Pay-As-You-Go Pays for the Environment

December 23, 2010

Pay-as-you-go (PAYG) is emerging as a winning consumption model for the environment. It does so in two ways. First, by charging for incremental use, PAYG discourages overconsumption often associated with flat rate pricing. Second, it incentivizes shared use of resources during peak periods in order to avoid excess investments in capacity that would otherwise be underutilized for much of the time.

In recent years, several PAYG models have emerged that are having a positive impact on the environment. For example, smart grid initiatives provide consumers with tiered pricing models that incentivize them to reduce or shift energy use during peak periods. Additionally, PAYG models in cloud computing allow consumers the flexibility to add computing capacity in real-time, while avoiding the need to overinvest in server capacity utilized only during peak periods.

This month, another consumption model got a big boost when the California Insurance Commission approved the launch of PAYG car insurance in the country’s largest car market. Beginning in February, 2011, California residents will be able to purchase insurance from State Farm and the Automobile Club of Southern California and pay based on how much – and how safely – they drive. The less they drive, the less they pay.

Such a model is enabled through the tracking of personal driving data. Consumers self-report miles driven (and validate periodically through inspection) or do so automatically through an active OnStar system or small telematics device that plugs into a diagnostic port under the dashboard. Insurance companies then effectively create personalized rates based on actual car use.

Potential benefits for the environment from PAYG are significant: The State of California estimates that subscribers may reduce miles driven by 10% or more, saving consumers money while reducing accidents, congestion and air pollution.

A wide variety of companies are now in a position to consider testing PAYG models with their customers, especially those that are price sensitive, tend to use a product less than the average or demand additional services during peak periods. While consumers may focus on saving money, the real benefits may be saved for the environment.


Rise of the Peer-To-Peer Green Economy

November 21, 2010

One could argue that the green revolution really took root online with the launch of eBay. Or perhaps Craigslist. Connecting individual sellers with millions of potential buyers brought the neighborhood garage sale (or local classifieds) to the masses, and with it, the ability to extend the product lifecycle of used, yet still useful, products. As Amy Skoczlas Cole from eBay said, “The greenest product is the one that already exists.”

Such peer-to-peer ‘connective’ consumption has long existed offline. Online models like eBay connect individuals at massive scale, while overcoming transaction barriers through the use of seller reviews as well as secure payment mechanisms like PayPal.

Such models challenge the notion of permanent ownership, and with it the environmental impact that it brings. Instead, ownership is viewed as a temporary or altogether unnecessary condition required for realizing product benefits. Products such as cars, beds, clothes, lawnmowers and drills often lay idle and available for use if only those that are in need connect with those that have. Collectively, many have dubbed such transactions ‘collaborative’ consumption because they require the involvement of a community network to make them liquid.

Today, there are at least three peer-to-peer (P2P) models emerging that can facilitate greener transactions:

Rent. Today, there are many businesses that rent, instead of sell, products to consumers including Netflix, Zipcar and RentTheRunway to name a few. Shared products have a lower environmental footprint, of course, requiring fewer products overall to be produced to meet demand.

Recently, P2P models have emerged that allow consumers to rent products that they own including a spare bed (CouchSurfing), car (Spride, Getaround), even a wedding dress (Zilok). Such models leverage social networks to provide reviews and referrals for products and participants, as well as mobile apps that take advantage of location-based capabilities.

Exchange. Increasingly, consumers can facilitate the exchange of goods through trading, bartering or gifting. Such transactions reduce demand for new products by extending the lifecycle of existing ones. Such models provide a more flexible and open ended way to facilitate exchanges than with money. For example, FreeCycle users to make products available free-of-charge to those that are want to take them. In contrast, ThredUp facilitates the exchange of children’s clothes between peers but expects participants first to give clothes to a member in the community before accepting clothing in return. Similarly, Swap enables members to exchange books, CDs, movies and video games. What you can get depends on whether others want what you have to give.

Use Virtual Currency. Consumers can facilitate transactions through the use of virtual currencies that provide many of the benefits of a legal tender – the ability to accumulate, bank and borrow – without actually having to be legal tender. Such currencies work well in networked communities that rely on shared services to deliver a product or service. The Superfluid, for example, is a collaborative social network in which members conduct peer-to-peer transactions by exchanging “favors” for virtual currency. Here, a marketplace has been established where by individuals offer their services (say, web development) in exchange for Quids and then, in turn, spend Quids on services that they need (copy writing).

Certainly, there is the potential to leverage such networks in the green space. Perhaps Quids could be exchanged for environmental services such as conducting a home energy audit or preparing a social corporate responsibility report for a small business.

For consumers, such peer-to-peer transactions are a natural evolution of social networks. Such transactions will continue to grow as mechanisms for transacting become more seamless and consumers become accustomed to more unconventional methods of exchange.

Marketers will be challenged to participate in a meaningful way in such peer-to-peer transactions. Some like eBay and Zilok make it easy by allowing both individuals and businesses to facilitate exchanges. Alternatively, advertising on the largest exchange sites is certainly an option. This is particularly opportunistic for brands naturally aligned with such models including shipping companies, for example. Additionally, businesses should take advantage of such exchanges to launch new offerings such as pay-by-the-day insurance for those that seek to rent a peer’s car, for example. New models that reduce consumption are not necessarily bad for business – they are simply unleashing new opportunities for companies that can play a role in their facilitation.


Driving Adoption of Renewable Energy: Part II – An Energy Marketer’s Perspective

September 1, 2008

Interview with Adam Capage, Director, Utility Partnerships, 3Degrees

 

With the #1 renewable energy program in the US, the City of Palo Alto Utilities (CPAU) must be doing something right.  In fact, despite a formidable price hurdle, CPAU has managed to sign up over 20% of Palo Alto residents for clean energy, and is not finished yet.

 

Notably, when CPAU decided to aggressively market renewable energy to its customers, it decided to reach beyond traditional utility circles to engage the right marketing partner.  For that, CPAU turned to 3Degrees to educate consumers and convert them to clean energy.

 

Recently, I had the opportunity to talk with Adam Capage, Director of Utility Partnerships at 3Degrees.  We spoke of the challenges that marketers face when trying to shift consumers to renewable energy, the approach that 3Degrees takes and reasons why it has been so successful.  Here are his words:

 

MG: How do you partner with utilities?

 

AC: Essentially, we partner with utilities by leveraging their brand and their customer connections [and combine it] with our knowledge of how to talk to people about why they’d want to support renewable energy. 

 

The Palo Alto partnership was [our] first utility partnership [formed] in 2003.  When we partnered with Palo Alto, they had already had a green program operating for three years and it had not yet reached 1% participation. 

 

In many ways Palo Alto had the ideal demographics for marketing this product.  And so it’s very tempting to just think “Well hey, its Palo Alto, of course they’re at 20%”.  But, the product did exist for three years [before involvement by 3Degrees] without hitting 1%.  So, it’s a combination.  Yes, demographics are key.  But, you do have to talk to [consumers] repeatedly and get the messages out there and that’s what we’ve been focusing on. 

 

Since 2003, the participation rate has basically sloped upward the whole time.  Today, we’re actually over 20% now and we haven’t seen any slowing.  We keep kind of wondering if and when it will slow, but it hasn’t. 

 

Traditional thought was that there was low hanging fruit [to acquire] and then it would get harder to acquire people over time.  Instead, it seems that you can create new low hanging fruit.  As you talk to people, you make [renewable] an accessible, appealing product to new groups.  Another possibility is just that Palo Alto has such a huge percentage of their population with [the] perfect demographics [for purchasing renewable energy] that you can get an incredibly high penetration rate.

 

MG: Do you tailor your message to particular subgroups within the city?

 

AC:  No.  The real challenge is that renewable energy requires people to pay a premium and they have absolutely nothing [tangible] to show for it.  People for a long time tried to compare this to organic food or bottled water or other premium product.  And, you just can’t do that because with bottled water people think they’re getting [a personal benefit like] cleaner water.  With organic food they might be stopping themselves from having pesticides.  [Unlike with renewable energy], it’s not just about the public good.

 

[Marketing clean energy] is like a request for people to make a private contribution to a public good.  And that’s just damn hard. 

 

I think that the best parallel is public radio and TV knowing that people understand that the programs are very likely to continue whether or not they pay up, but they do it anyway.  With renewable energy we need to put a line item on the bill that says you pay more.  It’s very hard to make people get connected to what they’ve done.  So we try but you know we can’t be in the home everyday like public radio or TV. 

 

We focus on a message that you can make a difference and there are specific environmental benefits to purchasing renewable energy.  We link [environmental benefits] to specific energy usage and [provide] examples of benefits that are local.  And then we repeatedly try to get that message out there.

 

MG: Do you focus your message on awareness or consideration for purchase?

 

AC: When we start each [partnership], it is like going back to 2003 in Palo Alto; you start from ground zero.  It’s a cluttered market and it’s hard to break through so awareness is definitely our first battle.  

 

With Palo Alto I think that awareness has come a very long way.  I don’t think they’ve done research recently, but I bet it’s pretty high  so now we’ve got messages that simply say “just do it”.

 

MG:  What is average price premium for renewable energy?

 

AC:  It varies quite a bit around the country based on the premium for clean energy, current electricity rates and the amount of energy that is consumed.

 

In California the average household uses something like 500 or 600 kilowatt hours a month, where as we have a partner, Amerin, that is based in St. Louis.  Its Missouri customers use on average 1,000 kilowatt hours a month.

 

The premium for Palo Alto [residents] that convert [to renewable energy] is going to be between $5 and $7 per month I think.  For our partnership in Amerin, it’s closer to $15 per month on average. 

 

MG:  Aren’t renewable energy prices independent of oil price shifts?

 

AC:  The programs aren’t designed that way.  A few [utility tariffs] in the country are actually designed where the renewable energy price is essentially substituted on people’s bills for their traditional fuel.  Those programs have seen great success.   Everyone understands why they’ve seen [success] as they have a whole new message to talk about: price stability because [the price of] renewables never change.

 

Most programs are designed where the renewable energy premium is on top of what they already pay.  So the thinking [by consumers] is renewable energy is more expensive.  You aren’t actually getting the electricity from [specific] wind turbines anyway.  What your dollars are doing is allowing the utility make more investments in putting renewable energy into the overall mix.

 

Hence the public good part: your electricity comes on just like everybody else’s except you pay more.

 

MG: Are you actually paying for 100% equivalent renewable energy?

 

AC:  Yes.  Not every program in the country is designed the same. But, our five partnerships are all 100% usage.

 

MG: What are the key customer insights for purchase of renewable energy?

 

AC:  A few people talk about new technology and want to support it.  A few people talk about fuel prices going through the roof and we are beholden to the Middle East, so they want to support another source. But the majority just says “I want to make a difference”.  It seems like one small step, one small opportunity for [consumers] to do that.

 

MG:  Can the success of Palo Alto be replicated across the country or is this an anomaly?

 

AC:  20% might be an anomaly but I know that, in general, these [renewable energy] programs are underperforming.  We have five like I said.  One of them just started and so it only has a couple tenths of a percent participation.  But all together our five average 7.8% participation.  The industry average is 1.8%.  You can do this better.

 

MG:  What’s the secret?

 

AC:  I think that the partnership model is a really good one.  The utility has the customer’s eyes and contacts and, in most cases, the customer’s trust.  That is certainly true in Palo Alto.

 

3Degrees brings the messaging and dedication to execution.  The single best thing we’ve found is that you collect information about what channels and messages are working well and you just execute again and again and again and again. 

 

That’s not what utilities do; they are not marketing organizations.  We do the marketing behind their brand and no one ever knows our name.  We want it that way.

 

MG:  Do you think that the social narrative has changed given Al Gore’s movie a few years ago and just the growing reality and awareness of global warming?  Has that context enabled you to move the needle further?

 

AC:  It definitely helps.  We were out in front of movie theaters when Al Gore’s movie was released.  We set up tables outside to intercept people came out of the movie.

 

MG:  When you target utility customers, what kind of marketing campaign do you implement?

 

AC:  The campaign is continuous.  Email, bill insert, direct mail, events.  We’re spending money and testing different channels all the time except TV.

 

Yard signs are also used to bring to peoples’ attention that their neighbors have done this.  We get requests [for signs] saying I want to show people that I did this.

 

MG: Were there other ways that you tapped viral marketing or activated influencers?

 

AC:  We did holiday card campaign where we sent all Palo Alto participants a card that they could send to their friends saying “I participated in Palo Alto Green and you can too”.

 

We offer wind tours where we let participants come and then, hopefully, tell other people about going to a wind farm and seeing what their money is supporting. 


Driving Adoption of Renewable Energy: Part I – A Utility’s Perspective

August 31, 2008

Interview with Tom Auzenne, Assistant Director, City of Palo Alto Utilities

 

Electrical power generation accounts for 40% of total annual greenhouse gas emissions (GHG) in the US.  Such a high concentration of GHGs is due to our reliance on highly polluting fossil fuels, especially domestic coal.  Yet, while the popular press focuses on the recent growth in renewable energy, it still provides only 2% of our total electrical needs today. 

 

Until recently, many arguments have been made for why adoption of clean energy remains slow.  Certainty, price ranks as the #1 barrier to broader adoption.  Other factors include reliability concerns and lack of education about the technologies.

 

Interestingly, Palo Alto, California has bucked this trend.  Over the course of several years, the municipal utility has partnered with 3Degrees, a utility marketing company, to encourage residents to sign up for its PaloAltoGreen program which provides 100% renewable energy from wind and solar power sources.  The results of this program have been astounding, with over 20% of all residents switching to clean energy.  Indeed, PaloAltoGreen is now ranked as the #1 green energy program nationwide based on participation.  

  

What does this mean for GHG reduction?  Well, it is quite simple: the purchase of 41.5M kWh of renewable energy translates into a reduction of 350,000 tons of carbon dioxide annually.

 

Recently, I had the opportunity to speak independently with both Tom Auzenne from the City of Palo Alto Utilities. We spoke about consumer interest in renewable energy, barriers for greater adoption by consumers and key reasons for this program’s success.  Here is what Tom Auzenne had to say:

MG: Who purchases renewable energy in Palo Alto?  What is the mix between residential, commercial and governmental entities?

 

TA: PaloAltoGreen (PAG) is the City of Palo Alto’s 100% renewable energy optional program open to all residential and commercial customers with an active electric service provide by the City of Palo Alto Utilities. The program has about 20% of the customers involved, with residential customers making up on average 95% of the mix and the commercial customers at 5%. Our residential sales account for roughly 60% of the program sales with commercial and governmental making up the rest. 

 

However, starting with July 2008, both the City of Palo Alto (CPA) and the Regional Water Quality Plant (RWQCP) are increasing their commitment to buy renewable energy equal to 30% of their total usage, a ten-fold leap from the previous 3% of total usage purchases.  This will increase the percentage of nonresidential customers in the program.

 

MG: Describe the demographics of your average residential customer that signs up for renewable energy?  How do they differ from the average utility customer in Palo Alto?  Across the US?

 

TA: As a general rule, the residential PAG customer is well educated, in a high income household and is environmentally progressive.  Most are thinking about their environmental impact and want to do something about it.

 

One of the primary differences from other green pricing program around the country is that PAG customers generally use less energy per month than our average customer.  PAG customers use 400-600 kilowatt hours (kWh) per month compared to the national average of about 888 kWh (according to the DOE).  This indicates that our customers may also be trying to reduce their electricity usage through energy efficiency or other measures.

 

MG: What motivates residents of Palo Alto to switch to renewable energy (e.g., attitude toward the environment, concern for their kids, financial incentives, community empowerment, etc.)?  Are their attitudes substantially different than the rest of Americas?  If so, in what ways?

 

TA: There are many motivations leading to program participation. These include being role models for the next generation, “doing the right thing” for the environment, and buying renewables as a logical next step after energy efficiency.

 

CPAU strives to communicate the environmental benefits of renewable energy to Palo Altans in as many ways as possible. Combine this near constant communication with high community awareness of the issues surrounding climate change, and you have the combination that brought PAG such success.
 
  
We also work closely with the Palo Alto Unified School District on energy and curriculum.  Many customers not participating in PAG have taken a more direct approach, and have installed their own photovoltaic (PV) systems rather than buy renewable energy from the market. Between January 2007 and March 2008, 92 PV systems were installed in Palo Alto, representing 250 kW of generation.

 

MG: What, if any, is the premium charged for purchasing renewable energy (vs. non-renewable) today?  What factors do you attribute to a customer’s willingness to pay such a premium (e.g., level of affluence, attitude regarding the environment, etc)?  Do you think renewable energy will be adopted by a majority of customers without eliminating the premium altogether?

 

TA: Residential and small commercial customers can enroll in PAG for 100% of their monthly electric usage at a premium of 1.5 cents/kWh. Large commercial and industrial customers can buy renewable energy in blocks of 1,000 kWh for $15 per block. This allows them to support renewable energy at a level that makes business sense.

 

One of the nice things about PAG is that the price doesn’t fluctuate. CPAU hasn’t changed the price for 100% renewable energy in five years and has no plans to do so. The demographics of Palo Alto are also great for marketing renewable energy, as our customers tend to be interested in the environment and can have a level of disposable income that allows a lower barrier to participation.  

 

MG: A 20% adoption rate for renewable energy is impressive.  Can this success be replicated across the country?  If so, what will it take to do so?  If not, what are the obstacles (e.g., low awareness, lack of urgency, difficult process to switch, price premium, etc.)?   

 

TA: With the continuous support of our local elected officials on the City Council, the staff of the City government, the employees of the Utilities Department, and, of course, our great customers, nearly everyone is behind this program. This type of support is vital to the success of a green pricing program in Palo Alto and elsewhere in the country.

 

Other factors that need to be in-place, or created, include customer awareness of the environment, a history of energy efficiency, an active partnership with the schools and students, and a willingness to lead.

 

It should be noted that not all the program participants have vast disposable incomes. Participants are both young and old, in the prime of their earning years or on fixed incomes, have children or are childless. All share, however, the same vision of, and desire for, a sustainable future.

 

MG: What are your primary marketing objectives in the residential and commercial markets?  Do you find the need to spend significant time building awareness of either the category or the technology?

 

TA: CPAU has found that targeted messaging, repetition, clear information about the product and a call to action (“closing the sale”) bring results. If the job is done correctly, then customers are aware.

 

For those customers that have more questions, we have many ways for them to find answers to any question that they might have.

 

MG: Is there any skepticism on the part of consumers regarding the (reduced) impact that renewable energy has on the environment? 

 

TA: There are always skeptics, but we focus on educating consumers on the positive aspects of the renewable energy we provide.  With the melting of the North Pole ice and the retreating of the Swiss glaciers, featured on the Evening News, skepticism has been reduced or eliminated.

 

MG: Please describe how you partner with 3Degrees in terms of your marketing efforts.  What are the core components of these marketing efforts?  What made them so successful?

 

TA: 3Degrees specializes in marketing renewable energy. They have partnerships with utilities in California and around the country. They are able draw on their experience and accumulated data to provide targeted marketing and program management support.

 

CPAU brings its knowledge, reputation and trust of the community to this partnership to help sharpen the marketing even more. With their experience and our community awareness, we have created one of the most effective, and successfully marketed, green power programs in the country.


Eco-labels Impact Consumer Behavior

May 24, 2008

Eco-labels influence consumer behavior in two ways.  First, they introduce green as a considered attribute at the point of sale.  Second, they enable consumers to comparison shop based on green.  Over the past few years, there have been many new eco-labels launched by governments, manufacturers and retailers.  Many of these labels are listed on Consumer Reports’ Greener Choices site.

Interestingly, the Natural Marketing Institute’s 2007 LOHAS Consumer Trends Database report determined that not all eco-labels have the same impact.  In fact, consumers indicate that they are more likely to make eco-friendly purchase decisions if the eco-labels are also widely recognized and trusted brands in of themselves.  Familiar labels for programs like the EPA’s Energy Star have a more significant influence on consumer behavior than others. 

While such a finding reinforces the value of eco-labels, it does challenge the notion that CPG companies and retailers should necessarily launch proprietary labels to differentiate themselves on green.

Like all brands, eco-labels take significant time and resources to build.  Moreover, given the sensitivities regarding greenwashing, for-profit entities may have to overcome a higher hurdle than government or a non-profit organization given the appearance of conflict if proprietary labels adorn their own products.

 

As such, Marketing Green recommends that product companies and retailers focus on disclosing product information about environmental impact to differentiate themselves in the market rather than trying to define new green labels.  Disclosures provide consumers with information that can inform purchase decisions rather than certify a product’s greenness.  This is what HP has done with its launch of Eco Highlights labels on its products.   

Marketing Green also recommends that retailers simultaneously push for industry-wide labels.  While some retailers may consider proprietary labels as a competitive differentiator, it is likely that broadly recognized labels will accelerate consumer adoption while reduce the cost to support them. 

 

Moreover, retailers should differentiate themselves by sourcing more green products.  Arguably, this is one of Wal-Mart’s strategic priorities today.  Greater variety combined with recognized eco-labels will likely drive more sales as well as consumer loyalty.  In the end, this approach is likely to have more impact for both business and the environment.


Shifting from Product Placement to Engagement in Green

April 13, 2008

For decades, marketers have leveraged product placement to influence consumers.  The idea is quite simple: leverage media to showcase a product or service being used as part of everyday life in order to shape consumer brand perception and impact purchase behavior.  Put a product in the hands of a celebrity and consumers will interpret this as a de facto endorsement.  Such placements have been embedded across all types of media including television, film, video games, books and music videos.

 

The digital channel has upended this traditional approach by enabling marketers to go well beyond simple product placements to create meaningful experiences for engagement.  Not only does such an approach promise to yield greater brand impact, but it may also drive significant sales as well.  Here are a few examples:

 

Digital Video Recorders (DVRs): Early last year, GE launched its latest ecomagination campaign.  To counter growing consumer use of DVRs to bypass commercials, GE provided an added incentive for consumers to watch: embedded content in the commercial itself that required a DVR to access it. 

 

Called One Second Theater, this “commercial within a commercial” provided a duel advantage for an advertiser: not only did consumers view commercials that they would have otherwise skipped, but they also engaged with added brand content as well.  Moreover, as one of the first to use this tactic, GE benefited from the novelty factor as for many consumers this was likely their first experience with embedded content in a TV commercial.

 

Screenshot from GE’s One Second Theater

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Mobile Phones:  Mobile applications are emerging to enable consumers to access web content via their phones through scannable bar codes associated with hyperlinks to the web.

 

Scannable 2D Bar Code with Hyperlink to Website

thinkmobi2.gif

Source: thinkmobi

Semapedia 2D Bar Code Hyperlink to Green Maps, an Open Source Location-based Search Engine
greenmaps.gif

 

Such applications enable consumers to use their mobile phones to access content on-demand from anywhere a bar code is posted.  This capability is just emerging in the US; it is likely to take another year or so until all mobile phones are enabled to scan and interpret these bar codes.  Nonetheless, there are many applications emerging for green marketers using 2D bar code technology:

 

For example, tags can be embedded at the point of sale to provide links to additional product information including its environmental footprint.  Moreover, they could also be embedded directly on products.  With such bar codes, friends that ask “where did you get that?” can easily link to a site to make a purchase or locate the nearest retailer to do so.  Alternatively, such tags can provide additional information specific to a location. 

 

Video: Video applications are emerging that enable embedded objects clickable and associated with added content or a call to action. 

 

Screenshots from Videos Posted on VideoClix

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Such product-linking, or plinking, provide significant opportunities for both advertisers and consumers:  not only does it provide a more compelling content experience, but it also provides a more relevant experience as the embedded advertisements directly relate to the video content itself.  Moreover, it eliminates the need for consumers to view pre-roll commercials, a barrier for many users to watch the video in the first place. 

 

 


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.

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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.


Green Content Syndication: Part I – “Deconstructing” Websites

January 20, 2008

Traditionally, publishers have viewed websites as content destinations, challenging marketers to drive traffic to specific websites in order to engage consumers with relevant content.   

Today, the model has changed.  Increasingly, publishers are uncoupling online content from its host site; marketers are learning to syndicate this content online or encouraging others to do so virally.  Jupiter Research has defined this trend as “website deconstruction”. 

Moreover, emerging and established content platforms, including news aggregators, video sharing and social bookmarking sites, enable content to exist on its own in the online world and allow users to have greater control over its distribution.  

Today, a two-step process has emerged for marketers to facilitate content distribution:

Active distribution: Publishers need to first distribute content to multiple users via RSS feeds to readers, widgets, personalized home pages, news aggregators and even mobile devices. A broad list of readers and aggregators can be found here

                          Downloadable and Customizable Widget 

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Publishers can also syndicate content to users by seeding bloggers or by distributing assets to third-party websites through platforms such as Blogburst, Voxant and Magnify.  Each one has a different distribution mechanism.  Blogburst facilitates distribution of blog content through 200 established news channels such as Reuters and FoxNews, for example. 

    Marketing Green Blog Posting on FoxBusiness.com via BlogBurst

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Voxant, in contrast,  syndicates news from mainstream sources to third-party websites; Magnify distributes video.  Magnify provides a widget that can be easily customized (based on content preferences) and downloaded onto third-party sites.  Publishers can make their content available for distribution simply by creating a channel on Magnify to do so.  Currently, Magnify offers 119 channels of content relating to “Nature and Environment”.

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Passive or viral distribution: In addition to actively pushing content out to a variety of sources, marketers need to ensure they position their content to be further distributed by consumers.  Today, users increasingly share and recommend content to their peers.  By doing so, individuals not only share content with other users, but they empower these users to make recommendations to friends and contacts in their networks.  For marketers, such a network effect can have an exponential impact in driving reach; it also costs marketers virtually nothing to achieve.   

 

Examples of users facilitating passive content distribution include sending viral emails, posting video content on YouTube and veoh, bookmarking an article on Digg and del.cio.us or linking to personal pages within MySpace. 

 

While all general interest sites host content related to the environment, there are many websites that focus exclusively on the green space.  Examples include video sharing sites ecolive.tv, emPivot, Green.tv, GreenEnergyTV, RiverWired and URTH.tv; bookmarking sites ecoblogs, Hugg and hunuh; and a multitude of social networking sites including Care2 and Zaadz (See also Marketing Green’s “Green Marketing on Social Networks” and “Sharing Green Videos Online” postings).

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In a conversation with Marketing Green earlier this week, Shmuel Benhamou, a founder of the recently launched ecolive.tv, makes the case for green vertical sites: “Videos are one of the most efficient and interesting ways to spread the ‘green’ message throughout the world.  Yet, today, it is very hard to find good green videos on YouTube and others user generated content sites.  Ecolive.tv wants to promote green videos to a targeted audience.”

Notably, syndication blurs the lines between publisher and user, as everyone has the chance to distribute content.  Moreover, it also blurs the distinction between content, either professionally or user-generated, and advertising.  Increasingly, content serves as advertising and advertising is enjoyed as content. 

One great example of advertising distributed as content in the green space is a commercial for a European wind energy company, Epuron, syndicated on YouTube.

Marketers: Think differently about your digital strategy.  Uncouple content from specific websites and distribute directly to users or through intermediary sites.  Encourage consumers to share content with their peers and across social networks.  If done right, syndication can act as a digital channel accelerator by driving reach and generating impact far beyond the cost required to facilitate it.  It is a must for most marketers today.  You scarcely can afford not to.


Investing in Green Innovation

January 2, 2008

As companies plan their green investment strategies for 2008 and beyond, they should take into account that caps on carbon emissions are all but inevitable in the future.  In fact, it is highly likely that caps will be in place in the US within the next few years.  The 187 nations that attended the UN climate conference last month in Bali (including the US) agreed to negotiate a successor agreement to Kyoto by the end of 2009.  Perhaps more importantly, Congress already has several climate bills under consideration.

How aggressive will carbon reduction targets be?  A recent Human Development Report by the United Nations Development Programme concluded that developed nations needed to reduce carbon emissions by greater than 80% from 1990 levels by mid-century in order to advert the worst impact of climate change.  Under any implementation scenario, carbon caps will likely be imposed over many years, if not decades, providing a window of opportunity for companies to adapt to and compete in this new world order.

In many ways, the imposition of carbon caps will reset the current competitive landscape.  Those businesses able or willing to adapt more quickly to this changing landscape will likely secure a competitive advantage by differentiating their brand or products, or by improving their cost basis. 

Despite the arguments for moving quickly, many companies will likely delay investment in green as long as they can, and do so for seemingly good reasons.  First, exact targets are uncertain.  Second, the timeline for implementation may take years, if not decades. 

Finally, the misuse of financial practices may preclude smart green investment.  A recent Harvard Business Review article, Christensen et. al., suggests that there are three ways that incorrect financial practices suppress investment in innovation.  Marketing Green believes that as green investments are largely investments in innovation, it is very likely that the misapplication of financial practices that impede innovation may also hinder prudent investments in green.  (Clayton Christensen, Stephen Kaufman and Willy Shih, “Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things”, Leadership & Strategy for the Twenty-First Century, Harvard Business Review, January 2008).  Here is how:

Cash flow modeling: Companies often do not fairly compare the projected discounted cash flow from a new investment with that generated from current operations because they assume that current cash flow will remain constant in perpetuity. 

In fact, as Christensen et. al., explain, this may not be the case: in the absence of continuous “innovation investment”, the more likely outcome is a “decline in performance” in existing operations.  Without this downward adjustment, however, financial analysis creates a “systematic bias” against innovation in new products or processes – green or otherwise.  

Asset lifetime: Financial managers may mistakenly assume that that an asset’s usable lifetime should be based simply by its depreciation period, rather than its “competitive lifetime”.  Said differently, even though the continued use of an existing asset generates a more attractive return in the near-term (typically because capital equipment costs are already sunk and therefore not included in the calculation) than an investment in a new asset, it may not be the best decision for a company if it wants to maintain its competitiveness (and cash flow) longer-term. 

A famous example cited by Christensen et. al., is the case of Nucor and US Steel.  Nucor invested in new minimills that yielded a low average cost of production. Instead of following suit, US Steel stuck with its existing mills because the marginal cost of producing incremental steel was lower than investing in minimills (because it was simply putting excess capacity to use) and therefore more financially attractive in the short term.  

In this case, US Steel relied on marginal cost analysis to inform near-term production decisions that was insufficient for making longer term investment decisions.  As Christensen et. al., point out, “When creating new capabilities is the issue, the relevent marginal costs is actually the full cost of creating the new.”  As a result, US Steel’s average production cost remained much higher than Nucor’s and Nucor was able to out compete US Steel longer term.  

Applied to the green space, many companies may decide to defer investment in greener technologies given the upfront capital requirement to do so.  This decision may extend the life of less efficient technologies, manufacturing processes or products in the market.  Yet, it may prove disadvantageous longer term as other competitors or new entrants make more aggressive investments that generate a more sustainable competitive advantage when carbon caps become more restrictive longer term. 

Quarterly earnings: Companies that focus on quarterly earnings may systematically under invest in innovation as they are not rewarded by the market for doing so.  Given that the time horizon for green may take years to pay off, green initiatives may likely be underfunded relative to initiatives that are able to contribute sooner to earnings. 

Marketers need to think strategically about their investment in green.  Caps on carbon emissions will reset the competitive playing field, though they may be imposed gradually over years, if not decades.  Early movers  may enjoy a competitive advantage in the market based on their brand, products or cost position.   

There is a good chance companies will underinvest in green due to regulatory uncertainty and the misuse of financial practices that may favor investments that yield near-term benefits at the expense of long term competitiveness.  

Marketers must understand and compensate for bias that leads to underinvestment in green.  Formulate a strategic vision for green, properly balance the risks and rewards and invest for the long haul.  Your shareholders will thank you.


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