Social Labeling Works

May 27, 2006

Many green products require a premium to offset higher costs associated with mitigating environmental impact. In certain categories, consumers have already demonstrated their willingness to pay higher prices for environmentally-friendly products. For example, consumers pay a premium for hybrid cars (albeit the price is somewhat offset by lower operating costs). But, can this willingness be translated across broader product categories?

While market research suggests that consumers are willing to pay higher prices for socially responsible products, the only way to quantify this is through in-market testing. Harvard professor, Michael Hiscox, and his student, Nicholas Smyth, have done just that, testing demand for and price elasticity of products with socially-responsible labeling. (“Is There Consumer Demand for Improved Labor Standards?“, 2005) While this paper compares consumer purchasing behavior for manufactured products that specify fair labor practices (vs. no labeling), there are potential learnings that may be extended to green marketing.

Hiscox and Smyth tested demand for two products – towels (staple product) and candles (luxury) – using socially-responsible labels in ABC Carpet and Home, a home décor store catering to relatively affluent consumers on New York City’s Upper East Side. (A third product, handmade dolls, was also tested but used a less rigorous control – last year’s sales).

Results were impressive:

The ratio of socially labeled products sold increased significantly relative to unlabeled (baseline) products (12% increase for labeled towels and 26% for candles). Moreover, this trend accelerated when prices for the labeled products increased 10% (perhaps giving more credibility to the socially responsible product). In fact, the ratio of labeled products sold increased 37% for towels and 67% for candles vs. unlabeled (baseline), resulting in a significant increase in revenue for labeled products (due to increase in units sold + increase in revenue per product).

With a 20% increase in the price, the increase in the ratio of labeled towels sold (vs. unlabeled) was similar to a 10% price increase, demonstrating inelasticity of demand with higher prices for towels. With a 20% increase in the price of candles, demand did not increase (as with a 10% price increase), however, but rather remained the same as baseline (unlabeled control). Nonetheless, given the 20% price increase, total revenue was 20% greater than baseline.

Overall, this test suggests that companies that switch to socially labeled products could increase price by 10-20% and expect that overall demand to rise (at least for relatively affluent customers). While the test needs to be replicated using green product labeling and expanded to include less affluent consumers, it strongly suggests that consumers may be willing to pay a premium for green products. Green marketers should take note.


A Method to the Masses

May 25, 2006

Method is taking eco-friendly cleaning solutions mainstream by providing products with appeal that transcends key segments: the socially-conscious, the urban chic and, very importantly, soccer moms. Giants such as P&G are taking notice. Here are some of the reasons why.

Product: Method is innovating in a category in which innovation has been virtually absent: Lifestyle products (naturally-derived, biodegradable ingredients) with natural fragrances and stylistic bottles designed by Karim Rashid that “fit the décor of the home.”

Marketing: Irreverent, hip and inclusive, “People Against Dirty” campaign drives engagement with a brand and a “movement.” Sample the product with a free starter kit. Sign up online for e-newletter and get access to exclusive online offers. Join us as a Method “Advocate” and help spread the word.

Distribution: Shift from niche to black box retailers such as Costco, Target and Wal-Mart, drug and grocery chains and even high-end retailers such as the Conran Shop. This will expose millions more to Method products and continue to drive annual sales beyond the $32MM today.


Global Consumer Beliefs about Green

May 21, 2006

HSBC has launched an unbranded site yourpointofview.com as part of its push to be viewed as “the world’s local bank”. The site collects consumer research on a variety of global issues ranging from shopping malls to old age, and in the process, offers a rare glimpse into global consumer attitudes and beliefs. Results are insightful for all marketers – as changing consumer behavior often requires first changing belief systems – and encouraging for green marketers. Here are just a few issues addressed:

Windfarms
42% of respondents said that windfarms were necessary, with UK and Australia having the highest proportion (47%), followed by Brazil (45%) and the US (44%). Interestingly, 18% said that they were beautiful, versus only 1% that said they were an eyesore. With “not-in-my-backyard” battles raging on Cape Cod and other areas in the US, these percentages should give encouragement to green marketers that there is at least a growing public acknowledgement (if not yet a core belief) that alternative energy will be apart of our landscape, and perhaps, an aesthetically-pleasing one at that.

Gorillas
40% of respondents said that gorillas were endangered, with a high of 67% in Malaysia. Interestingly, 37% of respondents said that gorillas were a friend of or similar to humans vs. 12% that said they were wild, different, dangerous or a foe. While recognition that gorillas are endangered or a friend does not make people conservationist, this does suggest that there is a significant percentage of consumers that have a core belief (gorilla = friend = endangered) which marketers can use to translate into conservationist behavior.

Bottled Water
Bottle water is a beverage that promises benefits of purity (and sometimes taste and convenience) that tap water does not. While 27% of respondents said that bottled water was handy, interestingly, 20% each believed it a con or at least expensive.

There is little “green” to truly market about bottled water (given the environmental impact of transporting water long distances, disposal of plastic bottles and uncertain claims of purity versus tap water, etc). As such, it is interesting to observe respondents with a healthy dose of skepticism for the product.


Tipping Point: Organic Foods Go Mainstream?

May 15, 2006

Malcolm Gladwell pointed out that social phenomena influence the adoption of new ideas, trends or wants. When the tipping point is reached, mass market adoption ensures.

Have we actually reached the tipping point in the organic food market? Once a back-to-basic movement that was reminiscent of a simpler time, organic food is gaining mass market appeal. While organics constitute only 2.5% ($15B) of the overall US food market, the category is growing fast and is expected to reach 5% of the grocery market within 3 years.

Wal-Mart’s entrance into the organic market gives it legitimacy that will accelerate market adoption. There are several reasons for this, as Wal-Mart is able to:

-Introduce organics to millions of customers, most of which would not ordinarily have access or exposure to them

-Keep prices low (within 10% of non-organic alternatives) due to the sheer volume that it contracts from suppliers

-Increase the number of food products that offer an organic alternative, enabling organics to increase share of the grocery wallet.

Wal-Mart’s entrance into the organics market is truly a bellwether event. Careful note should be taken of marketing efforts to promote organics during the coming months, as there will inevitably be learnings that transcend across all green products/categories, and especially for those teetering on the edge of a tipping point.


Existing Frameworks

May 15, 2006

Green products can be a win-win for all, aligning societal benefits with consumer ones. More typically, however, green products are challenged by three issues, in that they:

Offer Benefits that Consumers Undervalue
Consumers typically undervalue the social benefits from green products. How could they when social benefits are typically less tangible and represent only one of many considerations when making a purchase decision?

Require Tradeoffs
Today, consumers access shopping bots to find the exact product that fits into their lifestyle, at the price they are willing to pay. This may not necessarily be the case for green products, as they typically impose tradeoffs in terms of price, design, functionality or performance in order to deliver green benefits. Take hybrids, for example. Greater fuel efficiency typically requires a compromise in performance.

Target Underdeveloped Markets
Green markets are nascent. As such, green companies may face the twofold challenge of marketing a new product and cultivating a new market category. Consumer adoption may be slow, impeded by limited choice (few manufacturers), high product costs (until production volumes increase) and consumer inertia (wait and see attitudes).

While these issues are by no means limited only to green products, they indeed pose special challenges for marketers and require specific strategies and tactics to overcome.


Green Product Challeges

May 14, 2006

Green products can be a win-win for all, aligning societal benefits with consumer ones. More typically, however, green products are challenged by three issues, in that they:

Offer Benefits that Consumers Undervalue
Consumers typically undervalue the social benefits from green products. How could they when social benefits are typically less tangible and represent only one of many considerations when making a purchase decision?

Require Tradeoffs
Today, consumers access shopping bots to find the exact product that fits into their lifestyle, at the price they are willing to pay. This may not necessarily be the case for green products, as they typically impose tradeoffs in terms of price, design, functionality or performance in order to deliver green benefits. Take hybrids, for example. Greater fuel efficiency typically requires a compromise in performance.

Target Underdeveloped Markets
Green markets are nascent. As such, green companies may face the twofold challenge of marketing a new product and cultivating a new market category. Consumer adoption may be slow, impeded by limited choice (few manufacturers), high product costs (until production volumes increase) and consumer inertia (wait and see attitudes).

While these issues are by no means limited only to green products, they indeed pose special challenges for marketers and require specific strategies and tactics to overcome.


Mission

May 14, 2006

Marketing Green is intended to be an exploration into one of the most vexing business and societal challenges today, namely, how to successfully market “green” products or services to consumers, and drive their mass market consumption. My objective is to inspire innovative thinking through dialogue and debate. Perhaps over time, we can together develop a practitioner’s guide that others can draw upon to design new products, shape consumer attitudes and preferences and inspire the purchase of everything green.At first glance, marketing green products may not seem that difficult. For example, with oil prices soaring, hybrids practically sell themselves these days. Yet, for most products, major barriers exist and adoption has succeeded only in niche markets.

Consumers purchase green goods for the rational benefits they provide, as well as the emotional responses that they evoke – similar to all other products. Yet, green products also generate a societal benefit – typically one that lessens, prevents or even reverses environmental impact. While consumers may indeed derive satisfaction from purchases that have an altruistic bent, most are less willing to do so when initial costs are higher or product designs are compromised. Marketers are challenged with overcoming these barriers, articulating compelling rational and emotional reasons for purchasing green.

Let’s begin the dialogue.


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