Open Skies Agreement Provides a Glimpse of What’s to Come in a Carbon-Regulated Environment

March 29, 2008

Today, many executives, and especially those working in carbon-intensive industries, are grappling with how future carbon regulation may impact their businesses and industries.   

To deal with uncertainty regarding such strategic issues, many corporate executives turn to scenario planning or even game theory to think about how the future competitive environment may unfold and how it may impact their companies.  By doing so, corporate executives are, in effect, peering into the future to get a glimpse of what may come. 

Given its contribution to climate change, expected growth rate and evolving regulatory environment, the commercial airline industry presents an interesting case study to learn how competitive dynamics may change in a carbon-regulated environment. 

Today, airlines are responsible for emitting 2-4% of greenhouse gases from manmade sources.  Significant gains in fuel economy have been made with each generation of aircraft; the new Boeing 787, for example, promises a 20% increase in fuel efficiency.  Yet, total emissions continue to rise as industry growth (4.4%) has outpaced fuel economy (1.3%) by more than 3:1. 

There have been attempts made to regulate carbon emitted from commercial aviation.  The Kyoto Protocol, for example, counts emissions from domestic airline sources in its targets.  Emissions from international travel are omitted, however.  

While there is growing support to include international aviation under any successor treaty to Kyoto, it is far from certain that this will happen.  As such, the EU has taken unilateral action by imposing higher landing fees based on a plane’s greenhouse gas emissions (pending parliamentary approval).  This arrangement would include not only internal EU flights (by 2011) but, very importantly, international flights that take off or land from the EU (by 2012).   

By doing so, the EU is flexing its muscle, establishing its authority to regulate carbon emissions for companies that operate, but are not based, within the EU.  While similar to how more terrestrial multi-national corporations operate today, this is groundbreaking in the airline industry: historically the industry was regulated through bilateral negotiations or the UN’s International Civil Aviation Organization.  In effect, the EU is simultaneously balancing growth objectives in aviation with its efforts to mitigate environmental impact.   

The Open Skies agreement between the US and the EU is a great example of this.  Tomorrow, Phase I of this agreement goes into effect.  Its primary impact will be to provide open access for airlines to fly between the US and the EU.   

Not surprisingly, this agreement has caused a heated debate.  While the EU expects an increase of up to 26 million additional leisure travelers over the next five years (representing a 14% increase in passengers), there are many that cry foul and accuse the EU of undermining its own efforts to reduce global warming.  In fact, adding the new passengers may increase global emissions by the airline industry up to 0.7%.      

But, that is not all.  Changes in emissions do not include additional business travelers or air freight.  Moreover, this number represents the net increase in air travelers only; it does not include those who may substitute international travel for their current domestic travel due to price declines.  A shift to longer-haul flights to the EU has the potential to increase air travel distance. As a result, global emissions from the airline industry may increase by 2.8% more, for a total of 3.5% rather than 0.7%.  Off a global base of 2.3 billion air travelers, this is a significant increase in carbon emissions from a single bilateral trade agreement.

To balance growth with the environment, the EU will require airlines to participate in an emission trading system that will provide the incentive for airlines to both reduce overall emissions and offset the rest.  While implementation will be gradual, the result will be to create a dynamic case study by which we can discern how the competitive environment will be transformed as carbon regulations take hold.  Here is how the scenario may unfold: 

Governments may wield new influence to demand higher standards.  In the aftermath of the Kyoto negotiations, there is a belief that substantive progress on climate change will be held back by a few, albeit influential, nations.  While this is possible, there is another scenario that is more likely given the interdependence of the global economy: higher standards will be achieved by using economic leverage to achieve them. 

The Open Skies agreement is a classic example of this.  The US wants more access to European markets for US carriers while the EU has clearly tied this access to increased regulation on carriers. 

Indeed, the rhetoric has been intense.  Jacques Barrot, the EU’s transport commissioner, has made it clear that the EU was prepared to “[reduce] the number of flights or [suspend] certain rights” if EU emission regulation were not honored.  Not surprisingly, the Bush administration has vowed to fight the unilateral imposition of emissions caps by the EU.   

Such opposing views reflect public opinion: while 40% of Britons support an increase in airline fares to reduce global warming, only 20% of Americans say they do.  Nonetheless, there is a growing consensus that the US will acquiesce under a new presidency. 

Public sentiment may accelerate action before regulation takes effect.  JPMorgan predicts that required carbon offsets under the Open Skies agreement will not significantly increase prices until 2015 or beyond: 87% of the necessary permits will be distributed for free to incumbent airlines, reducing pass through costs to consumers.  Instead of an estimated €20 surcharge, international passengers may pay an additional €4 per roundtrip in the foreseeable future (though rising substantially after 2020). 

Nonetheless, public sentiment will not likely stand still – especially in light of the 3-year, $300 million campaign that Al Gore’s Alliance for Climate Protection is expected to launch next month to raise awareness and change people’s minds regarding the environment.  As JPMorgan points out, it is likely that “carriers that present themselves as unconcerned about environmental degradation or deny the airline industry’s responsibility to address the problem could find themselves targets of activist campaigns, with negative implications for both public image and revenue.”   

As such, Marketing Green recommends that airlines stay ahead of public sentiment, regardless of the status of environmental regulation.  This can be done by publicly recognizing the challenge and by taking action steps to reduce its environmental impact directly from air travel or ancillary services such as travel to and from the airport. 

This is all the more important for carriers flying on international routes.  The Open Skies agreement, for example, will likely increase competition between airlines as more airlines establish direct routes between US and EU destinations.  US airlines must be sensitive to European concerns about the environment, for example, if they are to win a share of the market. 

Even in a carbon regulated market, green remains a differentiator.  By imposing carbon emission fees, the EU is effectively setting a minimum standard for an airline to be green.  In effect, the imposition of regulation resets the competitive environment by clearly defining what it means to be green and insulating companies from further criticism if they meet the standards set by government.   

While this is generally true, companies should recognize that even with standards in place, green will remain a powerful market driver.   

For example, airlines will still be vulnerable to activists who call them out for not being consistently green across their operations.  While regulation offsets the impact of aviation fuel, it does not necessarily apply to corporate operations, the ground crews servicing the plane, or even the manufacturing of the plane itself, for example.   

Moreover, customer needs are evolving and airlines need to adjust their offering to align with them.  For example, KPMG UK currently offers its 11,000 employees additional Membership Rewards points on their American Express cards if they take a mode of transportation that has less impact on the environment (trains versus planes).  They are also promoting greater use of teleconferencing which reduces travel time and environmental impact altogether. 

Airlines are starting to respond.  For example, on trans-Atlantic flights to Paris, Continental Airlines offers connecting rail service to Lyon.  Moreover, Silverjet, a new player in the premium category, was the first to become carbon neutral, embedding carbon offsets in its ticket purchase price.  

Marketers should carefully watch how the Open Skies agreement unfolds with time.  The agreement provides a window into how governments may negotiate carbon emission reductions in the future, as well as how marketers could respond to changing consumer sentiment and needs in a carbon-regulated environment. 


Shopping for Green Online

March 4, 2008

An Interview with thepurplebook Founder Hillary Mendelsohn

With the exception of a few select product categories, growing consumer interest in green has not yet translated into substantive changes in purchase behavior by mainstream consumers.  Like many nascent categories, green faces many barriers to widespread adoption. 

In many ways, product adoption in the green space is a classic chicken and an egg problem: uncertain demand leads manufactures to limit the number of products they launch.  Limited products and product choice, in turn, curtails demand.  However, this only tells half the story as there are many reasons why demand is limited. 

Even with those receptive to a green message, marketers are challenged by low familiarity with green products.  This, in turn, hampers consumers from effectively navigating the category as well as making informed purchase decisions.   

Where do consumers turn for credible information today?  Product companies?  Not necessarily, as consumers are increasingly skeptical about green marketing claims.  Fellow consumers?  Uncertain, as their peers are likely to have equally limited experience with green products.  

Can consumers rely on standards?   Perhaps.  Standards have been adopted in certain categories and many more are on the way.  Yet, rollout of new standards takes time; familiarity with what existing ones mean (i.e., how green is green?) is still limited.    

Instead, consumers today may turn to credible third party sources for guidance.  One such source is the recently launched thepurplebook green, a complete guide to green shopping online.  With an extended following already, thepurplebook series enters the green market with significant brand awareness…and credibility as a reliable source for online shopping information.  Indeed, just weeks after launch, thepurplebook green is planning a second printing.

thepurplebook_image.gif

Recently, I had the opportunity to speak with thepurplebook Founder Hillary Mendelsohn.  We discussed growing consumer interest in the environment, the role that purchases play for consumers to express their convictions on green and the role that thepurplebook green plays in facilitating green purchases.  Here is what she had to say: 

MG: Does consumer concern for the environment translate into increased purchase of green products? 

HM: Purchasing power holds two powerful acts for the consumer.  First, purchasing green allows the consumer to feel better about his/her choices and particularly for personal care products, food and household items there are positive health-oriented reasons  to make such purchases.   

Second, other than voting, this is the consumer’s strongest voice to the corporations at large.  Purchasing green holds corporate America more accountable for creating green options, and ultimately having greener practices internally. 

For both of these reasons, the ‘voice’ that purchasing green gives the consumer has and will continue to increase the sales volume of green products. 

MG: What types of green products do consumers purchase?   

HM: Consumers are purchasing based on their lifestyles.  Young families are focused on greener/healthier cleaning, food and personal care items.  Older consumers are building or remodeling green.  The overall theme is that people are beginning to care about shopping more responsibly and are looking for ways to make better choices.   

It is the job of thepurplebook green and those of us that care about this concern to point them in the right direction. 

MG: Are consumers purchasing green products or brown products that are now greener? 

HM: The answer is both.  But the victory lies in the fact that they are making the effort to make better choices.  We must educate, create standards and make sure products do not lack in quality, style or cost too much.  If we can show consumers that they do not have to compromise on quality, taste or price, we can have everyone purchasing green. 

MG: What was the origin of the book?  Did it evolve out of a passion for green or a business opportunity similar to your other books or a little of both? 

HM: I knew very little about being green prior to starting this book.  I was happily writing online shopping guides when one evening, a friend invited me to see a screening of An Inconvenient Truth.  I sat in the darkened theater thinking about how I had contributed to this huge problem, and the legacy my children will inherit.   

Then I thought, if I were to become part of the solution instead, what would that look like?  Being an online shopping expert, I went to the web to see what I could find as far as earth-friendly fare was concerned.  It was slim pickings and hard to find anything at all. 

I thought, if I apply my skill set and focus exclusively on green product, I will educate myself, and create a book that might help make being green easier for others.  That said, I am a business professional, and what I have discovered, is that green makes sense and makes money – they are not mutually exclusive.   

I do hope this book is wildly successful, as that will mean people are adopting change and I have done my part. 

MG: Who is your target audience?  What beliefs do they hold about the environment?  What are their demographics?  Are they consistent with their behavior? 

HM: The beauty of this book is that it is meant for the eco-neophyte as well as the eco-savvy.  There is education and information for those who want to learn more and great resources for those who already know why they are making  better choices but can’t find the product.  There isn’t a demographic, but rather those wanting a greener lifestyle.   

The idea isn’t to exclude anyone, but to include everyone open to making greener choices whether it is their first or someone who lives dedicated to the greenest lifestyle possible.  This is doable for everyone.  The more we encourage choice and change, the more people will adopt greener lifestyle habits. 

Consistency lies within the consumer having good experiences with green products.  Once they have found good products, they do stick with them. 

MG: How should merchants approach you for inclusion in the book?  What is the criteria for inclusion? 

HM: Any merchants who wish to be considered for inclusion in thepurplebook Green, can log on to www.thepurplebook.com and submit their site for inclusion.   

Our criteria includes the following:  You must be able to complete the transaction online using a secure server, the site must be reasonable to navigate, customer service policies must be clearly stated and fair and a phone number is required for all sites. 

MG: How do you determine how green a company is?  Do you use a ratings system?  

HM: We have familiarized ourselves with all of the certifications currently used and have tried to glean a working knowledge of what is and isn’t green.   If we have questions, we contact the site and we do our very best to deliver consistent, quality information to our consumers. 

If we question it, or a site is not completely green but has a substantial green offering, we let the consumer know that too.  We are all trying to just to do better than we were yesterday, and need to keep that in mind and not judge too harshly. 

This is a relatively new area and we all have much to learn.  No one knows it all – yet.  All of the sites listed in the book are exceptional or they would not be there; however, we do make a special acknowledgement for those sites that also package and ship green.


Corporations Foster Dialogue On the Environment

January 14, 2008

While many corporations leverage the Internet to distribute information about environmental initiatives, a few companies are going much further by facilitating two-way dialogue with stakeholders.   

Some companies may view such dialogue – via email, web forums, chat rooms and video – as risky, as it may open them up to public scrutiny.  Moreover, this sentiment may be especially true today for those brands that compete in carbon-intensive industries. 

Nonetheless, companies that are bold enough to enter into a dialogue tend to find that the rewards outweigh the risks.  Dialogue creates a direct channel to stakeholders that can be used to gather feedback, build credibility, and engender more loyalty by showing a more human side of the company. 

In other cases, companies are using dialogue to activate stakeholders – including customers, suppliers, employees, partners and shareholders – as change agents by soliciting new ideas. 

There are several examples of dialogue in the environmental space.  Here are just a few: 

British Telecom: It seems that on most corporate sites today, users are hard pressed to find a specific contact to forward their concerns to, let along an email address that does not deliver to a general mailbox. 

BT is different in this regard as it offers a detailed listing of contact names and email addresses to send questions specifically regarding corporate social responsibility, corporate environment programs and environmental supply chain management.

dialogue_v3_bt.gif

Shell: Shell periodically conducts webcasts with senior-level executives on topics such as its annual Sustainability Report.  Interviews address questions solicited from stakeholders via email.   

dialogue_v3_shellv2.gif

Dell: When Michael Dell declared that he wanted to build the “greenest PC on earth,” his company launched IdeaStorm as a platform to solicit “direct feedback from, [its] customers, suppliers and stakeholders” on how to do just that.  Moreover, IdeaStorm engages its stakeholders as change agents by encouraging them to promote their ideas and discuss them online with Dell and other users.

dialogue_v3_dell.gif

General Motors: Chevrolet just announced a bold move in the green space by inviting the public to enter into a direct dialogue regarding GM flagship division and actions that it is taking to reduce its environmental impact. Through a New York Times advertisement, Beth Lowery, GM Vice President for Environment, Energy and Safety Policy asked the public to “talk” with Chevy about mutual concerns for the environment and what Chevy is doing to address them.   

Lowery asks the public to submit questions through a New York Times microsite that will be published in the Friday Op/Ed section.

dialogue_v3_gm.gif

While many marketers perceive direct dialogue as too risky, many companies have fully engaged with stakeholders on many sensitive topics including the environment.  For many, a direct channel to the customer provides a way to generate feedback as well as to solicit new ideas.  Others focus on creating a more human way to connect with stakeholders. 

Regardless, dialogue is consistent with key attributes of leading green brands including accountability, transparency and credibility. More companies need to overcome their fear of potential negative feedback and join the dialogue on green issues. If done correctly, dialogue will more likely mitigate than engender consumer backlash in the future.  

(Full disclosure: GM is a Digitas client)


A Look Back at Green Marketing in 2007

December 29, 2007

In retrospect, 2007 may be viewed as the year of the great awakening in the US regarding climate change.  The mass media gets much credit for helping to foster awareness for the issue through film (eg, The Inconvenient Truth), broadcast (eg, Planet Earth), online content (eg, Live Earth) and star power (eg, Leonardo DiCaprio).  State and local initiatives confirmed grassroots support for action on climate change.  And the year will end with a modest energy bill passed by Congress.   

While it is unlikely that the Bush administration will sponsor comprehensive action on climate change during 2008, court decisions made in 2007 lay the groundwork for doing so in the future.   

Importantly, leading brands awoke in 2007 to the realization that inaction on climate change was no longer an option; by contrast, action could open up myriad new opportunities.   

Consumers today are much more concerned about climate change than they were even one year ago.  Moreover, they are expecting their favorite brands not only to share their concern but to take action (or enable their consumers) to mitigate it.

Throughout all of this, the interest in green marketing continued to trend upward in 2007.  In fact, according to Technorati Charts, the average number of daily references to “green marketing” in the blogosphere doubled from about 150 per day in 2006 to more than 300 per day during the second half of 2007.

 green-marketing-2007_technorativ2.gif 

Source: Technoratic Charts; Data for the first half of 2007 was not available

Notably, interest in green marketing spiked considerably in late summer just as reports of persistent drought in the Southeast (and Southwest) appeared in the national media, and again during the fall when brushfires scorched much of California. Additionally, late fall brought news from the UN’s conference at Bali and legislative action on an energy bill in Washington. 

Moreover, according to Google Trends, search volume for “green marketing” also continued to trend upward during 2007.  Not surprisingly, many marketing professionals spent 2007 trying to grapple with whether the time was right to green their brand and marketing communications, and if so, how to do it credibly.

 green-marketing-2007_google-trendsv2.gif

Interestingly, green marketing continues to be an issue of global interest.  In fact, Google Trends reports that, on a relative basis, more searches for “green marketing” originated from India than from any other country.      

Rank

Country

1

India

2

UK

3

US

4

Thailand

5

Australia

6

Canada

7

China

Traffic to the Marketing Green blog confirms the fact that green marketing is a global issue.  A recent Site Meter snapshot of site visitors based on referring location indicates that a significant percentage of traffic originates outside of Western Europe and North America.

marketing-green-site-meter-map.gif

Source: Site Meter, mid-December snapshot, last 100 visitors to site 

Yet, when all is said and done, we end the year with much accomplished but even more work to be done.  Today, businesses are holding back on green product development because demand for eco-friendly goods is still uncertain; companies are also putting off  more efficient capital investments while the regulatory environment is in flux.  Moreover, many companies find themselves afraid to even dip their toe in the green marketing waters for fear that, despite good intentions, their initiative will be perceived as greenwashing.   

Consumer attitudes on green continue to evolve.  Green today is still largely viewed as a personal virtue, rather than a societal norm.  As such, consumers have yet to translate their concern into sustained changes in purchase behavior.   Moreover, standards for green products (not to mention marketing communications) have yet to be adopted in most categories, leaving consumers to their own devices to comparison shop.  

Green marketers will play a crucial role in 2008 in multiple ways.  Not only will they influence the pace at which their companies adopt more sustainable business approaches, but also the rate at which consumers translate awareness into purchases.  The stakes are high, as the potential impact of climate change becomes all the more real.  Along the way, Marketing Green will continue to provide insights into the changing face of green marketing.  See you in 2008.


Green May Be Ho-Hum for the Holidays, But It’s Here to Stay

December 12, 2007

So far, this holiday season has seen a rather muted push on green by retailers, both in terms of the products they sell and the messages they communicate to consumers.  Marshal Cohen, Chief Industry Analyst at NPD Group, recently suggested that such lack of enthusiasm by retailers reflects waning interest in green.  Cohen stated: “It’s basically a card that a lot of people played while it was hot and trendy…and it got overplayed.”  

Indeed, early signs suggest that retailers left their Birkenstocks home for the holidays.  While most retailers are taking steps to green their operations and supply chains, few have taken steps to green the shopping experience.  Reuters recently reported that retailers such as Target, Wal-Mart and J.C. Penney recognized green as a trend but does not have plans to promote green merchandise this holiday season  (Barneys is apparently a notable exception).  A spokesman for J.C Penney added: “It’s something that is growing in importance with the customer…[but it’s in] its early days.”  

But, could it be the case that after so much hype early in the year, the green trend has faded just as it was getting off the ground? 

Marketing Green believes just the opposite: as a trend, green is just getting started.  Quite simply, the apparent lack of enthusiasm shown by retailers this holiday season reflects the fact that we are still early on the adoption curve.  Here’s why: 

Green products popular today are not necessary gift ready.  Green products that have been adopted by the mass market – including compact florescent light bulbs and hybrid cars – may not make the best stocking stuffers.  Moreover, unlike organic foods, clothes made from organic cotton have not been adopted by the mass market yet.  As such, it is not surprising that we do not see a sudden surge in demand for these items this season. 

Consumers may not equate green with spreading holiday cheer.  When it comes to giving a gift that is overtly green, consumers may worry that they may be perceived by friends and family as the Grinch.   While social norms are changing, being green today is still in many regards a personal virtue rather than societal expectation.  As such, gift-givers may fear that giving a green gift may be perceived by recipients as politicizing the holidays.   

Retailers fear being accused of greenwashing.  Today, few standards are in place to determine how green is green.  Without them, retailers are left to their own devices to determine what is eco-friendly – and, as a result, are left exposed to criticism by outsiders who may think otherwise.  As such, many retailers today are focused more on greening their internal initiatives than greening specific products. 

While interest in green may wax and wane, marketers must remember that we are still in an early adoption cycle for green.  Regardless of how successful this season is for green, as a trend, green is here to stay.  In fact, there are five global influencers that will ensure that as a trend it grows, spreads and matures.  

Changing physical environment.  While the melting of the ice caps may still be an abstract concept for most, consumers are beginning to experience erratic weather patterns that are likely – though not certainly – being caused and/or exacerbated by global warming.   Indeed, Oxfam recently reported that weather-related natural disasters have increased four-fold over the past two decades while geologic-related ones (eg, earthquakes, volcanoes, etc) have remained steady.   Such visible signs will likely increase and intensify with time, providing a constant reminder that something in our world is not in balance.   

Increasingly concerned consumers:  In the US today, consumers have a high awareness of climate change as an environmental concern, but arguably relatively low awareness of the severity of its impact – especially on the poor who are least responsible for its cause but most vulnerable to its adverse affects.  As Hans Verolme, Director of Global Climate Change Programmes for World Wildlife Fund stated, “There’s no escaping the facts: global warming will bring hunger, floods and water shortages.”

Marketers should be prepared that such a realization may cause a sea change in how American consumers view the brands that they purchase.   Americans may be voracious consumers, but they do not like to do so at other people’s expense.  As a consumer issue, therefore, climate change mitigation may be similar to enforcing fair labor laws or worker safety practices  – it is just what you do or risk a backlash from consumers. 

Leadership by business: Some may find it surprising that many global corporations are strong proponents of action on climate change.  Indeed, 150 leading companies – including US multinationals Coca-Cola, GE, Nike, Johnson & Johnson and Sun Microsystems – have already signed a communique on climate change and presented at the UN conference this month in Bali that calls for legally binding targets for carbon emissions. 

So why would global companies lead the charge?  Corporations know that mandates on carbon emissions are inevitable.  The sooner government acts to set acceptable carbon emission levels, the faster business can respond and plan for the future – by modifying capital investment decisions or commercializing new products, for example.  

Moreover, once global emission caps are put into place, standards will be developed within each product category that determine how green is green.  Without standards today, companies decide for themselves to what level they should green their products.  In this situation, the burden is on the consumer to decide how competitive products stack up while leaving well-intentioned companies vulnerable to greenwashing accusations by critics that disagree with their claims. 

Where standards have emerged though, green products have taken off.  One great example is the creation of the Leadership in Energy and Environmental Design (LEED) certification that set standards for green buildings.  The result: 20% growth in green buildings in 2005, followed by 30% growth in 2006.    

Watchdog role of Non-Governmental Organizations (NGOs):  In many ways, NGOs serve as watchdogs for industry on environmental issues.  Today, such organizations enjoy increasing clout, fueled by increased membership and financial backing over the past few years.  More than ever, NGOs are flexing their muscle by challenging corporate activities that they deem as destructive to the environment or deceptive to consumers.   

Interestingly, even companies that are viewed as leaders on green do not get a pass by NGOs when activities are deemed inconsistent with their competitive positioning on green.  For example, despite (or as a result of) earmarking a combined $70 billion toward green investments and loans, both Bank of America and Citigroup were recently the target of a grassroots campaign by Rainforest Action Network to the fact that these banks also fund coal-fired plants, a primary contributor to global warming.    

Today, consumers can also serve as watchdogs as well by rating corporate green activities through sites such as Greenwashing Index, Do the Right Thing and Climate Counts.    

Involvement by governments: Today, there is growing global support for action on global warming.  Signs of this momentum are perhaps nowhere more prevalent than in the US and Australia – two countries that have long been holdouts for global action.  Over the past couple of weeks, there has been a sea change in Australia, as Kevin Rudd, the newly-elected Prime Minister, signed the Kyoto accord as one of his first acts of government.  Moreover, the US Senate Committee on Environment and Public Works voted last week for an ambitious 70% reduction in carbon emissions by 2050.   

So, marketers should take note.  Early signs are that green may not bring holiday cheer to retailers. Nonetheless, green marketers should remain steadfast.  Though consumer focus on green may fluctuate, green as a trend is here to stay.  Five key influencers will not only ensure that is the case but accelerate its growth over time.   


Waning Opportunity to be Early Mover on Green

November 18, 2007

Today, consumers increasingly associate themselves with social responsibility, particularly on the environment:  BBMG recently reported that US consumers increasingly say that words like “socially responsible” (88% say these as words describe them “well”, 39% as “very well”) and “environmentally friendly” (86% well, 34% very well) describe them.  Additionally, Edelman reported that consumers are not just talking, but taking action:  40% of US consumers are more involved in social causes than they were two years ago and expect their brands to do the same.  The top issue that consumers care about globally?  Protecting the environment (92% of those surveyed).

As such, it should not be surprising that many leading companies today are responding by aligning their brands with more socially reponsible and eco-friendly activites and attributes (See “Defining Green Brand Leadership”, Marketing Green, October 29, 2007). There are several reasons why these companies feel the urgency to act:  First, they simply may be trying to stay relevant by aligning more closely with the evolving expectations that consumers have for the companies they purchase from and the brands they associate with. 

Second, they may be trying to secure a competitive advantage in the market as an early mover on green.  Pioneer status may bestow the companies credibly in the space, and perhaps enable them to reach new customer segments that have a strong affinity for the environment.  

 

Finally, companies recognize that it may be easier and far less costly to reposition a traditional brand as green today than it will be after Congress passes regulation that mandates all companies to do so.  Companies that wait for federal intervention will likely have to play catch-up when it does happen by complying with new mandates while convincing consumers of their green credentials.  By then, however, companies may have to do so in a crowded media space (because every company playing catch up will have to do similar) and face skeptical consumers who may question whether corporate motivations are genuine or simply done to comply with federal mandates.

 

Marketers should recognize that the window of opportunity is closing for brands to establish themselves as an early mover in the green space.  Today, not only is US consumer sentiment shifting, but the political winds are as well.  Backed or perhaps empowered by recent court rulings, politicians in Washington are floating legislation on climate change that will move the US closer to a time when being green is less of a differentiator than simply a cost of doing business.  Here is what has been happening:

States – led by both Democrats and Republicans – are pressing for change: With the announcement of the Midwestern Regional Greenhouse Gas Reduction Accord (MRGGRA) last week, 24 states have now committed to greenhouse gas emission targets.

States with Green House Gas Emission Targets 

states-with-ghg-targets_pdf.gif

based on Pew Center research and announcement of MRGGRA accord

 

Moreover, several state governors are actively campaigning for change.  For example, a recently launched TV campaign by the Environmental Defense Action Fund featuring three western governors, Arnold Schwarzenegger (R-CA), Brian Schweitzer (D-MT) and Jon Huntsman (R-UT) should help increase pressure on Congress to act.  This commercial is significant not only because it features two Republicans but that the governors represent Western states that traditionally champion states’ rights and frown on federal intervention.

Finally, major federal court decisions – three in seven months – hold regulators responsible for considering climate change risk when setting pollution standards.  The most recent ruling handed down last week by the federal Court of Appeals in San Fransciso overturned the Bush administration’s proposed fuel standards for light trucks and SUVs, stating regulators “failed to thoroughly assess the economic impact of tailpipe emissions that contribute to climate change”.  In doing so, the court sided with the plaintive that included 13 states and cities.

Political sentiment is shifting in the US in favor of action on climate change.  Marketers should consider taking action soon rather than later to green their brands in order to avoid playing catch-up afterwards.  Once Congress takes action, companies will lose the opportunity to build green credentials and shape their brand ahead of the pack.  Those that wait may struggle to catch up as consumers may question the integrity of their motivations. 


Greening Consumption

November 14, 2007

An Interview with Michel Gelobter, Founder and EVP of Cooler

Long-time environmental activist Paul Hawkins once described “green consumerism” as an oxymoron.  Indeed, “green consumption” makes Wikipedia’s “List of Genuine Oxymora”.   The reason: consumption by its very nature has an impact on the environment – to some degree or another – and therefore, is hard to call truly green.

 

Yet, short of reducing consumption, many consumers, manufacturers and retailers are focusing on greener consumption – a term which implies shifting to products and services that have a lower environmental impact, though in many cases, not specifying by how much.

 

Today, there are positive signs that demand for greener products is increasing sharply.  In fact, the Natural Marketing Institute reports that the $200+ billion Lifestyles of Health and Sustainability (LOHAS) market is expected to double by 2010 and quadruple by 2015.  

There are many online retailers and content sites that offer green products directly or simply help consumers navigate the market.  They include three primary categories:

Green online retailers: Many online retailers have emerged that are dedicated to serving the green market including Buy Green, Earth Friendly Goods, Eco ChoicesEcoWise, Gaiam, Green Feet, Green Home, Green Shop (UK), Green Shopper, Green Shopping (UK), Green Store, Indigenous, Natural Collection (UK), Nigel’s Eco Store (UK), Rogue Natural Living, Shop Green (PriceGrabber), The Green Office and VivaTerra among others.

General online retailers. Several general merchandisers and portals have embedded a green section into their existing offering, including Amazon and MSN among others.

Green directories: Finally, other online sites have positioned themselves as green directories, product search engines and shopping guides.  Sites include EcoBusinessLink, EcoMall, EcoSeek, Evolvist, Evolve Shopping, Green Deals Daily, Great Green Goods (blog), Green People, Green Providers Directory (UK), Green Shopping Guide (UK), Guide Me Green (UK), Haute*Nature (blog) National Green Pages, Pristine Planet, and TheFindGreen among others.  Perhaps the most comprehensive guide to online eco-friendly shopping is published by thepurplebook

Yet, despite this growth rate, LOHAS spending is still a drop in the budget when it comes to US consumer buying power – estimated at more that $10 trillion in 2007.  As such, the greater challenge is to shift spending on mainstream products to greener ones and do so in a way that also provides the incentive for mainstream manufacturers to reduce the carbon footprint of their products over time.

There are many ways to motivate the purchase of greener products across the purchase funnel.  Here are a few examples:

Make existing products greener.  Product companies have the opportunity to green their products – including sourcing, use and disposal.  Greening a product in the first place, of course, is the best way to reduce its environmental footprint.  Companies are motivated to do so for a variety of reasons including increased consumer demand, pressure from partners across the supply chain and risk to the brand simply by being complacent.

One of the best examples is Wal-Mart.  For example, it has identified $10 billion in potential savings simply by decreasing product packaging.  It has also required its suppliers to reduce the environmental impact of the products that it sells (eg, more concentrated laundry detergent formulas reduce the use of energy for transportation) while expanding the market for others (eg, by selling fluorescent bulbs at lower cost under its own private label). 

Due perhaps, in part, to Wal-Mart’s pressure and lead, Procter & Gamble has responded with a commitment to sell $20 billion worth of greener products over the next five years.  It has also joined the Supply Chain Leadership Coalition, an industry organization that pressures suppliers to publish information on carbon emissions, to help it reduce the impact of its suppliers as well.

 

Motivate greener choices.  Product companies and retailers can influence behavior by interjecting green as a considered attribute in the purchase decision.  There are several ways to do so including the use of eco-labels, ratings, promotional benefits or green rewards tied to a loyalty program.  Eco-labels and ratings impact consumer purchase decisions by providing relevant environmental information at the point of sale – and indirectly motivate greener product design and manufacturing decisions by making green a differentiating attribute. 

 

Today, eco-labels are actively being used or under consideration by manufacturers, (eg, HP, Dell), retailer (eg, Wal-Mart, Home Depot) and government regulators.   Moreover, several organizations have taken the lead in developing or aggregating green rating systems including Green Seal, Consumer Report’s Green Choices, the US EPA’s Energy Star and independent Better World Shopper.  Moreover, sites like Alonovo allow users to filter products based on their own green values.

 

Promotional benefits and rewards can also influence consumer purchase behavior.  Marketing Green explores both of these levers in two previous blog entries. (“Green Labels as Drivers of Consumption and Loyalty Programs”, March 19, 2007; “Testing Green Promotional Benefits to Drive Acquisition”, September 16, 2007).

 

Offset environment impact.  Today, more and more companies and consumers are turning to carbon offsets (and renewable energy credits or RECs) to mitigate the environmental impact of products manufactured or purchased.  While the offset mechanism may vary – from purchasing allowances on a carbon exchange to investing in renewable energy projects – the effect is similar: offsets reduce the carbon impact of consumption by effectively removing the equivalent amount from the environment elsewhere. 

 

While carbon offsets are not without controversy, they can be a powerful way to mitigate the impact of consumption.  There are several ways that carbon offsets are purchased today:

 

First, carbon offsets can be voluntary.  Retailers can provide options to do so – as most airline sites do today, for example – or consumers can purchase them directly from many brokers including Atmosfair (Germany) Better World Club, Carbon Fund, Carbon Leaf (UK), Carbon Zero (Canada), Climate Care, Climate Counter, Climate Friendly, ClimatMundi, CO2 Balance, My Climate, Native Energy, Offset Carbon Company (UK), Offsetters (Canada), Solar Electric Light Fund, Sustainable Travel International, Target Neutral (UK), Terrapass, The Carbon Neutral Company, TreeBanking, and Uniglobe Travel among others. 

Typically, retailers play no more than a passive role in facilitating carbon offset purchases by providing the mechanism to do so on their site.  In many cases, it is no more than an additional option available during the check-out process.  The case of Virgin Atlantic is different, however; in response to low voluntary purchases, Virgin is now actively selling carbon offsets to customers while in-flight.  Sunvil Holidays (UK) goes one step further by putting the burden on the consumer to opt-out of – rather than opt-in to – purchasing a carbon offset by embedding it directly into the cost of its vacation packages. 

Second, carbon offsets can be structured into the transaction itself – treated as a promotional expense, embedded in the purchase price or covered as part of the transaction fee.  Companies as diverse as insurance giant Allstate, UK’s Silver Jet and Fiji Water are making their products carbon natural (or even carbon negative) as a way to differentiate their offering.  In this case the product company is absorbing the cost directly or raising its price to cover the added expense. (Interestingly, Allstate is offering to offset the carbon emissions from the automobiles that it insures).

 

Alternatively, credit card transaction fees can be used to offset carbon emissions as well.  Recently, issuers including Barclays, GE, MetaBank, Triodos Bank and Wells Fargo have launched green cards while Bank of America and upstart Brighter Planet have announced their intentions to do so.  These cards divert a portion of their fees to mitigate the impact of the products purchased through a donation to a non-profit organization or direct purchase of carbon offsets. 

 

Such card programs have advantages and disadvantages.  Given their reach, credit cards can green a significant amount of consumer spending simply by providing the incentive to consumers to make their purchases on a card with green benefits.  Yet, to do so, cardholders must trade in personal benefits earned from traditional reward programs (eg, airline miles) for ones that provide more societal benefits.

 

Alternatively, a promising, new retail model has emerged that divert a portion of revenues earned through affiliate marketing programs to pay to offset the carbon from products purchased.  In doing so, sites such as Cooler and Earth Moment enable consumers to purchase products from traditional retailers while offsetting the carbon impact of these purchase in the process.  Such a model is compelling to consumers as, from their perspective, the cost of the carbon offset is absorbed by the retailer and they can green their purchases while using their existing credit cards. 

 

While numerous companies are involved in carbon offsetting, Cooler has clearly been one of the most innovative players in the space.  Distributing 8 million products from 400 retailers, Cooler provides consumers with the largest selection of products that can be purchased with an embedded carbon offset.

 

Recently, I had the opportunity of sitting down with Michel Gelobter, Founder and Executive Vice-President at Cooler.  We discussed the recent launch of his company, its B2B and B2C offerings and the challenges that we all face in greening consumption.  Here are his words:

Marketing Green:  By offsetting the carbon impact of products purchased, Climate Cooler has the potential to change the game in the online retail space.  What was the impetus for starting the company? 

Cooler:  We wanted to find ways to create the momentum in the consumer space for taking action on climate change.  That exploration led to what has now become Cooler.  Cooler is distinguished by being the first site where you can purchase practically anything you can buy on the Internet – except for maybe a plane ticket – in a way that eliminates the global warming impact through the point of sale.   

Our mission as a company is to connect every purchase with a solution for global warming.  We do that with three offerings.  The first is that we use the country’s only product and service carbon calculator that was developed jointly by Carnegie Mellon and Berkeley.   

MG: Does it calculate the entire impact of the product, that is, how it is manufactured, used and disposed of? 

C: It is just to the point of sale: how it is manufactured and transported.  But, the innovative piece is that it adds the retail component which ranges usually from 20-30% of a product’s carbon footprint. 

MG: How about shipping? 

C: Yeah, it includes that too.  But [the environmental impact] tends to be much lower which can be a surprise to our customer base. 

The second piece of this offering is our basket of carbon offsets or pollution prevention and renewable investments that have been unanimously approved by the world’s best environmental organizations.  And finally, we set out to create a basis on which consumers could take action in a way that was trusted and transparent.  And that is what Cooler is about.   

We also give people a way to track their impact and start thinking about carbon budgeting.  We already have the My Impact page which tells [consumers] what they are emitting.  After all, 40% of the average American’s carbon footprint is in consumption of goods and services.  

MG: So do you view part of the value that you bring is educating consumers on their true environmental impact? 

C: In the consumer space, absolutely.   

The bigger piece of the business is really the B2B offering.  Companies started coming to us and saying: “How can I put your works into my gears so when people come to my website – or bricks and mortar store – they can get a carbon neutral product.”

Our B2B offering is called Cooler Compete which is basically a way for companies to know, offset and reduce the global warming impact of the products that they sell.  And the difference is that those companies are going to make a choice about who pays for [the offset].  We think that most of our business customers are going to absorb the costs of carbon neutrality. 

MG: What services are you providing in the B2B space? 

C: First, we are providing the [carbon emission] calculation.  Our calculator is really revolutionary.  We are using a method that is, on average, more accurate [than existing calculators].  It is based on an approach called economic input/output analysis, whereby we calculate the footprint of a product directly through the economy.  Instead of looking at a shoe and saying “where did that leather come from?”, we say “how much of the leather industry did this company use?”.   

Peer-reviewed studies show that this method is, on average, more [inclusive] from an environmental perspective because it includes more of the carbon footprint than [other] analysis. 

The second service is really a reduction service, that is, a list of the top contributors to your carbon impact.  That is usually enough to motivate companies to bench mark against those numbers and reduce their impact.  

Finally, companies buy offsets with us.  We don’t actually make any profit from our offsets – we pass the costs directly through.  But our basket of offsets is very high quality.  

MG: You are ambitious in trying to serve two different audiences with very distinct offerings. 

C: Yes, but the website in some sense can be seen as a technology showcase.  The web site gives [companies] the sense like “Oh, this is what it could look like.”  So that is why the website is really critical.   

MG: In your B2C work, who is the typical customer that you are targeting? 

C: We are partnering with environmental organizations so our early go-to-market strategy is [targeting] the members of our partner organizations.  Now we are trying to move from the environmental group members to more of the LOHAS crowd.  Over time, we will target a broader and broader swath of the American public as more people become conscious of this issue. 

MG: How important is viral to your marketing strategy?

C: Viral would be great.  Right now, we are honing our technology platform to make that more potent.  For example, when you tell a friend, we are able to report back to you how much your friends offset.  We can also have people compete to see who is more carbon neutral.   

MG: How does the B2C business model work?  Is it an affiliate model? 

C: It is.  On average, if we refer someone [to an online retailer that subsequently makes a purchase], we get 6% [of the total sale].  The cost of the [carbon] offset ranges from 0.7 to 1.5% and we keep the rest for the business. 

MG: Are there plans to offset carbon emissions from the use and disposal of the products that you sell? CC: We do not have any plans to address that now. MG: How receptive are consumers today to carbon offsets? 

C:  I think we are easily 10 to 20 years out from having a stable, trustworthy, well-defined commodity market for offsets.  One of the reasons we partnered with the environmental groups is to give consumers assurances that at any moment in time, the best decisions are being made.  

MG: Do you think offsets take on more meaning when the US market moves from a voluntary to a mandated cap and trade system? 

C: No. I think personally that people need to take action now.  Our offsets are additional so they are already above and beyond everything done today.  We follow three criteria that are summarized as follows: real, additional and positive. 

“Real” means that we are taking carbon out of the atmosphere when you buy something.  We are not just meeting the next increment of energy demand with cleaner energy.  We’re actually capturing or reducing an emission somewhere else in the world, hopefully in the United States.   

“Additional” means that this would not have happened where it not for your purchase.   And “positive” means doing more for the world than just helping the climate.  It means helping to create jobs or generate more environmental protection or biodiversity. 

It is going to be a long time before governments are actually cutting emissions by 80%; by 2050, unfortunately.  Until that time and maybe well beyond it, we want to be the place where consumers can know that by acting their doing their part above and beyond what government is doing.  

MG: It is conceivable that your success could provide incentive for others to enter the market and that one day, offsets will simply be a threshold to compete? 

C: Of course, we would love it as a company and a social event if this became a must have.  And we are going to do our best to make sure that happens.  That is one of the reasons why we started the company. 

MG: Will this actually help solve global warming? 

C: I absolutely think it’s a huge part of the solution.  We can not be paralyzed by the fact that shopping and consumption is part of the problem.  We have to go in and fix it.  People have been trading goods for money for a long time and the system’s broken.  And climate change is actually a huge archetype for a wide range of ways to reknit the fabric of shopping with the fabric of community and earth care.


Follow

Get every new post delivered to your Inbox.

Join 61 other followers

%d bloggers like this: