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

March 31, 2007

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

 

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

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

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

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

 

 

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

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

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

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

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

March 27, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Green Labels as Driver of Consumption and Loyalty Programs

March 19, 2007

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

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

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

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

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

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

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

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

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

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

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

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


Building Successful Green Partnerships

March 5, 2007

Companies are increasingly partnering with environmental groups to find mutually beneficial solutions to environmental issues.  For example, as mentioned in BusinessWeek this week, Greenpeace is working with companies like McDonalds and Cargill to ensure sustainable farming practices in the Amazon.  For these companies, such an alliance with a green non-profit helps boost their green credentials, shape their brand image and even mitigate consumer wrath in the form of protests, boycotts or lawsuits. (“Hugging the Tree-Huggers”, March 12, 2007)

It is not surprising then that the provocateurs of the TXU takeover – Kohlberg Kravis Roberts & Co, (KKR) and Texas Pacific Group (TPG) – secured the blessing of both Environmental Defense (ED) and the National Defense Resource Council (NDRC) – two of the most respected and influential environmental non-profit organizations – before publicly announcing the buyout deal last week.

As part of the buyout, TXU agreed to scrap 8 of 11 planned coal plants plus invest in both conservation efforts and renewable energy projects in exchange for the environmental groups’ blessing.  In doing so, the potential new owners of TXU are hoping to mitigate the brand (and market) risk posed by the ongoing lawsuits to stop the plants from being built; the owners also hope to avoid  the associated negative press the lawsuits generate.   

Yet, yesterday’s Wall Street Journal (WSJ) revealed another side to the story that may perhaps undermine the green credibility that ED and NRDC’s endorsements provide. (“Environmental Groups Feud Over the Terms of the TXU Buyout”, March 3, 2007).  While seemingly a win for environmental groups and the company alike, the deal did not adhere to all the essentials that make for a winning partnership. 

Marketing Green believes three underlying principles are critical for green partnerships to succeed: 

  • Authenticity: Businesses must have genuine intentions to be greener and back this up with clear results.
  • Corporate Transparency:  Ensure full disclosure to your consumers, critics and the financial community.
  • Alignment with the Right Partner: Companies should make sure that the green organization that it aligns with can credibly speak on behalf of all of a company’s critics.

As the WSJ reported, the TXU deal may not have adhered to these principles.   

First, according to an investor call transcript, C. John Wilder, the current TXU CEO, stated that he would restrain from building new coal plants “unless our customers face reliability issues, shortages leading to higher prices, or our competition propose plants that are expected to have a meaningful impact on market dynamics.”  This statement seems to undermine the authenticity of TXU’s green strategy as, according to the WSJ, such conditions could appear as early as 2009 and give TXU the excuse to break its current pledge and build new plants. 

Second, TXU’s intentions were apparently less than transparent during negotiations with the green organizations.  Again, according to the WSJ, Wilder later told analysts that at the time of the buyout the company was already “reshaping [its] development program to focus on a smaller number of plants”.  Such a statement reflects a lack of corporate transparency about its true intentions, while undermining the apparent environmental gains that ED and NRDC negotiated to secure. 

Finally, while ED and NRDC are two of the most respected environmental organizations, it is unclear whether they represented the interests of all affected parties when they signed on to this buyout deal.  For example, while plans were shelved for 8 plants, 3 in Texas are sill on the drawing board, leaving locals fuming over the deal. 

For marketers, a partnership with a green organization is great way to brandish a brand’s green credentials.  Yet, as TXU’s experience suggests, the success of the partnership requires corporate authenticity, transparency and partnership with the organization(s) that best represent the affected parties.


Green Marketers Need to Target Consumers Where They Spend Their Time: Online

March 3, 2007

The Internet has emerged as a primary channel for marketers seeking to reach and influence consumers.  For decades, TV has been the standard bearer against which all other channels have been compared as consumers spent more time watching TV than consuming any other medium.  Yet, today, that fact no longer holds true.  Across demographic segments – in particular, young adults (18-34) and the affluent ($100k+ annual household income) – time spent on the Internet is higher than on TV.  Green marketers need to take note and shift their focus and spending online. 

Young Adults: According to Jupiter Research, online young adults (18-34) spend on average 16 hours online per week versus 11-15 hours watching TV.  And while online, they are much more likely to create and share content than older audiences.  As such, green marketers need to prioritize online campaigns to reach young adults, and in particular, take advantage of this segment’s propensity for online content sharing in order to help accelerate awareness campaigns.  (“User Survey”, June, 2005) 

One great example of how to engage young adults online is the recently announced Save Our Selves (SOS) campaign.  Coming on the heels of Al Gore’s Oscar winning performance, SOS is a cross-channel, global awareness campaign about climate change that culminates in a 24-hour Live Earth concert (scheduled for July 7, 2007) that will be broadcast online via an MSN microsite (seen below with video of Cameron Diaz introducing Al Gore at the campaign annoucenment).  The concert is notable for its scale (over 100 performers on 7 continents), target reach (2 billion people) and use of the Internet to engage consumers (and especially young adults) via online broadcast (though not the first to do so).

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The Affluent: As it turns out, not only do young adults spend more time online than they do watching TV, but those with the highest purchasing power – regardless of age – do so as well.  This week, Jupiter Research reported that the online affluent ($100k+ annual household income) population spends an average of 17 hours online per week versus 14 hours watching TV.   Moreover, as Internet users, they tend to be more tech savvy than those who are less affluent.  As such, marketers have an opportunity to engage these consumers online, with meaningful experiences and by experimenting with the latest Internet tools and functionality. 

Given the higher purchasing power of the affluent audience, Jupiter Research suggests targeting these consumers across the purchase funnel: higher up to build awareness (eg, seeding content on social networking sites) and lower down to drive sales (eg, paid search, posting product reviews) or to improve loyalty.  (“Demographics Online: Affluent Profile”, March 1, 2007) 

One great example of how to engage affluent consumers online is Toyota’s community site for hybrid owners developed as part of its “Hybrid Synergy Drive: Everyone Has Their Reason” campaign.  This site cleverly leverages an avatar to engage consumers when they first arrive on the site, and provides functionality that enables hybrid owners to connect with each other and tell their story.  Though linked to Toyota’s product site, the content and experience of the community resides on a separate microsite.*

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The opportunity is clear:  as more consumers shift their media consumption online, marketers must follow suit and provide meaningful online experiences for consumers at each point along the purchase funnel. 

*Note: While essentially launched as a loyalty play, Toyota’s community has much of the content and tools that could also effectively engage affluent consumers when they research new car purchases.  For example, consumer-generated content from existing hybrid owners (eg, reviews, descriptions of reasons for purchasing) could be integrated directly with the product site or branded hybrid technology information site to support the sales process.  Moreover, the role of the avatar could be expanded to create a virtual sales team that discusses product features, explains hybrid technology, or answers frequently asked questions.


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