Organic product adoption represents a significant and persistent shift in consumer behavior. In 2014 alone the market for organic goods in the United States grew 11%. The emerging purchasing power of organic-focused millennials and growing awareness of organics among other demographics dictate that consumer brands execute a strategy around organics.
Growth trends within more mature organic sectors hold lessons for those in less mature ones: higher growth and profits have gone towards those firms who captured early organic adopters. As adoption trends upward and moves towards mainstream consumers, growth rates slow and profit margins decline. Furthermore, growth rates in less mature sectors may now accelerate more quickly due to higher overall consumer awareness of organics.
Considerations to Firm Entry
As companies consider introducing organic products to a market, they should be mindful of four key industry characteristics: adoption rates, industry ceiling, customer point of entry, and build or buy decisions
- Adoption Rate – Is your firm aware of the organic consumer adoption rates in your industry and sector? This can drive your organization’s strategic roadmap for establishing and growing a position in the market. Having knowledge of historical adoption rates is the first step towards anticipating a future trend. Social media listening and understanding online influencers can also help predict future adoption rates. In a 2012 study, Nielsen found “92% percent of consumers around the world say they trust earned media, such as word-of-mouth and recommendations from friends and family, above all other forms of advertising.”
- Ceiling – Has your firm estimated the ceiling for organics in your industry and sector? Most industries will encounter a ceiling on the percentage of total sales attributable to organic products. Estimating this ceiling will allow an organization to right-size it’s investment to organics product endeavors.
- Customers’ Point of Entry and Motivations – Has your firm assessed the behaviors and interests of organic customers in its industry? In addition to individual safety and health concerns, organic purchases are motivated by social pressure and environmental concerns. Products addressing more than one of these purchase stimuli provide the greatest opportunity to convert consumers into organic shoppers. Research around the product point of entry and consumer motivations should guide a firm’s organics introduction strategy.
- Build or Buy Decisions – Has your firm considered which, if any, organic products exist in its sector and whether you can or should compete? It will be important to establish a strategy for entry into the organic space. Across categories, factors like product efficacy, big brand association (or dissociation), and price have varying degrees of importance for organic shoppers. In order to be successful in launching organic products, an organization will need to consider whether investment in research and development or acquisition of existing products will best deliver on these factors.
To read more about the trend in organic products and the opportunity it presents, check out our latest perspective.