopping (threat);

 personalised design (threat);

 cross-selling and up-selling (threat); and

 shopping frenzy (threat).

The following two sections describe which main effects arise from E-commerce today (4.3.3.1) and what effects may be expected under future scenarios (4.3.3.2). The last section (4.3.3.3) summarises the main findings and puts them into context.

Due to the wide project scope and data availability constraints as well as inherent limitations, all effects of this cluster are described in a qualitative manner only, stating trends and expected developments based on available research. Hence, representative indicators within this cluster depend on the respective opportunity or threat being qualitatively assessed. An overview of the cluster assessment is given below.

Table 16: Overview of direct and indirect effects of E-commerce within the cluster “Consumer needs and behaviour”

Consumer needs and behaviour

With regards to the project scope, the following assessment investigates the positive and negative impact from Consumer needs and behaviour on the Circular Economy. This is carried out by following a lead question: Does this effect promote eco-conscious behaviour? (compare Table 17). Consequently, any development that leads to increased consumption of products and resources is considered a threat, while decisions that lead to reduced resource consumption are considered opportunities. Furthermore, it is emphasised, that the data basis for this cluster is extremely thin. Therefore, the trends highlighted below are derived from indications of partly individual sources, that are considered plausible, as well as logical conclusions from expert opinions.

Table 17: Qualitative indicator for the cluster “Consumer needs and behaviour”

Cluster Qualitative Indicator(s) Unit(s) Comment(s)

Consumer needs and behaviour Promotion of eco-conscious consumer

behaviour - High or low significance and

relevance compared to other effects within the same cluster.

Observations of situation today

Sharing models and services has been identified as the one direct effect arising from E-commerce. Compared to conventional systems, the sharing economy can greatly benefit from flexibility of the digital realm, which allows easy and instant communication and handling. In the sense of the Circular Economy concept, the original intention of sharing models and services can be defined as “consumers granting each other temporary access to underutilised physical assets (“idle capacity”), possibly for money“ (Frenken and Schor, 2017). Sharing systems serve the consumer’s needs for temporary use of products and thus offer the opportunity to promote eco-conscious consumer behaviour.

With respect to the product categories in focus for this report, one example is “Vinted”, a European apparel rental and selling platform (Vinted, 2019) and another one is “Peerby”, a household item rental platform founded in the Netherlands (Peerby, 2019). However, many platforms that are established in line with above definition and enable consumer-to-consumer (C2C) lending, often struggle to cover their expenses, which in the past led to the closing down of a number of platform services (Morrissey, 2015).

A more capitalised form of sharing is found in business-to-consumer (B2C) services. Those expand the access of consumers to various shared products, otherwise often underutilised products without the requirement of high investment costs from a professional perspective. Some rental systems include shifts from “disposable” to “reusable” for products such as coffee cups (ReCup, 2019), designer clothes or furniture (Emma Thomasson, 2019).

The largest and most established systems include car and house sharing (PWC, 2015). These successful sharing systems achieved profitability from their services and mediation by monetising the collaborative consumption (Bosa and Salinas, 2019). As a result, the overall global revenue from sharing models is expected to rocket from 15 billion U.S. dollars in 2014 to 335 billion U.S. dollars in 2025 (Mazareanu, 2019).

Future developments

Sharing models can have positive effects for the Circular Economy, but the future success of sharing systems is highly dependent on the financial sustainability. C2C services can be expected to stabilise but are likely to remain a niche market, particularly in the product categories in focus of this project. B2C sharing services on the other hand can be expected to see further growth and increase in diversity. However, an eco-conscious consumer behaviour and positive impact for the Circular Economy is subject to sharing essential but underutilised products. Otherwise the negative impact from excess consumption would predominate, particularly with professional providers and B2C systems, usually driven by profit maximisation.

With respect to the product categories in focus, it is arguably more applicable for apparel and accessories and media products than products potentially linked to concerns regarding data protection (small ICT), physical immobility (furniture or major household appliances) or one-time use (non-perishable food). In general, the developments in the digitalised sharing economy are relatively new, therefore the research field is growing and should continue to be monitored.

In the following, the effects are described that arise from E-commerce and affect consumer needs and behaviour indirectly.

 Positive influencing factors

In the optimistic scenario informational Nudging has been identified as an indirect effect with the potential for positive impact on the Circular Economy (Demarque et al., 2015). This is a relatively new topic of interest for marketers in the E-commerce business, building on research on human behaviour. The most critical factor for its positive impact on the Circular Economy is the application.

Research focuses on marketing techniques and optimisation of user interfaces to increase revenue (e.g., Mirsch, Lehrer, &

Jung, 2017, Eigenbrod & Janson, 2018, Djurica & Figl, 2017), in some cases even unethical aspects (Weinmann, Schneider and Brocke, 2016). Nudging strategies for improved sustainability and circularity are underrepresented (Kaiser, 2018).

However great potential is confirmed for informational nudging aiming to reduce environmental impacts (e.g., Isley, Stern, Carmichael, Joseph, & Arent, 2016; Demarque, Charalambides, Hilton, & Waroquier, 2015; Urban, 2017). One example for nudges practiced in business is the informational nudge with the option to activating CO2 compensation for rides with

setting of environmentally friendlier options would be an advanced step in nudging strategies and could result in an increase of participation from customers of up to approximately 30% (Kaiser, 2018). On the other hand, it can be argued, that the willingness to invest in environmentally friendly options is very sensitive to price differences of the products. A survey in Europe and the USA for instance (Miremadi, Musso and Weihe, 2012) revealed that 70% of customers generally are willing to pay 5% more for a premium product, while less than 10% choose the premium option, if the price difference is at 25%. Another study reported that by 2030, the share of consumers who are generally willing to pay extra for same-day delivery may increase to 25% (Joerss et al., 2016). In this context, the attitude-behaviour gap between statements made by customers and their actual action is a well-known and discussed phenomenon (Kaiser, 2018).

Overall, it can be expected that the implementation of environmental nudges remains highly dependent on the respective retailer policies and individual sustainability commitments. Unless incentives or growing public pressure increases the industry’s economic interests in environmental efforts, the impact of environmental nudging in E-commerce is likely of minor significance but entails great potential for the Circular Economy. With respect to the product categories in focus, one example for environmental nudging are financial incentives by local governments in Germany for consumers who purchase state-of-the-art energy-efficient major household appliances (SWB, 2019). Future research may provide detailed knowledge from investigating the effectiveness of environmental nudging for the different product categories.

 Negative influencing factors

Four indirect effects related to consumer needs and behaviour in E-commerce have been identified to affect the Circular Economy: Ease of shopping, Personalised design, Cross- and up-selling as well as Shopping frenzy.

Due to E-commerce, consumers are enabled to shop without any restrictions to time or geography, subject to internet access. This can serve consumer needs linked to the desire for immediate action. The Ease of shopping may contain a threat for the Circular Economy if it leads to increasing overall purchases or impulse purchases in particular. Furthermore, four aspects relate to this effect: Physical access to unlimited purchasing options, the huge variety of product variations, the ease of use with simplified processes, and personalized interface designs.

On the one hand, the nearly endless online product variety has the theoretical potential to allow the customer to find the product that is best suitable to his or her needs. It is expected that this aspect is depending on the individual willingness for time-intensive research. If eco-conscious consumers find more sustainable products online than offline, the threat can convert into an opportunity for the Circular Economy compared to brick-and-mortar. The ease of shopping is therefore linked to the accessibility of information, which generally supports eco-conscious consumer behaviour (compare Section 4.3.2).

Furthermore, many online shops have invested in the development of easy checkout-services. Simplified purchases are even more enabled through smart devices with voice assistance. The community using those new technologies is significant in Germany (Stern, 2018). It can be argued, that due to the easy access to products, the customers might increasingly lose touch with the associated costs, production conditions and environmental impacts.

Optimised customer experiences through personalised interface design is another important aspect E-retailers focus on (Mirsch, Lehrer and Jung, 2017). This is closely linked to nudging and negative impacts for the circular economy due to increased resource use (compare Section 4.3.3). On the one hand, it is a factor for customer satisfaction in E-commerce.

Chances as well as challenges arising from personalisation in E-commerce are being discussed and their importance for the future is strongly emphasised (E-commerce Europe, 2018b). If the consumer is connected with the retailer on various media channels like web-based, e-mail and apps, and potentially around the clock, this approach is referred to as ubiquitous commerce (Kumar, Joshi and Saquib, 2015). The use of artificial intelligence for pattern recognition plays a major role here (EcommerceEurope, 2018).

It can be argued that in cases where a product would not have been purchased anyway, excess consumption is encouraged and translates into negative impacts from customer behaviour for the Circular Economy.

The available data indicate that purchase intentions in commerce are positively related to the customers’ trust in the E-retailer and the satisfaction with offered services (Miremadi et al., 2012; Nisar & Prabhakar, 2017; Zhu, Mou, & Benyoucef, 2019). The line can be narrow between the advantages of personalised design and increasing amounts of customers expressing concerns about privacy protection (Kumar, Joshi and Saquib, 2015).

However, personalised product recommendations, omni-channel experiences, or push notifications by brands on availability of desired products based on wish-lists or similar are reported to result in likely conversions from 90 % of the (U.S.) customers (Scalefast, 2019). Therefore, personalised interface designs have so far been highly efficient and are likely to

have led to customer desires for immediate product access given constant, personalised and multi-channel access to E-commerce.

The topic is less relevant in brick-and-mortar, since conventional, single channel retail could not provide this high level of personalisation due to the lack of detailed customer data. However, by 2030, it is assumed that a large share of retailers likely operates omni-channel and capitalises on personalisation features. Consumer expectations may increase by then, too, leading to SMEs investing in personalised customer relations.

In conclusion, it can be argued that the sheer opportunity of access from E-commerce is unlikely to result in unlimited, excessive shopping behaviour of customers. Despite the efficiency of personalised interface designs and the resulting increased probability of impulse purchases from artificially created consumer desires, any additional, unsustainable consumption is eventually limited by the economic situation of the individual customer.

Like the previously described effects, selling and up-selling is closely linked to the effect of nudging. Cross-selling and up-Cross-selling strategies are based on nudges to increase sales. This is done by offering product combinations, additional purchases or premium products for reasons of higher revenue and better transport efficiency (compare Section 4.3.7). This effect does not aim towards the promotion of more environmentally friendly products. On the contrary, the practice negatively affects the Circular Economy, as more products are sold than were originally needed and/or requested by the customer.

However, in brick-and-mortar stores, too, products are places strategically next to related products and banners can be used to advertise bargains and achieve up-selling. It is therefore assumed that the impact of cross-selling and up-selling is roughly the same in both E-commerce and brick-and-mortar. On the other hand, the utilisation of collected customer behaviour data (e.g. through cookies) in E-commerce could become increasingly efficient in combination with optimised personalised advertisements (see above, personalised design) and generate additional desires with customers. This could then stimulate additional purchases and therefore increased negative impact for the Circular Economy.

Regarding Personalised design, negative influencing factors for the Circular Economy can be manifested in two ways: on the one hand, personalised products may result in higher customer satisfaction and extended use of products in the first life cycle. The production differences between individualised and mainstream production is estimated insignificant but if the product is not implemented as expected by the customer, the personalised product may be rejected and require a second attempt. Considering low high-quality recyclability of many materials, it generates more waste. On the other hand, as per the nature of personalised products, the products are tailored to a specific customer and any second life cycle is considerably more difficult to realise, thus reducing the benefit for a Circular Economy further. No study could be found on the topic of individualisation of products, which does not purely focus on the B2B sector (Koch, Butz and Schlichter, 2014).

More research is needed to evaluate the environmental impacts based on representative data.

The last effect considered is Shopping frenzy, which refers to the behaviour of customers to purchase numerous consumer goods in a very short time. Real life examples are event days, where a large share of retailers (online as well as offline) offer various shopping deals, bargains or sales with potentially high discounts. Very popular examples are Black Friday and Cyber Monday in the U.S. or Single’s Day in China. Additionally, outlet stores, or outlet cities advertise with large discounts throughout the year.

Historical data on U.S. holiday season (the time between end of November and early January that includes Black Friday and Christmas shopping) prove significant sales volumes. Shares of annual sales were converted during this period that ranged from 18% in conventional food and beverages stores to more than 30% for hobby, game and toys stores. In E-commerce, 22% of annual sales were generated (Manage Artworks, 2018).

The event of Black Friday and Cyber Monday was introduced in Europe relatively recently and has since been adopted by a growing number of retailers. The German Trade Association reported 1.7 billion Euros revenue from the events in 2017.

With participation rates of 13-16%, the acceptance is much lower in Germany (Handelsverband Deutschland, 2017).

On the other hand, sales from Black Friday were expected to increase by 15% in 2018 (Handelsverband Deutschland (HDE), 2018). Online presence for Black Friday shopping can be found, too, with countdowns and information about participating retailers (Black Friday GmbH, 2019).

Amongst other specific thematic offers and sales in Europe are Easter Sales, Valentine’s Day, Mother’s or Father’s Day as well as summer or winter sales and special shopping Sundays in Germany.

With respect to the shopping frenzy, guaranteed return rights by strict EU law further strengthen the consumer position by reducing the risk of mispurchases or unappreciated gifts and thus increasing potential of returns (European Commission,

Prime Day (Morris, 2019). In the UK for instance, the returns generated additional handling costs of 130 million British pounds (Davidson, 2015).

In comparison, around half of the customers preferred multi-channel, while one quarter of consumers shopped only either online or offline (Sterling, 2018). E-commerce tends to be preferred by customers for shopping frenzies due to convenience aspects. At the same time, another trend is the extension of sales days or pre-event sales aspects (BlackFriday.com, 2019b).

It can be suspected, that the circumstance of strong consumer rights compared with shopping frenzy days contributes to the intensification of E-commerce and increases the number of returns in absolute terms linear to the sector’s growth rates. Consequently, in this combination, shopping frenzy has a high relevance and negative impact for the Circular Economy. On the one hand, additional, not necessarily required, products are purchased (for the benefit of the bargain) and on the other hand the increased return rates greatly affect the environmental impact per fulfilled unit.

Summary

In summary, sharing models and services, identified as the only direct effect for consumer needs and behaviour arising from E-commerce, are considered to support eco-conscious consumer behaviour and positive impact for the Circular Economy, subject to sharing essential but underutilised products. For other sharing systems of non-essential products, the negative impact from excess consumption would predominate. With respect to the product categories in focus, there are only few sharing systems applicable and those that exist are expected to remain a niche market in the future.

Regarding positive influencing factors for this cluster, environmental nudging is concluded to contain great potential for the Circular Economy through the promotion of eco-conscious consumer behaviour. However, the implementation of environmental nudges is expected to be of minor significance, unless incentives or growing public pressure increase economic interests in environmental efforts.

Regarding the negative influencing factors it is concluded that the ease of shopping through the access itself can be seen as a neutral effect, possibly resulting in customers buying online rather than offline. However, the simplification and personalised interface designs were found to promote the creation of desires of ownership and additional, initially unintended purchases. These consequently lead to unsustainable consumer behaviour. The tendency for negative impacts from impulse purchases could increase due to the spontaneity of access compared to brick-and-mortar sales.

Furthermore, personalised design is an effect, where advantages and disadvantages for the Circular Economy roughly balance each other out. The negative impact is that personalised products are considerably difficult to resell. Cross-selling and up-selling effects can be argued similar in E-commerce and brick-and-mortar. In combination with ease of shopping, the effects can become very significant. Lastly, shopping frenzy is the most significant and highly relevant effect with negative impacts on the Circular Economy. This is due to its promotion of purchasing additional, not necessarily required products and the high return rates that come with it.

Table 18: Summary of the expected effects of identified opportunities and threats within the cluster “Consumer needs and behaviour”

Consumer needs and behaviour Determined relevance of effect

Relative effects as per today

Direct opportunities and threats Sharing models and services

+

Future developments Indirect opportunities and threats

Positive influencing

factors Nudging

+

Negative influencing factors

Ease of shopping

--

Personalised design

o

Cross-selling and up-selling

o

Shopping frenzy