Sustainable Packaging and Consumer Engagement
40 Pages Posted: 11 Sep 2020
Date Written: August 23, 2020
Problem Definition: Many firms have recently allowed consumer engagement in their sustainable packaging program, where consumers can contribute to reducing the environmental impact via packaging-free purchase. In this paper, we develop a stylized model to study the impacts of consumer engagement on a firm's product pricing and packaging decisions and the resulting environmental implications. We further study one common government regulation, i.e., the ban on unsustainable packaging.
Academic/Practice Relevance: Consumer engagement in sustainable packaging program has become popular in recent years. However, there is little analytical work on how this type of sustainable operation impact a firm's pricing strategy and the environment overall. We address this gap.
Methodology: Game theory.
Results: First, a profit-maximizing firm should not allow for consumer engagement if the size of eco-conscious consumers is significantly large. When it does implement the packaging-free program, the firm may need to offer participating consumers a discount larger than the save in packaging cost. Second, allowing consumers to engage in packaging-free purchases may hurt the overall environment. Third, the effectiveness of the unsustainable packaging ban in reducing overall environmental impact is not necessarily monotone with respect to the population's average preference for the environment; in particular, the government regulation may lead to an increase in total environmental impact when the size of eco-conscious segment in the market is moderate.
Managerial Implications: For firms, we find that having consumer engagement in the packaging-free program along with a generous discount can be an effective way to improve profit, especially when the population size of eco-conscious consumers is not very large in the market, a condition of which is often regarded as a hurdle for successful implementation of sustainable practices. For the governments, we find that they should be cautious when imposing a ban on unsustainable packaging, which might have a negative effect on the environment.
Keywords: Sustainable packaging, consumer engagement, government regulation, game theory
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