Journal of Sustainable Marketing

Introduction

Sustainability has become in vogue as a positive force in society and throughout the world community and there are significant indications that firms gain “benefits from reliable sustainability initiatives” (Hawn, Chatterji, & Mitchell, 2018, p. 949). Ever more customers want to be sustainable and many firms go to great lengths to deliver on those wishes, including appointing Chief Sustainability Officers (Fu, Tang, & Chen, 2020). However, despite sustainability being an attractive strategy for a variety of firms (e.g., small, medium, and large firms; agriculture, service, and manufacturing firms; high-tech and low-tech firms), theorizing about sustainability for the global economy has been limited (Lubin & Esty, 2010; Wang, Gibson, & Zander, 2020). Focusing on firms and customers, we use the following general sustainability definition to guide our theorizing: “Sustainability means seeking to replace what we use and repair what we damage, striving to leave the planet in a better condition than that in which we found it” (Hollensbe, Wookey, Hickey, & George, 2014, p. 1232; cf. Kates et al., 2001)

Within this scope, we aim to develop a theory of market-based sustainability for the global economy, meaning we embed the effects of sustainability and our theorizing in the international business ecosystem. “The international business ecosystem is defined as the organisms of the business world – including stakeholders, organizations, and countries – involved in exchanges, production, business functions, and cross-border trade through both marketplace competition and cooperation” (Hult, Gonzalez-Perez, & Lagerström,2020, p. 38). The dynamics of this “ecosystem” has wide-ranging implications for firm-related sustainability decisions (Liu et al. ,2015, p. 963). In particular, Lundan (2018, p. 3) describes a “double helix” of failures that we address related to the duality of firm-policy research – institutional, market, and organizational failures – where “two strands share a common theoretical core, with one strand that leads to answers relevant for managerial practice and the other to insights relevant for policy.” In response, our theory draws on institutional issues to capture organizational issues within the marketplace in which firms compete (Assche & Ganges, 2019; Gereffi, 2019; Strange & Humphrey, 2019; Zanten & Tulder, 2018). Consequently, building on the general definition of sustainability by Hollensbe et al. (2014), we set forth the following specific definition of market-based sustainability to guide our theorizing: Market-based sustainability is defined as cultivating the business-societal/environmental interface involving institutions, markets, and organizations with a conscious positive business focus on customers’ product/service needs and wants and other stakeholders’ interests to contribute to a sustainable international business ecosystem (Hult, 2011; Hunt, 2011).

The positive need to be sustainable has led many countries to develop infrastructure to facilitate their firms in being responsible in their consumption activities (Bain et al., 2019; Hult, 2018). In marketing, this infrastructure enhancement has accelerated sentiments related to firms “doing good” (Mason & Simmons, 2014; Vlachos, Panagopoulos, & Rapp, 2013) and customers nurturing a “warm glow” (e.g., lowering their carbon footprint) (Bhattacharya, Good, Sardashti, & Peloza, 2021; Spielmann, 2021). Additionally, at the market level, given today’s international competitiveness and firms’ needs to continually focus on being profitable (or at least setting prices to generate revenues equal to costs for non-profits), strategies for sustainability-focused firms have also often been about cultivating a customer’s “warm glow” or resorting to increasing costs (both fixed and operating) to offset the costs of sustainability initiatives (Bhattacharya et al., 2021). Some scholars make an argument that a firm’s responsibility can also be to motivate (i.e., “incentivize”) a customer so that he or she participates in sustainability initiatives, and thereby in effect encourage a customer to adjust his or her “warm glow thermostat” (Giebelhausen, Chun, Cronin, Jr, & Hult, 2016, p. 56). Such incentivizing, while appearing to lower product standards, often actually results in an enhanced customer experience and ultimately increased customer satisfaction (Hult, 2023). Consequently, being sustainable can be a strategic tool for a firm to enhance its stakeholders’ positive perceptions and acceptance of social responsibility activities (Gomez-Trujillo, Velez-Ocampo, & Gonzalez-Perez, 2020). With such an integrated market focus, sustainability becomes part of (or needs to be part of) the broader focus of “understanding how MNEs respond to greater pressures for social responsibility and sustainability in their global operations” (Buckley, Doh, & Benischke, 2017, p. 1050).

Simplistically, many firms operating in today’s marketplace will engage in sustainability initiatives if their bottom-line performance can gain from such initiatives or at least not cost more (Kim, Bansal, & Haugh, 2019; Porter & Kramer, 2006). Similarly, many customers, or at least an increasing number of customers, would buy products linked to sustainable efforts if there is no lowering of quality relative to competing non-sustainable substitutes and if the prices are at least market competitive (Hult, 2018; Whelan & Sacco, 2019). But such a simplistic portrayal of sustainability leaves out the boundaries of what firms can and even should do given country infrastructure, market circumstances, and what the customer would potentially be willing to sacrifice. This goes beyond one-off initiatives that some firms implement tactically based on market sentiments to more robust strategic developments based on direct, indirect, and synergistic impacts from nurturing sustainability initiatives. To rectify the lack of theorizing regarding sustainability, we develop a theory of market-based sustainability for the international business ecosystem and delineate its core tenets.

This type of marketing-centric theory can be captured convincingly within the general scope of an economics-based supply and demand model. With the economics underpinning, we can illustrate how both “doing good” and “warm glow,” as a function of a firm’s sustainability actions, can be advantageous for positively driving a firm’s performance. However, to be effective and convincing, the theory must also integrate one of the core elements of what customers think of when being sustainable – their own “quality of life” (Becker, Philipson, & Soares, 2005). Additionally, for a firm to be enthusiastic about implementing sustainability initiatives, goal-oriented performance metrics must be shown to be more than simply additive (if additive only, the sustainability opportunity costs will eventually outweigh benefits since then it becomes a question of effective resource allocation) (cf.Kogut & Zander, 1992). The theorizing must involve a firm’s direct impact (doing good), indirect impact from customers’ perceptions (warm glow), synergistic effects from implementing multiple sustainability actions, price fairness to customers (while still covering firm costs), and quality-of-life issues within the international business ecosystem (Assche & Ganges, 2019; Gereffi, 2019; Hult et al., 2020; Lundan, 2018; Strange & Humphrey, 2019; Zanten & Tulder, 2018).

Foundational Building Blocks

The foundational building blocks we draw upon for our theorizing regarding market-based sustainability include the areas of doing good, warm glow, and price fairness. Scholarly works of literature covering these areas are diverse and cross-disciplinary (e.g., anthropology, economics, finance, management, management science, marketing, psychology, and tourism/hospitality), and we summarize a select set of influential works across these areas in Table 1 (doing good), Table 2 (warm glow), and Table 3 (price fairness). Leveraging such a diverse literature base ensures both broad and deep coverage of relevant market-based sustainability topics for theory development within a macro- and microeconomics lens.

Delineating the Theory

As a basis for the development of a theory of market-based sustainability, we modify the economics-based supply and demand theory to illustrate how both “doing good” and “warm glow,” as a function of a firm’s sustainability actions, are generated as a result of quality improvements and cost/price containments (e.g., price fairness). Much like the classical supply-and-demand curves, the diagram in Figure 1a has quantity along the horizontal x-axis, but we replace price on the vertical y-axis with quality (Hirschman, 1970). For our theorizing purposes, quality refers to “quality of life” as determined by the expectations of a firm’s stakeholders (with a particular emphasis on customers). This price-to-quality swap creates the setup for our theorizing concerning market-based sustainability.

For clarity and ease of argument, we consider the quantity and quality curves as steady-state linear, although the slopes in Figure 1a are purely for illustrative purposes. In reality, the slopes could be steeper or flatter, depending on the market scenario, and the linearity of the curves is unlikely to be practical in many cases. Firms’ experience effects, for example, in implementing sustainability initiatives likely make the supply curve concave to some degree (i.e., which could be depicted as an inverse U, although with a flattening feature and then a very soft inflection point). This would result in a more rapidly upward slope than the linear curve but would then flatten out (framed within the law of diminishing marginal returns in economics) and subsequently turn softly downward (framed within the notion of negative returns) when the number of sustainability initiatives undertaken by the firm begins to adversely affect opportunity costs and resource allocation. More sustainability activities implemented at that point may be counterproductive to other developments the firm needs to or should offer the customer. Likewise, the demand curve is likely to be concave, with the understanding that customers at some point reach the maximum quality-of-life benefits that can be gained from one firm’s sustainability initiatives, at which point there is a flattening of the curve and then a soft inflection point and a downward slope.

As used in our theorizing, definitions of the constructs are summarized in Table 4. With the theoretical boundary assumptions delineated in the previous paragraph, the theorizing regarding market-based sustainability involves a firm’s direct impact (doing good), indirect impact (warm glow), the (potential) synergies among sustainability actions, and price fairness that is anchored in competitive market forces. As a start, the quality-elasticity of supply, that is, the warm glow “feeling” among customers to upward changes in quality, is assumed to be given, without regard to the possibility and prospective effectiveness of directly or synergistically doing good. As such, quality-of-life increases as we move up the axis (i.e., a firm’s sustainability actions are compounded), which preserves the traditional positive slope of the supply curve. Likewise, incremental quality-of-life improvements have a lower relative increased impact as a firm implements additional sustainability actions (based on the law of diminishing returns, a point that is elaborated on more practically in the discussion section relative to achieving a point of maximum sustainability yield). In the illustration of the theory in Figure 1a and Figure 1b, we use Q_n to signify the level of quality-of-life assessments, SQ_n to designate sustainability quantity (with a practical reference to UN’s 17 SDGs), and P_n for market-related price competitiveness (to focus on “price fairness”).

As quality moves from Q₁ (which indicates an “average” sustainability involvement by a firm in an industry and, thus, can be viewed as an industry equilibrium) to an increased state in Q₂ (i.e., an additional sustainability action has been implemented by the firm), demand drops from SQ₁ to SQ₂. Q₀ represents the lowest practical benchmark of sustainability actions by a firm in an industry given the sustainability infrastructure in which the firm operates (e.g., Nilsson, David, & Visbeck ,2016 ). Based on competitive market forces, this decline in demand is due to diminished pressures to be sustainable from a firm’s primary stakeholders (communities, customers, employees, regulators, shareholders, and suppliers), but also potentially a decline in demand-initiated actions by the firm’s secondary stakeholders (e.g., competitors, interest groups, mass media, social media, and trade associations) to engage in sustainability actions (Donaldson & Preston, 1995; Mitchell, Agle, & Wood, 1997). In other words, internal firm dynamics and external market forces provide less demand on the firm to implement additional sustainability actions when they have already implemented (some) actions. This is the case when a firm is viewed by stakeholders as having achieved a “good” level of sustainability in their operations, products, and services (determination of a “good level” is arbitrary in the theorizing but is usually done practically via market forces as an industry assessment).

The “steepness” of the curves (the elasticity of changes in quality on demand) is non-constant and dependent on a variety of market forces. As we stated earlier, the steepness in Figure 1a is wholly arbitrary and illustrative only. The factors that do affect the slope include, for example, the infrastructure provided for sustainability efforts in the macro environment (e.g., by the country in which a firm is located), the number of competitors in an industry (e.g., sustainability efforts by both established and new-market-entrant competitors), type of product or service purchased (e.g., commodity vs. non-commodity, discretionary vs. non-discretionary), barriers to customers switching to another product/service and/or firm, and investment in or price paid for the product/service (hereafter we use the product to refer to both a product or service for simplicity). The latter is a way to integrate “price” in the modeling (as a cost containment or “price fairness” issue) in line with traditional supply-and-demand diagrams (see Figure 1b). These are factors that affect the supply and demand that also give rise to the conditions in which market-based sustainability initiatives can be developed, nurtured, and lasting. There is a practical eloquence in the integrative depiction of the economics-based supply-and-demand theory and the overlap in certain respects with the proposed market-based sustainability theory. This theoretical overlap makes the sustainability theory practical and dynamically intuitive.

 Building on this overlap in economics logic as well as theorizing in exit-voice-loyalty theory (Hirschman, 1970), Figure 1b shows the conventional representation of price along the vertical axis (Hult & Morgeson, 2020). Importantly, both Figure 1a and Figure 1b are marked by quantity on the horizontal axis. For simplicity, quantity is stated as the number of sustainability actions implemented by the firm (in the spirit of the 17 SDGs). However, quantity could also be the degree of impact, importance, involvement, or commitment metric related to market-based sustainability. While arbitrary herein, the steepness of the demand and supply curves is critical to understanding the predictions of the theory of market-based sustainability vis-à-vis philanthropic-based sustainability. This includes both a stakeholder’s propensity to engage with the firm (e.g., a customer buying a product) and a firm’s incentive to implement sustainability actions (SQ₁ to SQ_n). For both curves, the steepness defines the direct impact, indirect impact, and multiplier effects of a firm’s sustainability actions. These effects are represented in Figure 1a and Figure 1b in the areas defined by the B₀ E₁ B₁ triangle; the B₁ E₂ B₂ triangle; the E₁ E’₁E₂ B₁ quadrant; the B^’ ₀ SQ₀ SQ₁ B^’ ₁ quadrant; and the B^’ ₁ SQ₁ SQ₂ B^’ ₂ quadrant.

When firms decide to develop and implement sustainability actions, the rationale for such efforts has typically been rooted in areas B₀ E₁ B₁ and B₁ E₂ B₂ in Figure 1a. These triangles represent the direct impact, or “doing good,” that can be expected to be perceived as a positive impact by at least a portion of the firm’s stakeholders from a firm implementing sustainability actions SQ₁ and SQ₂, respectively (Eichholtz et al., 2010; Falck & Heblich, 2007; Sen & Bhattacharya, 2001). The logic of anchoring a firm’s sustainability actions in triangles B₀ E₁ B₁ and B₁ E₂ B₂ within the supply-and-demand modeling is relatively straightforward and practical. By putting the supply-and-demand curves together, we can easily find the intersection of quality-of-life benefits and a firm’s sustainability actions (quantity), where a firm has maximized its direct, visible, and practical effect of market-based sustainability in the most cost-efficient way. Oftentimes many customers are eager to sacrifice more to obtain a product that is linked with a quality-of-life increase for them.

However, adopting such a narrow supply-demand or cost-analysis focus is not necessarily beneficial to the development of a theory of market-based sustainability. Firms that want to truly engage in sustainability actions that increase quality-of-life among their stakeholders need to model impact beyond areas B₀ E₁ B₁ and B₁ E₂ B₂. Simplistically, the impacts that are inherent in areas B₀ E₁ B₁ and B₁ E₂ B₂ can, most of the time, be captured in traditional economics-based supply-and-demand models. That is, viewing areas B₀ E₁ B₁ and B₁ E₂ B₂ in isolation, the demand curve shows the quantities of a product that customers are willing/able to buy at each price point (during a specified period). The supply curve illustrates the quantities of the products that firms are willing to offer for sale at each price point (during that same period). By putting the supply-and-demand curves together, we can find a price at which quantity the customers would buy equaling the quantity at which firms are willing to offer the products for sale. But this equilibrium already includes the sustainability impact that customers can expect to reasonably receive in such an exchange (i.e., the value or price-to-quality ratio that the customers expect to receive). Instead, the synergy quadrant, E₁ E’₁ E₂ B₁ (which represents the potential multiplier effect from implementing both SQ₁ and SQ₂) along with the “warm glow” quadrants, B^’ ₀ SQ₀ SQ₁ B^’ ₁ and B^’ ₁ SQ₁ SQ₂ B^’ ₂ (which represent the indirect impact, or “warm glow,” from SQ₁ and SQ₂, respectively) are critical to fully capturing a firm’s sustainability actions and effects. Without compounding the direct, indirect, and synergy impact, firms will allocate cost estimates that are too high for the undertaken sustainability actions (quantity) or they will allocate sustainability impact estimates that are too low, or both (Liu et al., 2015).

The impact of the synergy quadrant, E₁ E’₁ E₂ B₁ (i.e., the potential multiplier effect from implementing SQ₁ and SQ₂), can be explained in three important ways that theoretically create the robustness of the synergy quadrant as an illustration of sustainability impact that needs to be accounted for by firms. These include (1) economies of scale, (2) combinative capability, and (3) complementarity effect. First, economies of scale (Stigler, 1958) is the most simplistic and the most logical fit with the economics-based supply-and-demand curves in Figure 1a. Broadly, as it applies to our theory, a proportionate saving in cost is gained for each additional implemented S_n (i.e., it becomes less costly and/or easier to implement SQ₂ than it was SQ₁, and so on since each S_n is embedded in the general area of market-based sustainability). Second, the notion of a “combinative capability” was developed by Kogut & Zander (1992, p. 383) who argued that a firm can achieve increased effects beyond an additive nature by combining the knowledge that has been used separately for various activities previously. Consequently, if a firm has engaged in previous sustainability actions, combining the related sustainability learnings should then result in additive (direct) effects plus a multiplier (synergy) effect (i.e., S₁ +S₂+S₁*S₂). Third, the complementarity effect (e.g., Hess & Rothaermel , 2011, p. 895) also draws on the uniqueness of implementing multiple sustainability actions. Take the simple relationships of A + B $\to$ C. When tested at the same time for complementarity in a standard multiple OLS regression, both A and B positively affect C, but neither A nor B would affect C in separate simple regressions (A $\to$ C, B $\to$ C). As such, complementarity can be said to exist between A and B on C; both A and B must be in the equation to influence C.

The “warm glow” quadrants, B^’ ₀ SQ₀ SQ₁ B^’ ₁ and B^’ ₁ SQ₁ SQ₂ B^’ ₂ (i.e., the indirect impact from SQ₁ and SQ₂, respectively), are a function of the price-fairness effects illustrated by P_n in Figure 1b. P₀ represents the price for a competitive product substitute from another firm and/or the product from the focal firm before it was created sustainably (and P₁ represents a lower price than P₀ while P_-1 represents a higher price than P₀). For clarity, cost containment in Figure 1b is improved as the price point is located higher on the graph. The belief is that many customers would purchase a product that was made sustainably if the price/cost was not prohibitive (Bolton et al., 2018; Gielissen et al., 2007; Herrmann et al., 2007). An argument can be made that sustainable products that were priced at the same level (P₀) as competitive non-sustainable products would over time become the new norm (which, in effect, is represented by B₀). This is, in reality, the evolution that the marketplace has seen in several product categories in recent times (e.g., electrical cars) and perhaps also what is increasingly being demanded by the SDG-influenced market dynamics.

Before a new norm is in effect for a specific product in an industry, P₀ defines the area in which customers materialize a warm glow effect by purchasing sustainable products (i.e., B^’ ₀ SQ₀ SQ₁ B^’ ₁ and B^’ ₁ SQ₁ SQ₂ B^’ ₂). In addition, for customers who are driven to be sustainable, a higher price (P-₁) is often not a deterrent to buying sustainable products. These customers achieve a sense of emotional reward and a warm glow from being “sustainable citizens” (Andrews, Luo, Fang, & Aspar, 2014; Habel et al., 2015; Monin, 2003). As applied to our theory of market-based sustainability, warm glow also represents a consideration among customers of a sense of “moral satisfaction” (Kahneman & Knetsch, Kahneman & Knetsch, p. 57) that influences the impact they receive from buying sustainable products. Importantly, as an idea originating in economics (e.g., Andreoni, 1989 1990, 1990) the concept of warm glow can also theoretically coordinate effects across Figure 1a and Figure 1b in our theory. Specifically, as modified to our theory of – from a warm glow focus on gift giving at the individual level in economics – firms can be “impurely altruistic” in their sustainability efforts. This means that firms can simultaneously maintain both altruistic (indirect sustainability impact or “doing good”) and selfish (direct sustainability impact or “pure warm glow”) motivations for implementing S_n sustainability actions. Hence, it is not incumbent on either the customer or the firm “adjusting the warm glow thermostat” (Giebelhausen, Chun, Cronin, Jr, & Hult, 2016, p. 56) but instead firms better understanding why customers would potentially prefer products or services linked to sustainability, and then delivering products that create a warm glow for these customers (and ideally also for the firms).

Discussion and Implications

The notion of being sustainable and making decisions based on sustainability considerations has reached almost epidemic proportions around the globe. As an example, Time Magazine’s 2019 “Person of the Year” was Swedish teen activist Greta Thunberg, at 16 years old the youngest ever Time “Person of the Year”. She focuses her sustainability efforts primarily on climate change issues but has interests also in a broader set of environmental issues. Thunberg has created a popular climate teen movement around the world, but one that recent Nobel Prize winners, such as Abhijit Banerjee, Esther Duflo, and Michael Kremer, for example, have shown can be solved within frameworks based on economics principles (Banerjee & Duflo, 2019). Relatedly, the theory of market-based sustainability shows how firms can be market-competitive and economically viable. The theory addresses “calls for an understanding of how multinational enterprises (MNEs) engage with sustainable business practices and how the SDGs may be better implemented by the private sector” (Topple, Donovan, Masli, & Borgert, 2018, p. 61). Similarly, the framework of the SDGs urges “MNEs to adopt sustainable practices and to integrate sustainability information into their reporting cycle” (Dilyard & Witte , 2018, p. 1).

Although evidence suggests that “the market share of brands positioned using ethical attributes typically lags behind brands that promote attributes related to product performance” (Peloza, White, & Shang, 2013, 104), future consumption might include scenarios where customers choose products for their sustainability attributes based on warm glow incentives. Potentially, such sustainability attributes could also become part of the “performance fabric” when evaluating products and, as such, could be captured by quality-related attributes. If so, the dynamic of the theory of market-based sustainability would involve a modification of the Q_n-SQ_n relationship upwards in positive impact (i.e., the embedding of sustainability attributes within the performance-related quality standards). By extension, developing, producing, and selling sustainable goods could also have a positive effect on the environment and certain societal challenges, but it requires strategies that connect the emotion of guilt with opting for what is not morally accepted. Such a strategy is likely to be context and/or segment specific.

The world is not (yet) led by a consumption domain that is predominantly self-controlled toward sustainability performance or morally oriented standards. Despite the rapid increase in attention to sustainability around the world in the last decade (and to some degree since the 1987 Brundtland report), the attention itself is not the same as to say that firms and customers are necessarily seriously taking sustainability into consideration in their behaviors. In many cases, it is kind of like saying we support recycling but do not necessarily recycle ourselves. On the plus side, though, this “paying lip service” to the concept of “being sustainable” has implications that ultimately become practical. The bottom line is that if “sustainability means seeking to replace what we use and repair what we damage, striving to leave the planet in a better condition than that in which we found it” (Hollensbe, Wookey, Hickey, & George, 2014, p. 1232), then many customers will be mindful of at least evaluating competitive (e.g., quality, price) product and service alternatives that are more environmentally and socially sustainable.

With these basic premises as a setup, we developed a theory of market-based sustainability. The theory captures the core tenets of a competitive market-based theory of sustainability within the general scope of the economics-based supply and demand model. We drew complementary theoretical logic from market-based theories (Chabowski, Mena, & Gonzalez-Padron, 2011; Maclaran, Saren, Stern, & Tadajewski, 2010) as well as theoretical inspiration from the economics-based exit-voice-loyalty theory (Hirschman, 1970) to also capture customer sentiments effectively (Hult & Morgeson, 2020). In aggregate, our theorizing about sustainability involves a firm’s direct impact (doing good), indirect impact from customers’ perceptions about the value they received (warm glow), the synergistic effects from firms implementing multiple sustainability actions (i.e., it gets easier to implement additional initiatives), and price fairness to customers (while still preferably covering firm costs for the product, at least in the long run). We summarize the implications of the theory of market-based sustainability using the theory’s core building blocks – doing good, warm glow, and price fairness – in Table 5 within the context of the “cube” (2*2*2 matrix) in Figure 2.

Doing good, in actuality, has become a way for many firms to stress their corporate social and environmental responsibility and exemplify a positive message and involvement in the communities in which they operate. This direct impact approach often means that many firms spend a certain amount of their budget on sustainability-related initiatives that assist people to be more successful than they most likely would be without such assistance. Many firms also prefer to assist the local community with, for example, infrastructure improvements that they cannot take on themselves; or developing local suppliers. Such doing-good initiatives have a multiplier effect since the larger community and its citizens benefit at a group level, either by directly using what the firm sponsored or by the community not having to allocate funds for the initiative. For the firm, the notion has always been that doing good has a direct effect on what people think of a firm, and, as such, people would want to engage with that firm as customers and/or as stakeholders. So, there is a return mentality within the framework of doing good but not necessarily an annual-reporting accounting of such performance.

Warm glow is a way for people and policymakers to justify to themselves that buying sustainable products can come at a higher cost than (more) competitive non-sustainable products. If needed to support sustainability initiatives by the firm, the logic is that stakeholders should be willing to sacrifice cost and/or quality because it is good for the environment, planet, and communities and, by that, makes the stakeholders feel good about their sustainability support. This is very much a parallel to people donating their funds to what they consider worthy causes. In these cases, there is not an obvious return on investment attached to such donations – although in many cases an ROI of some form is at least implied. Strategically, firms can be part of the equation of developing this warm glow among their customers by incentivizing them properly (Giebelhausen et al., 2016). Oftentimes, warm glow is not necessarily about customers and firms independently deciding on what is valuable in terms of sustainability but instead what the actors within the international business ecosystem perceive is valuable. Our theorizing supports this indirect warm-glow effect of a firm’s sustainability efforts on product-market performance.

See the descriptions of the eight market scenarios in Table 5.

Price fairness is both an ethical issue and a practical one. Multiple times in our theoretical development we made arguments that many firms will develop and implement sustainability initiatives if their bottom-line performance can gain from such initiatives or at least not increase the costs of producing market-competitive products. From the customers' side, many customers will buy products that are sustainably manufactured or made to be sustainable if there is no difference in quality to non-sustainable substitutes and if the prices are market competitive. The goal is to manufacture sustainable products at the same general costs as competitive alternatives. Price fairness alludes to the fact that some decades ago when sustainability came into vogue, prices for sustainable products were percentage-wise higher than they are today. And the evolution is clear: Soon sustainable and non-sustainable products must be priced at the same level to be market competitive. Firms that cannot support this market-competitive pricing (e.g., via competitive manufacturing, and delivery of competitive product quality) will likely lose out on market opportunities. Overall, our theorizing strongly supports a price fairness effect within the context of a firm’s sustainability efforts.

Beyond doing good, warm glow, and price fairness, it is also prudent to stress the theory’s integration of synergistic effects . These are effects that can materialize across multiple blocks in the three-dimensional matrix in Figure 2. The synergistic effects of implementing multiple sustainability initiatives are often lost on firms. We explained this synergy in three important ways when developing the theory: (1) economies of scale, (2) combinative capability, and (3) complementarity effect. The most obvious is that adding one more sustainability initiative for a firm that already has implemented at least one such initiative previously often has a lower resource allocation (e.g., cost) attached to it than a firm that decides to engage in sustainability for the first time. A proportionate saving in cost is likely gained for each additional implemented S_n (i.e., it becomes less costly and/or easier to implement SQ₂ than it was SQ₁, and so on since each S_n is embedded in the general area of the market-based sustainability theory). We also argue that increased sustainability effects beyond an additive nature can be achieved by firms by combining the knowledge that has been used separately for various sustainability activities previously (combinative capability) and that implementing some sustainability initiatives can feed off each other in a collective sense (complementarity effect). Our theorizing supports this synergistic effect of a firm’s sustainability efforts.

Importantly, as a practical takeaway from the theory, without compounding the direct, indirect, and synergy impact that can be gained from sustainability efforts, firms will likely allocate cost estimates that are too high for the undertaken sustainability actions (quantity) or they will allocate sustainability impact estimates that are likely too low (quality), or both. Theoretically, driven by the law of diminishing returns and exit-voice-loyalty theory (Hirschman, 1970), revenue-maximizing firms should analyze their sustainability actions relative to where they are most productive (i.e., where the sustainability actions provide the most quality-of-life benefits to stakeholders, including a core focus on customers) and where they can achieve a point of maximum yield. This also becomes a calibration between synergistic effects from firms implementing multiple sustainability actions (i.e., it gets easier to implement additional sustainability initiatives) and a diminishing returns outcome when multiple sustainability actions are implemented. More transparently, the synergy effect – diminishing-returns dynamic works in opposite directions and needs to be calibrated for maximum sustainability yield. Here, the theory of market-based sustainability, with its integration of direct, indirect, and synergistic effects within a price fairness scope, can effectively explain and facilitate the prediction of the point of maximum yield from sustainability actions. Practically, this maximum yield point falls somewhere between the point of diminishing returns and the point where negative returns are materialized, often beyond the increasing marginal returns that appear early in a firm’s sustainability development.

Drawing from philosophy of science , and specifically logical empiricism (which is often used and implicitly defaulted to in marketing strategy research), we conclude this paper with a basic setup for the empirical analyses that can be done using our theorizing. Consequently, there are assumptions, language, activities, products, and goals that stem from the theory. First, the assumption is that the social world is a hard, concrete, and real entity that can affect virtually everyone. Practically, this means that Figure 1 provides a sustainability structure for the relationships between various constituencies (e.g., firms, customers). Second, the language we use includes elements, formation rules, and definitions. As such, we view our definitions as nominal definitions as opposed to operationalized definitions (since context and metrics affect the operationalization and our paper is theoretical only). Third, our intention, or purpose, with the activities highlighted in the paper was to select certain facts (e.g., doing good, warm glow, and price fairness), register these facts, arrange these facts in a logical pattern, and set forth a formula/interpretation about the generality of these facts (e.g., Figure 1). Fourth, in the broadest sense, our product, as it relates to theory, is the knowledge generation inherent in the theorizing (i.e., a market-based theory of sustainability). Fifth, in the spirit of logical empiricism, we seek to find the “truth,” but with the realization that it cannot be fully corroborated.

Instead, we believe that bridge laws, followed by testing hypotheses are the best way to corroborate theory. In that vein, hypotheses that can stem from our market-based theory of sustainability include relationships that examine the effects between a firm’s sustainability actions and customers’ quality-of-life issues; dynamics and sensitivity analyses that involve doing good, warm glow, and price fairness; examination of the value of synergy impacts derived from implementing multiple sustainability actions; continuous sensitivity analyses regarding price fairness and price points at which customers would buy sustainability products and/or products made in a sustainable manner (which are likely to continue to trend downwards); and hypothesized relationships that involve more traditional and previously researched linkages between sustainability initiatives and the bottom-line performance of firms in various industries and settings. More broadly, the connections between our theory’s tenets and classical marketing constructs such as customer expectations, product and service quality, perceived value, customer satisfaction, complaint behavior and handling, and customer loyalty should be fruitful areas for future research (Fornell, Morgeson, Hult, & Vanamburg, 2020), as should connections to bottom-line performance (marketing, financial, and accounting-based performance metrics) of the firm (Katsikeas, Morgan, Leonidou, & Hult, 2016).

Funding Statement

The authors received no financial support for the research, authorship, and/or publication of this article.

Conflict of Interest

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.