Brewing Direct Mail Backlash

May 8, 2007

This past week HSBC launched its “There’s No Small Change” campaign offering Green Kits full of eco-products and offers to new customers that sign up for a checking account and HSBC’s automatic bill payment option.  Such an offer is a win-win-win: customers receive a high value offer, HSBC acquires new customers that have built-in switching costs via the automatic payment options and the environment is healthier due to reduced paper consumption.

One of the reasons why such an offer may resonate with consumers is the growing acceptance that paper-based communications are not environmentally sound.  Such changing sentiment could foreshadow a backlash by consumers and advocacy groups that may force marketers to rein in all paper-based marketing efforts, including the $56 billion US direct mail industry.

Today, direct marketers rely on DM as a core channel to send targeted information to customers (from an in-house database or purchased from an external list).  What happens then if consumer backlash against the mounds of direct mail received each day results in a national “Do Not Mail” list, eliminating the ability of marketers to send solicitations without permission?  Sound fantastical?  Well, here are a few thoughts to consider:

First, the “Do Not Call” campaign was one of the most successful campaigns in history, resulting in 62 million consumers signing up in the first year alone.  As of September 2006, more than 132 million people were registered on the list.

Second, a “Do Not Mail” registry is gaining traction.  According to the Direct Marketing Association, “Do Not Mail” legislation has been introduced in more than 14 states so far this year that would create state-based registries.  Nine of these initiatives are still active (of which 5 are in Northeastern states where there is also real concern about limited landfill space): 

States

Status
CT,HI, MI, MO, NJ, NY, RI, VT, WA Active/In Committee
AK, CO, MD, MT, TX Postponed/Withdrawn

Inevitably, such a registry (or the threat of one) will cause marketers to rethink paper-based channels, increasing their reliance on electronic communications (eg, websites, email, e-statements, e-catalogs, desktop widgets).  It is also likely to decrease the footprint of any remaining direct mail efforts (eg, use of post-consumer recycled paper, reduced frequency and size of package).  

Smart green marketers should interpret pending legislation as a call-to-arms and take proactive steps to reduce their addiction to paper-based channels before they have to go cold turkey.


Hybrids Shift into the Mass Market

April 29, 2007

Part II of an Interview with Bruce Ertmann, Corporate Manager of Consumer Generated Media, Toyota  

Shifting a company’s customer base from early adopters to mass market consumers is one of the key challenges facing green marketers.  Few green companies have been able to expand their niche beyond a core set of customers.  One of the primary reasons is that consumers tend to not like paying price premiums for green products.  Another reason is simply that consumers have not traditionally prioritized “green” as a deciding attribute when making purchase decisions. 

Yet, certain green brands like the Toyota Prius seem to be crossing this “chasm” into the mass market.  Though still in the early stages of their adoption, hybrids have already generated broad appeal with mainstream consumers.  Moreover, the stereotype of hybrid owners as treehuggers is far from the truth: in fact, they are high income, mainstream consumers.   

The results from a recent consumer survey by Topline Strategy Group (“Why People Really Buy Hybrids”, 2007) concur.  Topline found that 73% of Prius owners surveyed acted like mass market consumers (ie, they had a financial incentive to purchase the vehicle such as lower sticker price or operating costs than other choices considered) versus 23% of early adopters who paid a premium over alternative choices to purchase the hybrid.  Moreover, for marketers, Prius owners are an attractive target audience: 71% have household incomes over $100,000, with 28% at $200,000 or more.  

While it is uncertain whether this research is statistically significant (n=118), it is at least directionally representative of what Toyota itself is observing in the market.  Recently, I had the opportunity to speak with Bruce Ertmann, Corporate Manager of Consumer Generated Media at Toyota.  We spoke of Toyota’s success in the hybrid market, its target audience and the shift to the mass market consumer.  Here are his words: 

MG: What kind of consumers purchase Prius vehicles? 

BE: When we first launched the Prius, people joked about all of the tree huggers who bought the car.  Yes, we had those diehard owners, passionate people.  But, it truly has become a mainstream vehicle.   

For the longest time, we were undersupplied with the Prius.  [Toyota’s] US president went to bat for us this past summer and was able to get additional production in Japan.  Production came on late last year [followed by a] big sales push in December which most manufacturers have.   

And then in January our Prius sales dropped off significantly.  At the same time, we had all of this new inventory coming into the dealership.  So instead of a six month waiting, list we had inventory at our dealerships – which is frankly normal.  We began to see some of the traditional media ask whether the bloom was off the rose for the Prius and hybrid technology in general. 

But, in February we had a strong sales month.  Just this past weekend, we sold 2,000 Prius vehicles nationwide – a record for us.  So, [March] will be a record sales month. The vehicle continues to be hot and the hybrid technology still seems to be a winner with consumers. 

MG: Are you seeing the same customer shift across all your vehicles? 

BE: Yes, definitely.  We are seeing this with the Camry, our top selling car.  That vehicle as a hybrid version has become very hot.  The demographic is such that the more mainstream Camry buyers interested in a hybrid version found the premium to be tolerable.  

Right now, our belief is that integrating hybrid technology into more of our vehicles is the smart thing to do.   

MG:  How have you evolved your marketing as your audience shifts?  

BE: We have changed our marketing approach to push it towards a more mainstream audience.  We pulled all of our Prius advertising for a while.  While was kind of unique in of itself – and perhaps green-oriented you might say – because we did not have enough vehicles to supply demand.  But we have changed that now.  

We do some different things besides straight advertising.   We have a hybrid synergy tour, for instance, that launched last month.  It really is an educational effort on our part. It is almost like a moving auto show on a semi-truck that exhibits our hybrid technology and how we are trying to integrate it into other vehicles that we are bringing to market.    

We show [consumers] how the technology works.  People like the idea of the regenerative nature, where you are actually recharging the battery when you put on the brakes.  At the same time, there are others who want us to develop a Prius that you can plug-in to the electric grid to recharge the battery.   

From a pricing standpoint, we are trying to offer more in that vehicle for the money.  For instance, we are coming out with different versions of the Prius, a sports version.  We put leather in the car last year and added more features.  People wanted a little bit of a luxury feel to the vehicle which may seem counter to the type of people that we may think buy that vehicle.    

MG: Overall, how would you characterize your target audience?  

BE: We are seeing a broader customer demographic base that we have in the past based on our research.   

People feel it is a smart decision on their part to drive a vehicle with hybrid technology.  They do not think that they are bragging or showing off or becoming a tree hugger.


Engaging Green Consumers through Consumer Generated Content

April 19, 2007

Part I of an Interview with Bruce Ertmann, Corporate Manager of Consumer Generated Media, Toyota 


Most companies find themselves today grappling with how to manage consumer generated content (CGC).  On the one hand, by facilitating CGC creation, companies provide an opportunity for consumers to engage with a brand.  On the other hand, when CGC is created and shared broadly, it has the potential to influence and shape brand perceptions independent of company-sanctioned efforts and direction.  Not surprisingly, corporate executives used to tightly controlling brand messaging tend to be uncomfortable with CGC due to its unpredictable nature.

Yet, companies like Toyota are embracing this challenge and testing the CGC waters across all of their brands and products (whether specifically green or not).   In the process, they are finding that CGC can provide not only an engaging way to interact with consumers, but also an informal channel through which to build relationships with them.  Specifically, Toyota has demonstrated best practices by leveraging CGC to:

Build brand engagement:  Companies are facilitating content creation as a way to drive meaningful brand engagement.  Toyota marketing has done this through, for example, its “Everyone has their reason” campaign that solicits testimonials from hybrid owners about why they purchased their vehicles and invites them to join their community.

Activate influencers: Companies are generating buzz and stimulating viral marketing by activating key influencers – including bloggers and enthusiast site operators. 

For Toyota, this goes beyond seeding information to bloggers, but includes actively engaging them in ways once reserved for traditional media.  This may include inviting bloggers to press events or granting them access to key executives for interviews.  By doing so, Toyota has implicitly recognized non-traditional media as not only a legitimate media outlet, but one that is increasingly in competition with traditional media for share of voice.

Moreover, by engaging enthusiasts, companies empower them to serve as advocates for the brands for which they are passionate.  For Toyota, that has meant that enthusiasts have stepped into a quasi customer service role by explaining difficult issues to consumers seeking information or perhaps even speaking on behalf of the company during a product recall.

Establish a dialogue with consumers: Consumer-to-consumer dialogue is proliferating, driven by the emergence of social networks and chat sites.  More and more, these sites are catering to niche segments, enabled by online platforms such as Ning, KickApps, GoingOn, and PeopleAggregator for social networking and Chatzy and ChatShack for chat.  

Corporations have an opportunity to move beyond push marketing by participating in a dialogue with consumers on such sites, or perhaps even at live events.  Corporations, however, should tread lightly when participating in consumer-driven chat rooms and communities; full transparency is a must when doing so.

Toyota has stepped into this dialogue by participating in online chat sites, communities, and even offline enthusiast-initiated events.  In the process, it has discovered that such conversation creates a two-way communication channel.  This dialogue can be invaluable for things like reaching customers that have had a less than optimal experience through more formal service channels and touch points.

Recently, I had the opportunity to speak with Bruce Ertmann, Corporate Manager of Consumer Generated Media at Toyota, about the role of CGC at the company, specific initiatives in market and impact in the green space.  Here is what he had to say:

MG: Some might think it somewhat strange for an automobile manufacturer to employ a corporate manager of consumer generated media.  As such, please tell me why this media is so important to Toyota and what your role is in facilitating its creation.   

BE: What we have found and heard from respected sources like BuzzMetrics is that consumers are becoming more prolific on the Internet and have started to use the Internet as a communication tool – to get information, share stories and opinions with others, etc. 

Moreover, this communications space has become very, very influential.  Consumers trust other consumers more than anyone else. And as a corporate entity, we felt that to ignore that space would be very foolish.  To jump in as a big corporate entity and just crash the party would not be appropriate either. 

As such, we felt that we needed to embrace what we call the non-traditional media and include it as part of our overall corporate communication plan.  We view this as a complement to what we do in corporate communications today and not in any way a replacement. 

My job has been to introduce that thinking into our business plan, and, in particular, into corporate communications which is where I work.  At the same time, I help educate our senior management as to why it is important to do that.

MG: Senior executives typically resist efforts to encourage consumers to voice their opinion. In particular, executives feel that by doing so they are losing control over their corporate brand identity.  Was that the case at Toyota?  

BE: To some extent there has been that concern.  When something negative comes about with respect to the company – a product issue, for instance, a recall perhaps – we tend to be proactive in making sure that we address it and communicate it directly to those customers that have that particular product. 

But we are also very reluctant – as most companies may be – to publicize it or to share it outside of the need to know.  In other words, there is a belief that a recall has a stigma attached to it.  So from a product’s stand point, there is a bigger concern amongst senior management that we would lose control.

If we are going to participate on blogs and in online dialogues then, it is all important that we be as transparent as we can, and maybe be upfront in sharing some of the things that previously would be a little embarrassing to us. 

The way I view this is almost with reverse logic when in comes to a recall. We should be the ones to control the message to the public because there aren’t any real secrets with respect to the Internet.  Part of my job is to educate senior management as to why doing almost the opposite of what they are accustomed to may be the thing we should do. 

I think I have been able to show where it has been very effective in terms of making these types of recalls go smoother, or perhaps mitigating some of the bash talk by people online that say we are going so fast that our quality is slipping.

MG: In many ways you are creating a channel for the customers to express their opinions, rather than having them find or create their own channels to express them.  When using your channels, consumers may be more polite when expressing their dissatisfaction, because they are communicating directly with you rather than more anonymously to the world at large.  Have you found this to be the case? 

BE: That is correct. What it has helped do is to find those customers who somehow have fallen through the cracks so to speak with respect to an issue or a product.  I have been able to find some of them online and get these people to the right person to resolve their issue.  

We do a lot of product marketing events where we invited traditional media to “ride and drive” weekends. I have been successful in convincing marketing, for instance, to also include non-traditional journalists – bloggers and web operators of online enthusiast sites.  This has actually been pretty successful because [non-traditional journalists] tend to compete, if you will, with the traditional media. 

MG: Absolutely! 

BE: I have been successful in getting our marketing group to now include select bloggers in our events, and have been rewarded with some pretty good blog posts as a result. 

One site we have worked with in the past is PriusChat.com.  I think there are about 16,000 regular members of that enthusiast site.  And I have been told by BuzzMetrics that there could be five times as many people who access the site just to read the comments. 

MG: Tell me how you have worked with PriusChat.com and other hybrid enthusiast sites to engage with consumers. 

When I worked at the customer experience center, we launched the first generation Prius.  We had an issue with EPA mileage ratings of 60 [miles per gallon].  Quite frankly, in the real world you do not get 60 miles per gallon which became a customer satisfaction issue. 

When I found the PriusChat.com site, I was impressed with the level of knowledge that some of the regular posters who were diehard Toyota Prius enthusiasts.  And I found that there was quite a lot of discussion about the mileage issue back then. 

But, what I also found was that [the online discussion] was naturally self-regulating.  In other words, someone would make a post about a new Prius: “I am happy about it but I am really concerned about the mileage I am getting.”  Well, one of the experts on the vehicle would post a comment to that, in a professional manner, explaining the real world realities of the EPA tests.  And over time, it helped to communicate – in a much better way than we were able to do – the realities of driving a hybrid vehicle. 

I was impressed by an online consumer driven enthusiast site that basically handled a consumer relations problem that for us was difficult to communicate.

MG: What about in the case of a product recall? 

BE: We had a special service campaign, or recall, on the steering component of the Prius last year. This was perhaps a more serious recall because it was on our Prius which is our only unique hybrid vehicle, and it involved a steering component which is technically a safety-related issue.  As such, we foresaw the potential for considerable concern by vehicle owners.  We also risked having others seize this moment to criticize us and our technology. 

So, I worked with that enthusiast site in this instance.  I started with a special communications to them.  There were people on the site that understand the technology and did a great job of taking what I would post and adding their own commentary to create positive sentiment towards our actions than we might have accomplished before. 

We had a good relationship with that site, in part, because I had the opportunity to meet the owner – oddly enough because I noticed a post of his one day where he was talking about actually getting a Prius.  Many members of the site were almost flabbergasted that here is the guy that started PriusChat but never actually owed one.  But he explained that he had a Toyota and he wanted to get a Prius, but had to put the money aside to do so.  He was actually buying one from a dealership in Chicago so he kinds of made it into an event with this web site and the members were a part of it. 

The event was planned for when he came to Chicago to take delivery of his Prius.  They had a lot of the Chicago members come, but other consumers flew into Chicago to participate in this event as well.  

MG: That is impressive.  Was Toyota involved in planning this event? 

BE: No, but I did make an effort to attend.  I was impressed that these participants in an online site would get together.  So I did show up; it was held at a dealership.   [The site operator] actually lives in Columbia, South Carolina so he flew up there to take delivery of the vehicle. And then he posted online the route they were taking driving back. 

[The day of the event] was hot and muggy. I was in my cargo shorts and polo shirt.  We had name tags.  Mine identified me as TMS USA [Toyota Motor Sales].  It was funny because I was so accustomed to seeing some of the screen names of some of the regulars on this site. To see them in person was very interesting.  There were doctors, there was a lawyer, a homemaker.

Conversely, when they looked at me they said: “You must be kidding.  You are Toyota?”.  I go, “Yea, I’m Bruce.  I am Toyota”.  They were quite impressed that I actually came out for that.


How Many Green Marketers Does It Take to Change a Light Bulb?

March 31, 2007

Answer: We may never find out as long as the sales model remains flawed.

 

Fluorescent light bulbs have proven difficult to market.  First, consumers have not demonstrated a strong willingness to pay a price premium for the bulbs. (While the price has fallen in recent years, the cost of a fluorescent bulb is still more than 3x the cost of comparable incandescent bulbs.)  Second, despite the fact that each fluorescent bulb can save between $30 and $100+ over its lifetime, consumers resist paying today for promised savings in the future.

Yet, such high potential savings for consumers may open up a game-changing opportunity for green marketers and investors: Instead of having consumers pay for the bulbs upfront, have consumers pay later through installment payments that are tied to energy savings.  To make this a reality, consumers must be willing share a portion of the cost savings to cover the cost of financing the bulbs until repayment, as well as associated transaction fees, bad debt and program administrative costs.

Despite the higher costs and risks associated with such a program, this business model is feasible for several reasons.  First, the payback period to recoup the cost of the bulbs is short, ranging from 4-12 months.  Not only does this minimize the financial risk of such a program but it also reduces any pric epremium required – over and above the cost of the bulbs – to cover added expenses and hedge against risk.

fluorescent-bulb-economics2.jpg 

Survey of Home Depot single and multi-pack fluorescent bulbs based on current retail prices and the average (undiscounted) savings over their projected lifespan 

 

 

Second, consumers have a significant financial incentive to sign up for such a program: a typical household could realize more than $1,000 in savings over a 7-9 year product lifespan by simply changing 20 incandescent bulbs to fluorescents.  As such, even with an added premium to enable an installment plan, consumers will generate significant savings from this program over time.

While many companies and industries could take advantage of this opportunity, those with existing recurring billing relationships – including utilities and mortgage companies and even cable and telephone providers – are perhaps best situated to do so.  An installment plan could be tacked on to existing monthly bills and only offered to creditworthy customers to reduce risk.  Retailers could leverage credit cards as a payment vehicle, but would likely have to charge higher premiums to consumers in order to cover higher transaction fees and possible allowances for card churn.

Of course, marketers will have to address inevitable concerns given that consumers are currently not accustomed to deferring payment or monitoring recurring billing on small ticket items.  Moreover, consumers may simply forget that they signed up for such a program leading to a poor consumer experience, or perhaps be skeptical about how much energy they are actually saving given the difficulty of tracking such savings when bills fluctuate month to month.  As such, marketers may consider product and customer satisfaction guarantees to help overcome reservations.

Green marketers – think outside the current way of doing business!  Seize this opportunity and create a win-win-win for business, consumers and the environment.


Green Consumer Behavior – Part III: Changing Behavior without Changing Attitudes

March 27, 2007

Marketers have historically faced an uphill battle when it comes to marketing eco-friendly goods.  Simply put, it is difficult to influence consumer purchase behavior without first impacting attitudes and values.  These values, however, take a concerted effort over a long period of time to change. 

As a result, corporate marketers tend to stay clear of awareness and education communications, preferring to target consumers lower in the purchase funnel who are already predisposed to green messaging.  The reason for this is self-evident: when it comes to green, acquisition campaigns have higher and more immediate financial returns than awareness campaigns. 

Yet, for marketers, the opportunity exists to influence environmentally friendly behavior without necessarily shifting attitudes.  This effect has been subject of academic investigation including a study conducted by Professors John Thøgersen and Folke Ölander of the Aarhus School of Business (Denmark) examining the relationship between “value priorities” and “environmentally-friendly consumer behavior.”   

As part of this study, Thøgersen and Ölander examined the impact of recycling on the values and behaviors of Danish consumers over the course of one year. (“Human Values and the Emergence of a Sustainable Consumption Pattern: A Panel Study,” Journal of Economic Psychology, 2002).  The results of such investigation reveal several key findings that green marketers should consider:

First, the study reconfirmed that values drive behavior (while the converse relationship was not found to be statistically significant).  While not surprising, this result confirms that marketers face an uphill battle if they are to influence environmentally friendly behavior without first addressing values. 

Second, the study found that values are very stable and are difficult to impact in the “short and medium term.”  Finally, behavior change, the authors concluded, is hindered not only by values but by “behavioural inertia, created by forces [such as established habits] that are independent of – or at least not related in a simple way to – values”.    

Yet significantly for marketers, the study also suggests that for those that already hold environmentally friendly values, environmentally friendly behavior can evolve over time if consumers are provided the opportunity to engage in this behavior.  Thøgersen and Ölander concluded that “when new opportunities for environmentally-friendly behaviour are offered, consumers holding ‘environmentally-friendly values’ adjust their behaviour to be more consistent with their values.”  This finding implies that consumers who hold green values will demonstrate greener behavior if presented with relevant products or services.   

For marketers, the findings of this study help to uncover several opportunities to consider: 

Cultivate “greener than average” behavior: Half the products sold in the market are simply greener than the other half.  As such, marketers of “greener than average” products should make this a source of differentiation to attract consumers receptive to green messaging or cross-sell/up-sell existing customers to even “greener” products. 

For example, Honda is currently running a campaign to build awareness about how fuel efficient its cars fleet is.  With an average fuel economy of 30.1 MPG, Honda claims to sell “greener” products (inclusive of both hybrid and conventional engines) that are more than 20% more fuel efficient than the US average over the past 10 years. 

While such positioning can build awareness for its automobiles’ fuel economy, Honda can also leverage this campaign to build loyalty and even drive resale with its existing consumer base.  To do so, Honda must reinforce and cultivate “greener” behavior through congratulatory messaging at the time of purchase (ie, through “You made the right choice for you and the environment” messaging), as well as through results-based messaging throughout the customer lifecycle (ie, through “By driving a Honda, you have prevented 1000 lbs of CO2 from being released into our environment this year over an average vehicle.  Collectively, we are making a difference” messaging).  When it comes to resell, Honda should then try to up-sell a customer to an even greener vehicle or model. 

Target nascent green value holders:  Marketers should seize opportunities to speak with broader audiences who may not hold strong green values, but may be developing a greater affinity for environmental causes. These individuals may be more receptive to the green message when it is contextually relevant.   

The upcoming Live Earth concert may be one such opportunity.  Planned for 07/07/07, Live Earth will reach an estimated 2 billion people globally.  Sponsorship of this concert provides marketers with the opportunity to build brand awareness, educate consumers and even drive acquisition. 

Take advantage of government regulation that mandates behavior change:  As more governments grapple with how to reduce carbon emissions, governments will take action in order to accelerate change in consumer behavior.  One intriguing example is fluorescent light bulbs, often cited as low hanging fruit in the effort to slow global warming. 

For example, the adoption of fluorescent light bulbs by consumers has been slow for a variety of reasons: unconventional shape (though companies have started to change this), harsh ‘industrial’ light emitted, and high initial price (though bulbs last longer and save significant money on electricity bills over time).  

Despite these hurdles, several retailers have taken on the challenge.  For example, Home Depot sold 60MM fluorescent light bulbs last year while Wal-Mart intends to sell 100MM this year.  However, without significant change in consumer attitudes (combined perhaps with aggressive marketing tactics or financial incentives), these goals may fall short. 

Recently, however, legislatures have stepped up to fill the green behavior void – with legislation passed (EU, Australia) or up for consideration (California and Canada) to effectively phase out incandescent bulbs (by making efficiency standards higher than what can be currently achieved by current technology).  In effect, regulation would force consumers to switch en masse to more efficient light bulbs – and do so without first influencing consumer attitudes. 


Green Labels as Driver of Consumption and Loyalty Programs

March 19, 2007

It was not too surprising that Wal-Mart announced last week that it intends to provide its customers with carbon ratings for the electronics products it sells. This announcement comes at the heels of (and perhaps in response to) the announcement by UK-based Tesco – the world’s fifth largest retailer – that it would provide eco-ratings on every product within its stores.  Green labels, intended to provide consumers with transparency about a product’s carbon footprint, will effectively introduce sustainability as a considered attribute in every consumer purchase decision.

There are several strategic motivations for a company like Tesco to be a first mover on green labels.  First, there are societal benefits: manufacturers will likely feel pressure to reduce their product’s carbon footprint or risk losing market share to those who do.  Second, such a move creates positive buzz for the company and bolsters its brand image and green credentials.   

Finally, by making such information available in the store aisle or online catalog, Tesco allows consumers to make purchase decisions based on a product’s environmental impact – similar to the way that nutritional labels inform food purchases today.  By capturing and analyzing this purchase data, Tesco can generate in-depth consumer insights about what role sustainability plays in purchase decisions across segments, product categories and geographies.  

While such insights can be used to drive incremental sales, the biggest win for Tesco may be to enhance its existing Clubcard (and nascent Green Clubcard) program by vastly expanding the categories in which consumers can earn program points by purchasing greener products.  In turn, Tesco will position itself to capture an increased share of spend and expand Tesco’s appeal to include all consumers with an affinity for green. 

For marketers, in particular retailers, Tesco’s green loyalty program provides best practices that should be considered when launching similar programs (thanks to Nunes and Drèze for their recently published article in Harvard Business Review, “Your Loyalty Program is Betraying You”, which provides a broad roadmap):

Create the right balance between spending and reward: Tesco’s program rewards consumers with redeemable vouchers on a quarterly basis based on tiered levels of spending.  For consumers, such a program provides incentives to consolidate spend at a single retailer in order to maximize rewards over time. (This is in contrast to rewards granted at the time of purchase as in the case of in-store coupons). The proliferation of green labels will only expand the program’s appeal by attracting consumers who would prefer to purchase greener (though not necessarily ‘green’) products and by rewarding consumers for doing so. 

Build a “sense of momentum”: It has been demonstrated that consumers are often filled with a sense of inertia if rewards seem too far away to be achievable.  Moreover, consumers are known to accelerate their purchases as they get closer to obtaining a reward.  As such, retailers often try to provide ways overcome inertia for those new to the program, as well as to accelerate spending by those who are close to earning rewards.   

Tesco’s current promotion offering double Clubcard points on the purchase of green products may be designed to do just that.  Green spending will increase not only because double points are being offered, but also because by making it a temporary promotion, Tesco has created a sense of urgency to acquire points before time runs out.  

Provide rewards that increase stickiness: With Tesco, consumers earn points that can be redeemed for Tesco merchandise online, in-store or for 4x their value on special Clubcard partner deals (eg, amusement parks, restaurants, hotels).  This flexibility enables consumers to leverage these points to splurge on items that they perhaps would not ordinarily purchase, creating more stickiness than with programs that offer more narrowly defined benefits.  It is reasonable to assume that Tesco will add green rewards to this portfolio in the near-term. 

Drive incremental sales:  Retailers should provide incentives to entice consumers to purchase products that they would not have thought about ordinarily, but would consider purchasing given the right offer.  For example, by leveraging its rich transaction data on green products, Tesco will be able to identify complementary green products that can drive incremental sales.   

Additionally, Tesco can develop “customer lookalike models” to identify consumers that look like the store’s best green consumers, but have different levels of current spending on green products.  By doing so, Tesco can target these consumers with relevant green product messaging and drive incremental sales.   

Marketers should take note.  Green labels will empower consumers with information to help them make more informed green purchase decisions.  Similarly, smart retailers should look for ways to reward this behavior in order to capture increased wallet share and cultivate greater loyalty from their customers.   


Green Consumer Behavior – Part II: Evolving Social Norms toward the Environment

January 27, 2007

Joel Makower’s recent blog entitled “Is ‘Carbon Neutral’ Good Enough?” speaks to the growing trend to offset carbon emissions generated from personal or business activities.  Consumer sentiment is changing in the US, with a growing consensus on the need for action to mitigate global warming.  As Makower points out, companies such as DHL and UK-airline Silverjet have recently launched new services that include carbon offsets into the price, while TerraPass, Kärcher USA and Sam’ Club announced the first carbon-balanced retail product.  In fact, as Makower notes, carbon neutral “is rapidly becoming a minimum expectation of companies, concerts, conferences [and] celebrations.” 

Marketers should take note of this emerging trend and its underlying motivations: when it comes to global warming, social norms are evolving.  Quite simply, it is becoming less and less acceptable for companies not to take responsibility for their own (or their customers’) carbon emissions. 

The notion of carbon responsibility first became popular on the global stage in relation to leisure and non-essential business activities.  Examples include global sports events or conferences.  Recently, it has spread to corporations that anticipate the inevitability of government caps on carbon (if not governed by them already), as well as to consumers who are increasingly conscious of their own responsibilities and frustrated by the inaction of their own governments. 

Academic literature addresses this impact.  In his Focus Theory of Normative Conduct, Cialdini et al (1990) suggest that social norms influence acceptable and unacceptable behaviors.  He identifies two types of social norms: 

  • Descriptive norms: “what [other] people typically do”
  • Injunctive norms: “what [other] people typically approve or disapprove [of]”

Only by aligning descriptive norms…with injunctive norms,” Cialdini et al proposed, “can one optimize the power of normative appeals.” 

Cialdini presents empirical evidence for his theory and how it impacts environmentally responsible behavior.  In one experiment, he tested the propensity for people to litter given different social norms and cues.  Results demonstrated the power of the descriptive and injunctive norms for littering: people displayed a higher propensity to litter when the environment dictated litter as the norm (e.g. there was more litter on the ground or others were observed littering) and a lower propensity to litter when it was clear cleanliness was the “approved” norm (e.g. after observing someone else litter within a clean environment).  

One could argue that similar dynamics are in play when it comes to action (or inaction) on global warming.  In this case, at least until very recently within the US, the prevailing descriptive norm was to do nothing, because that is what everyone else was doing. 

Two things are occurring that seem to be changing this.  First, descriptive norms within the global community apprear to be evolving.  These norms have shifted more dramatically in Europe and Japan and provide tangible examples for the US to follow.  Some initial signs of change have appeared: 1) US multinational companies have joined the Chicago Climate Exchange and committed to voluntary carbon reductions, 2) state and local governments have enacted sweeping legislation to cap carbon emissions and 3) individual consumers are purchasing an increasing number of higher gas mileage vehicles. 

Second, injunctive norms are also changing as global social norms shift toward responsibility for carbon emissions.  Much like the smoking ban enacted in 2003 in New York City, which is credited for inspiring similar bans globally, global social norms are shifting in regard to global warming.  As Al Gore stated in his movie, we have a “moral responsibility” to take action – and it seems that we are slowing beginning to do that. 

So, marketers should take note.  Campaigns should take advantage of – as well as reinforce – evolving social norms and do so in a way that incorporates both descriptive and injunctive norms into their messaging.

References

Cialdini, Robert, R Reno, and C Kallgren, 1990. “A Focus Theory of Normative Conduct: a theoretical refinement and re-evaluation of the role of norms in human behavior.”  Advances in Experimental Social Psychology, 24, 201-234 

Cialdini, Robert, 2003. “Crafting normative messages to protect the environment”, in Current Directions in Psychological Science, 12-4, 105


Leasing the Sun

November 29, 2006

An interview with Jigar Shah, CEO, SunEdison

SunEdison was founded with the goal of making solar power accessible and affordable for businesses.  It has done just that.

Traditionally, an investment in solar energy was complex, requiring a company to acquire new skills and make significant capital investments with uncertain returns.  For solar marketers, such deals – with so many inherent barriers to overcome – are complex to message, let alone to explain.  Quite simply, how can companies be convinced to invest in solar energy when such an investment is not core to their business? 

SunEdison pioneered a way that makes it possible.  Through its model, SunEdison finances, installs and maintains solar cells for businesses in exchange for a long-term commitment to purchase the energy at a competitive rate.  For SunEdison, such installations break even in 7-10 years, and provide a low risk annuity for the company and its investors thereafter.  

Recently, Marketing Green caught up with Jigar Shah, SunEdison’s Founder and CEO.  Here is what he had to say: 

MG: You are considered by most to be the pioneer of the “solar energy services” model. When SunEdison launched this model, it represented a clear shift in the way solar energy was financed and marketed. What was the impetus for the change? How has this model evolved over time? How successful has it been?

JS: Deploying solar has always been complex. It still is. For many years there were significant disincentives that deterred commercial, government and utility customers from turning to solar energy. No one could justify the upfront capital outlays or the lengthy periods required to recognize a return on investment, and no one wanted to manage the complex transactions.

So that was the impetus: By moving from a manufacturing-based product model to a turn-key services model, SunEdison was able to absorb the upfront costs of building a solar system at the customer premise. Most important, we have simplified the entire process for the customer.

The model is evolving. We’re becoming more refined and looking at our solar services model in terms of a complete service. For example, while our primary offer is renewable power services, we also offer complementary services such as power usage monitoring for internal recordkeeping. We expect to continue to evolve in that direction because the services model has been very successful. It’s has been adopted by high profile users such as Xcel Energy, the State of California and Staples.

MG: What is SunEdison’s brand promise?  How does your company fulfill on this promise each day?

JS: Our brand promise is that we simplify solar and deliver predictable pricing of renewable energy services that meet our customers’ energy requirements at or below current retail utility rates.

At the end of the day, we sell electricity, not just solar equipment. Unlike a traditional product vendor, who might sell you an installation of solar panels and then walk away, we go in under the promise of selling the customer electricity that we generate at their facility. If we don’t generate it, they don’t pay for it. Because we own the solar energy systems, we have a strong, built-in check to maintain our brand with the customer. We only make money when our systems actually produce energy.

MG: Selling solar services must require a high touch sales process with along sales cycle. What role does marketing play throughout this process? What channels are used – both online and offline – and how are they leveraged? 

JS: It does indeed require a high touch sales process. That said, the sales cycles aren’t necessarily as long as you would expect. We’ve removed many of the barriers that would slow down other offers: financing, installation, maintenance, etc. For our customers, if it makes business sense the decision becomes a no-brainer. Solar is really becoming a mainstream component for commercial, government and utility entities. People are more comfortable with it. They see the opportunity costs of traditional solutions and there are coming to the point now of saying, “Why not solar?”

From a marketing standpoint, I’ve never been in a space where there was such pent up demand for a service as I’ve seen in this industry.

The real marketing challenge is how to position us relative to other vendors in the industry. For us, this is clear: We are a solar energy service provider. We’re the first and largest solar company to offer solar electricity as a service, so we’re in a pretty good spot in terms of differentiation.

Most of our customers come to us through references. We cover a lot of national accounts that provide good revenue and new development opportunities. Plus, we also pursue a lot of channels in government and the utilities sectors. We stay acutely aware of the government environment through extensive research – whether it be RFPs or other funding vehicles.

MG: What are the key factors that influence your customers’ decision-making process? Does the decision to sign a solar energy contract have more to do with the underlying ethos of their brand or is it simply based on cost-saving considerations? 

JS: First, none of them want to own a power plants – it’s just not core to their business. But they want solar power to lower energy costs through predictable pricing, and to improve the state of their environment. They want a solution with little or no disruption to their existing business. An example is Whole Foods. We offered a contract that locked in electricity rates for ten to twenty years. That removes volatility from their utility bills and provides a hedge against increasing rates in the electricity market. So that’s a strong business rationale. There is literally no other solution on the market where you can lock in part of your electric utility costs for that length of time.

So, it’s got to be cost-effective or people won’t make the decision. In addition, renewable energy provides a lot of supporting messages that ultimately are emotional triggers for decision makers, which helps them justify the proposition. Those supporting measures are everything from global warming to a keen desire, especially in the U.S., to break away from our current dependency on foreign oil.

MG: How will this model be scaled in the coming “solar decade?”  What are the key barriers in doing so? 

JS: From a scalability standpoint, the industry confronts a number of challenges. One is straight forward logistics; we’ve got to have trained and qualified installers – people who can install systems in such a way that they’ll last for 20 to 30 years – and second, we’ve got to have the supply chain built out sufficiently for the demand. Manufacturers are doing that now but we’re not there yet.

The third major challenge is that we’ve got to look at the industry in a broader sweep. Solar vendors have tended to look at their systems as isolated energy generation systems, but they’re really all inter-networked through the connectivity of the grid. There is a tremendous untapped network effect that’s not being accounted for by most players in the market. That is, the ability to monitor, control, and dispatch energy or shed load onto or from the public grid in a highly centralized manner from thousands of distributed energy assets. That will be incredibly valuable. Right now the industry lacks some key standards that will really enable that market and that function, but those standards are being worked on and as they evolve the effect will be knock down those barriers.

MG: Can this model be extended to the residential market?  If so, how will the way it’s marketed be different than it is today?

JS: It doesn’t really for work for our business model just yet. The economies of scale really don’t come into play when you’re dealing with thousands of small power plants at each home. Having said that, I think the right way to look at this is to recall the way in which the PC and the networked PC model evolved. What kind of computing power was available to the average homeowner in 1975? There were really no PC’s, and nobody was buying a mainframe or mini-computers for their home use. The switch really didn’t happen for another five to ten years. Broad scale adoption will probably happen in a similar manner in this market as well.


Sustainable by Design

October 13, 2006

An Interview with Ian Yolles, VP of Marketing, Nau

What if you could build a company from the ground up, where every decision was based on the principles of sustainability? Nau is an emerging outdoor apparel company that is trying to do just that. In fact, even its corporate bylaws state that fiduciary responsibility to shareholders must be balanced by the needs of the environment.

In doing so, it is going to market with a three point differentiation strategy:

  • Sell high-performance, high-design apparel made solely using sustainable sources and practices
  • Transform the traditional retail concept into a physical “Webfront“. In this setting, consumers can browse and try on the apparel in a gallery-like setting, but are provided with an incentive to order through kiosks and have merchandise shipped to them – much like an e-commerce experience. This allows the store to have a smaller footprint, carry fewer inventories, and reduce operating costs and the overall impact on the environment.
  • Engage consumers in the brand through active dialogue (e.g., blog) and philanthropic giving (5% of sales donated to one of a list of charities)

Sustainability is often viewed as a competitive handicap. Few companies have been successful in building their brand while adhering to such principles. Nau’s plans to revolutionize the product, the retail space and consumer experience simultaneously are ambitious and will test the size and loyalty of the emerging eco-friendly consumer segment. This is a brand to watch as we move forward toward a more sustainable world.

I recently spoke with Ian Yolles, Nau’s VP of Marketing. Here’s what he had to say:

MG: What are your key brand attributes?

IY: Performance, sustainability and beauty.

MG: Will your brand resonate with eco-conscious and not so eco-conscious consumers?

IY: Absolutely. I do not believe we will be successful solely on the basis of sustainability; the product has to do a lot more. If you look at our product, for anyone who leads an active life…if you look at it visually, you will see performance cues and design cues…and have a differentiated point of view to make it successful on those two attributes alone.

MG: Is a business that sells sustainable products itself sustainable?

IY: We get asked that a lot. “Isn’t this a passing fade or trend”? Our point of view: Interest in sustainability reflects a much deeper and much longer shift and does not reflect a passing trend. Evidence to suggest this? Look at GE. Last year they announced ‘ecoimagination’. One effect is that it impacts [GE’s] marketing. It also reflects a shift in thinking at GE. This was not driven by purely an idealistic view but rather because it’s good for business.

MG: How will you revolutionize the retail environment?

IY: [Nau’s point of view] comes from a broader perspective about consumer shopping behavior. In 2006, we see that the Internet has influenced how people are learning, getting information. It also has influenced shopping behavior: People often start online by doing research; particularly in the case of an apparel product, they want to try it on and then go home and find it online for the lowest possible cost. In e-commerce and traditional channels, no one has connect the dots to reflect changing behavior of consumers. We are connecting the dots for them.

MG: How does it work?

IY: “Webfronts” integrate the website shopping experience with the storefront shopping one. If you want to buy it [at the store], you can do it. There will be sales reps there and POS terminals there. But, we will incentivise you to make a different choice: Purchase at an [in-store] interactive display. Shipping is at no extra cost, and we will offer you a 10% discount.

The outdoor and broader sports industry is structured as a wholesale model. With “webfronts”, we are taking out the middle man. Webfront efficiencies [such as smaller store footprints, centralized inventory, fewer inventories] and flexibilities change what you can do with the business model. [For example], we will engage every one of our customers directly and experientially in the giving process with a direct donation [via 5% of sales to the philanthropy] of their choice. The current benchmark is Patagonia at 1% of sales. 5% is well beyond what corporate America is doing.

MG: How else will you interact with your consumers?

IY: Through participation, dialogue and engagement. The brand has to have one identify and clear point of view. But the world is changing, and the idea is to have a brand that invites dialogue, engagement. We launched through ‘The Thought Kitchen’ (blog). It is the location where people engage in ideas. We aspire to be very authentic, transparent in how we communicate with them.

MG: Will competitors follow your lead?

IY: It will be very hard for competitors to adapt. We are a direct business; other companies are tethered to a wholesale model. Any change will cause conflict between the channels. Transition for them would be very difficult. It also takes a different mindset to operate a direct business versus a wholesale model.


Bottled Water Backlash

September 10, 2006

The $10B* bottled US water industry has enjoyed aggressive growth over the past decade. With over a 9% CAGR since 2000, the industry does not show many signs of slowing down (International Bottled Water Association). Today, one in two Americans drink bottled water while one in six drink it exclusively (Corporate Accountability International).

Marketers have fueled this growth by creating the perception in consumers minds that bottled water is better than tap water in three ways: it is healthier (i.e., based on purity, perceived health benefits), better tasting and more convenient.

While it may be convenient to pick up a cold bottle of water at the local convenience store (and perhaps a healthier alternative to soda), it is a misperception – fueled by marketers – that bottled water is healthier or necessarily tastes better than tap.

Bottled water is not necessarily healthier that tap: While different agencies govern tap water (Environmental Protection Agency) and bottled water (Food and Drug Administration), for the most part, similar standards have been adopted by both.

Consumers can not distinguish bottled and tap water by taste: Corporate Accountability International staged a “Tap Water Challenge”, a blind taste test in 8 US cities where consumers were asked to differentiate by taste between bottled (spring – Nestle’s Poland Spring and “purified” tap water – PepsiCo’s Aquifina or Coca-Cola’s Desani) and regular tap water. Overwhelmingly, participants could not distinguish one from another.

As such, the current brand positioning for bottle water is at odds with greens who view bottled water as detrimental to the environment (e.g., higher use of fuels to bottle and transport water) and, potentially, municipal supplies (e.g., may divert consumer interest and investment away from public water systems, unsustainable pumping of local aquifers). Brands may face negative impact if recent anti-bottled water campaigns such CAI’s “Think Outside the Bottle” resonate with even a small segment of consumers.

Marketers might want a preemptive strike:

Make product more eco-friendly and clearly label it so: Shift to eco-friendly packaging, tap local supplies to reduce transportation costs, ensure that the water comes from a sustainable source.

Donate % of profits to charity. Starbucks has it right. If you are selling a commodity to consumers at a premium price, why not ask them to help ensure that others have access to safe (public) drinking water as well? Through its Ethos brand, Starbucks plans to donate $10 million over the next five years for clean-water sources in poor countries (or about $0.05 per bottle).

*2005 forecast for producer revenue only, Beverage Marketing Corporation


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