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.


Climate Change in the UK Market – Part II: Consumer Tipping Point

November 18, 2006

Carbon Trust (CT) predicts that by 2010, the UK consumer market will have reached a tipping point: Purchase decisions will take into account climate change impact and how companies are actively addressing it.  Like all tipping points, the shift will be marked by abrupt and rapid change in consumer behavior with potentially significant consequences for corporate profitability and brand value (see Climate Change in the UK Market - Part I: “Brand Value at Risk”). 

According to CT, three factors must align for consumers to reach a tipping point on climate change.  Specifically, consumers must:

 

·         “Be concerned about climate change

·         Make the link between environmental issues and their daily actions, and

·         Modify their purchasing behavior to reflect their concerns about how companies are addressing the issue.”

 

CT offers analogies where similar tipping points have been reached on social and environmental issues: unleaded gasoline, dolphin-friendly tuna, and more recently, mass market organic foods.  Tipping points such as these occur when consumers “both want to, and can, take action”.  As such, there are two critical questions for today’s marketers to consider: Are similar dynamics in motion for climate change and, if so, when will they reach a tipping point?

 

If you were to make a prediction solely by examining the mindset of the average British consumer today, you would be hard pressed to conclude that a tipping point may be fast approaching.  While 67% of British consumers claim that they know “a great deal” or “a fair amount” about climate change, there is little evidence to suggest that a substantial number of consumers have made a clear link between their own actions and the environmental consequences. 

 

Nonetheless, CT identifies five factors in play that may accelerate these dynamics:

 

·         Personal experiences (e.g. draught, perceived temperature shifts) make the issue more relevant and “provoke the strongest reaction” from consumers

·         Exposure to media which enables consumers to better comprehend and “internalize” the message

·         Leadership by other countries provides a road map for others to follow

·         Supporting regulation which reinforces desired consumer behavior

·         Realistic and available substitutes enable consumers to make other choices without changing consumption patterns

 

While CT projects such factors will accelerate the onset of a tipping point by 2010 in the UK market, do similar dynamics exist in the US?  It could be argued that such dynamics may be emerging:

  • Though a more-mild-than-anticipated hurricane season defied forecasts this year, heat waves, droughts and continuing recovery from Katrina will keep the potential consequences of climate change fresh in consumers minds
  • Exposure to climate change issues is increasing, and is becoming more ingrained in our mass culture (keep an eye on An Inconvenient Truth at Oscar time).  This will only be reinforced next year as a massive awareness campaign spearheaded by Al Gore is set to launch in early spring.
  • Given the political climate in Washington, at least until this month, leadership on climate issues has emerged from states such as California or New York (both, incidentally, led by Republicans). These states have passed bills that cap carbon emissions or mandate use of renewable energy.
  • Substitutes are emerging: Green energy is becoming more cost competitive and hybrid vehicles are being rolled out in conventional styles.

While the US consumer market may still lag behind the markets in Europe and Japan, seeds continue to be planted that will inevitably move US consumers closer to the tipping point. Marketers should take note.


Climate Change in the UK Market – Part I: “Brand Value at Risk”

November 18, 2006

 

The Carbon Trust, a UK government-funded think tank, makes the case that many companies’ brand value – a key component of the market value measuring intangible assets – is at risk from climate change.  The logic is straightforward: UK consumers may be four years away from a tipping point (2010) whereby purchase decisions will be increasingly based on how a company addresses global warming issues (see Part II of this series).  At this point, brand value – the % of market value that is based on intangible assets including image/reputation, trust and perceived consumer experience – may erode. 

 

Carbon Trust (CT) forecasts suggest that diverse industries face the prospect of brand value erosion.

CT data suggests that companies with both high operational exposure (measured as the amount of CO2 emitted per $ of EBIDTA) and high % of total market value based on intangible assets are especially at risk of losing significant value.  This risk is compounded by the long lead times required to reduce operational exposure (e.g., airlines, oil & gas), as it will be difficult to change course quickly to mitigate lost market value by reducing carbon footprints and reshaping its brand image with consumers.

 

Somewhat surprisingly, industries such as food & beverages and banking have more market value at risk from climate change than the carbon-intensive airline and oil & gas industries.  While airlines may face the prospect of losing 50% of their market value due to climate change issues, it is projected that for banks, the absolute amount of the decline will be significantly higher.

 

For banks (and other low carbon emitting industries including telecommunications), the critical issue is not whether their own carbon levels will influence consumer purchase behavior – as “the absolute levels are not sufficient to influence mainstream customer choices”.  Instead, the issue is whether there are “material indirect effects that are within companies’ control or area of influence”.  Brand value, therefore, may rest on whether a company is viewed by consumers (and shareholders) as taking a ‘leadership’ role on climate change issues or as lagging behind its competitors.

 

For banks, material indirect effects may include its “investment and lending exposure” – especially if consumers view such investments as “irresponsible” given the potential ramifications from climate change.  Moreover, shareholders may view bank portfolios as increasingly risky if, for example, they include a high concentration of mortgages for properties located in flood-prone areas. 

 

CT estimates that for a bank, 17% of its market value is derived from its brand.  Of the 17%, CT estimates that 6-12% (or 1-2% of overall market value) is potentially at risk due to climate change.  Given bank valuations today, even a 1-2% erosion in value would result in a significant decline in market value for its shareholders.

 

The telecommunications industry faces similar risk based on indirect carbon use.  Examples include “computers left permanently on standby to support ‘always-on’ broadband, or mobile phone chargers left plugged in when not in use”.  While the industry may not face significant losses in market value from such issues (perhaps a 1% overall decline in market value), the situation may, conversely, provide a leadership opportunity that will help protect, or perhaps enhance, existing market value.

 

So, marketers and strategists should take note: a tipping point may be approaching which could put brand value at risk.  While dynamics in the US market may delay the arrival of this watershed event, its onset may be sudden and rapid and, thus, take companies by surprise.  It is interesting to note that many US companies are already preparing for this shift.  For example, Goldman Sachs has already committed itself to being carbon neutral while GE, which competes in more carbon-intensive industries, has purposefully repositioned itself as a more eco-friendly brand.  It may be prudent for more US companies to consider following suit.


Energy Efficient Home Listings

September 10, 2006

In today’s soft real estate market, home buyers increasingly are willing to wait to get what they want, at a price they are willing to pay. Moreover, as the cost of heating and cooling a home has increased significantly over the past few years, consumers are also paying increased attention to monthly energy bills associated with properties they are considering. Buyer hesitation is leaving sellers in the lurch and realtors without commissions. The current environment is ripe for a new marketing message, especially one that can turn issues that are detremental to home sales – like higher fuel prices – into an advantage.

Realtors should:

Market a home based in its energy efficiency. Energy efficiency has become a true differentiator in this market. Whenever possible, realtors should market homes based on comparable energy efficiency – focusing on monthly cost savings and reduced impact on climate change.

Encourage buyers and sellers to take advantage of FHA Energy Efficient Mortgages (EEM). These mortgages allow home owners to tack on 100% of the cost for energy efficiency improvements to an already approved mortgage (up to $4k or 5% of the value of the home, up to a maximum of $8k, whichever is greater). US Department of Energy is a good source for information on EEMs.

Buyers should consider investments that yield even modest improvements in energy efficiency, as they can result in significant reductions in monthly energy bills. Sellers should consider how these investments will reduce anticipated energy bills and improve a home’s salability.

Engage customers by providing educational content and hands-on tools. Consumers have not traditionally focused on opportunities to improve energy efficiency. Realtors should provide appropriate materials to educate both buyers and sellers.

Moreover, realtors should provide energy cost savings calculators that enable consumers to understand the impact of investments in energy efficiency. Wisconsin Public Service provides a comprehensive one.


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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