CSR in the Corporate Marketplace:Product Lifecycle in Lifecycle Pricing

Option #1: CSR in the Corporate Marketplace
CSR is no longer an ancillary practice for corporations that compete in the global marketplace. Consumers across the world are demanding that, beyond the brand, companies demonstrate CSR company-wide and engage in ethical and sustainable practices in all or many facets of their operations.
Before we can develop an effective CSR measure all costs need to be included in the production process. This is achieved via the concept of lifecycle pricing. Read the case study, Lifecycle Pricing (p.192-195), in your textbook.
In a well-written paper, answer the following questions:
• What is the significance of the product lifecycle in lifecycle pricing for companies that promote CSR?
• What are the implications for a firm's reputation when there is a dichotomy between the final consumer product and the inputs to its production?
• Describe two examples of companies that, in the past, have not always paid attention to the product life cycle of their brands. What should they have done differently to be socially responsible?
• Describe five steps to take as a leader in a global company to ensure that it is engaging in ethical and sustainable practices.
Your well-written paper must adhere to the following parameters:
• Be 4-5 pages in length, not including the title and reference pages.
• Be supported by six, with at least four scholarly references. Remember, you must support your thinking/opinions and prior knowledge with references; all facts must be supported; in-text references used throughout the assignment must be included in an APA-formatted reference list.
• Review the grading rubric within this assignment for more detail on how this assignment will be graded.
• Be formatted according to the CSU Global Writing Center (Links to an external site.) .
Case Study:
In order for this effort to be effective, the Eco Label (launched as the Higg Index in 2012)68 has to grapple with the idea of lifecycle pricing. The goal is to capture all of the impacts of the production process, at each step in the supply chain, and assign a quantitative value to every step. Although it is a lot more complicated than this (simply trying to avoid double-counting is, in itself, highly complex), in essence the Sustainable Apparel Coalition seeks to add up the positive and negative values to arrive at a net impact score for each product. In short, the group is trying to measure externalities—costs that firms previously have often pushed onto others.
Externality
The Oxford English Dictionary defines an externality as:
A side-effect or consequence (of an industrial or commercial activity) which affects other parties without this being reflected in the cost of the goods or services involved; a social cost or benefit.69
Lifecycle pricing, therefore, attempts to eradicate the idea of an externality by incorporating (or internalizing) all costs within the final price of the product. This is important because “if prices reflected all the costs, including ecological costs spread across generations, the world would not face sustainability challenges, at least in theory.”70
Figure 9.1 The Product Lifecycle
Figure 27
Figure 9.1 presents the six stages of the lifecycle framework: Extraction → Processing → Manufacture → Wholesale/Retail → Purchase/Consume → Dispose/Recycle. Between each stage there are transportation and storage, as well as inputs of energy, materials, and other resources used in the processing that occurs before and after the transition. Each stage also generates outputs, such as waste materials and other forms of pollution.
As such, lifecycle pricing supports the development of an economic model that is no longer founded on waste by including the costs at each stage in the price that is charged to the consumer (i.e., similar to the idea of Pigovian taxes—“When an activity imposes costs on society, economists have long said that the activity should be taxed”).71 In other words, the price of a product should include not only the cost of production (with no externalities) but also the costs associated with replenishing the raw materials used and disposing of or recycling the waste after consumption. Attempts to put a price on carbon reflect this process (either through a carbon tax or cap-and-trade program),72 while firms’ efforts to develop product-specific carbon footprints73 provide a possible means of implementation. This analysis ensures that each stage can be quantified and included as a separate line item in an integrated report to stakeholders. Done comprehensively, the report accounts for the total value created by the firm (positive or negative).
Circular Economy Versus Lifecycle Pricing
It is useful to draw a distinction between the circular economy74 and the concept of lifecycle pricing.
While the circular economy normally focuses on resource utilization and waste reduction (either via greater efficiency or reuse, repair, and recycling), lifecycle pricing is an attempt to incorporate all costs into the final price that is charged for a product. In other words, while the circular economy relies on persuasion within the confines of the existing distorted market to encourage reform, lifecycle pricing seeks to correct existing distortions via a more direct intervention (often a tax) to account for costs that the market otherwise ignores. Once these costs are included, a more free market exists.
In this sense, lifecycle pricing is the more important initiative because it seeks a more direct way to allow market forces to increase efficiency and reduce waste. Waste occurs at the moment because it is economically efficient (or not too inefficient) to produce it. By incorporating all costs, lifecycle pricing makes waste prohibitively expensive, which incentivizes the creation of more resource-efficient alternatives.
A number of firms incorporate lifecycle pricing into their core business model. Nike is a good example, with its GreenXchange initiative,75 “which open sources life cycle design methods.”76 But, perhaps the best example of a firm that has comprehensively attempted to integrate a lifecycle approach throughout operations is Interface, a carpet manufacturer, whose inspirational founder and CEO, the late Ray Anderson, explained his journey in terms of the seven (plus one) faces of “Mount Sustainability”: (1) waste, (2) emissions, (3) energy, (4) materials, (5) transportation, (6) culture, (7) market, and (8) social equity.77 In Anderson’s vision, the peak of the mountain represents sustainability, which he defined as “take nothing, do no harm.” The natural conclusion of such a cradle-to-cradle, closed-loop system throughout a firm’s value chain is zero waste. Anderson expanded on his vision of the business logic of sustainability (“Project Zero,” to be reached by 2020) at the TED conference in 2009.78
Puma has also advanced this debate by introducing the idea of an environmental profit and loss (EP&L) accounting statement. This is an attempt to put a price on natural capital—loosely defined as “everything that nature gives us for free”:79
Forests, fisheries, water, soil, clean air, the ability of the atmosphere and the oceans to absorb CO2, minerals, biodiversity, pollination, even scenic landscapes upon which tourism may depend: all these are forms of natural capital.80
Instead of valuing natural capital, however, current financial and accounting models “value essential natural components such as water and air quality at zero or ‘free,’ when accounting for profits and losses.”81 As a result, resources such as freshwater are exploited by companies like Coca-Cola without any attempt to price the cost of their replacement:
[Coke sells] more than 1.8 billion servings a day. . . . Over 79 billion gallons of water are required annually to dilute Coke syrup, and an additional eight trillion gallons are needed for other aspects of production, including the manufacturing of bottles. [Every year, Coke uses] more water than close to a quarter of the world’s population.82