Climate Change Turns Personal: Why Brands Must Adapt

August 2, 2012

Until recently, climate change remained an abstract concept to most Americans — something that may have long-term consequences for the planet, but moving too slowly be a significant concern in their daily lives.

Today, however, such sentiments may be beginning to change. As more and more Americans experience such events firsthand, they’re beginning to make the connection between climate change and its growing impact. Natural disasters and extreme weather events such as high winds and rain storms, floods, droughts and heat waves are happening more frequently — and with greater intensity.

There’s some evidence supporting Americans’ change in attitude: A recent survey conducted by Yale and George Mason universities indicates that the vast majority of Americans agrees that climate change is making natural disasters and extreme weather events worse.  More than a third of respondents reported that they personally experienced “harm” to their property, finances or physical or mental health from a natural disaster or extreme weather event in the past year alone.

Brands should take note: Climate change is becoming more relevant for Americans as its effects become more personal.  Crossing such a threshold is significant as it means that consumers will likely become more attuned to corporate activities that impact climate change – either positively or negatively. This, in turn, could significantly impact brand favorability, preference and purchase over time. Consumers may seek to reward brands that help reduce the impact of climate change, while penalizing those that do not.

Climate change is not going away. Many factors have emerged that will only serve to reinforce why climate change is personally relevant for Americans. Here’s how this is happening:

More Americans will experience climate change impact. Whether it be wildfires in the West, floods in the Midwest or Texas droughts, more Americans will be impacted firsthand as the probability of natural disasters and extreme weather events is only expected to increase with time  – and reinforce just how personal climate change’s effects really are.

Our quality of life is increasingly impacted. Natural disasters and extreme weather events are having a growing impact on the personal life of Americans.  While ‘harm’ is an extremely important measure of climate change impact, it does not capture the impact that extreme weather events have on the everyday lives of most Americans.

For example, a violent, fast-moving storm may prevent a mother from dropping off a child at practice. Snow storms in October mean that it is too dangerous for young children to play outside, with tree branches – still full of leaves – breaking off under the weight of the snow.  And heat soaring above 100 degrees can be hazardous to those with no means of cooling off.

Americans are sharing their stories. Users are taking advantage of social media platforms to document and share content regarding climate change and its impact on natural disasters and extreme weather events.  Pinterest, in particular, has emerged as a compelling visual platform to share images, infographics and stories about climate change and weather-related events.


Moreover, nonprofits are also facilitating users to share their stories.  Recently, for example, 350.org launched its global “Connect the Dots” campaign to motivate users to document and share images and stories about local climate change impact across the globe.


Americans are seeking out experts.  The Yale/George Mason survey indicated that 58 percent of Americans want to hear more from their TV weather forecaster about climate change.

Yet today, such trusted experts are largely silent on the issue. Sixty-nine percent of Americans indicate that their weather forecaster never or rarely ever (1-2 times over the past 12 months) mentions climate change.  This is consistent with an estimated 72-90 percent drop in climate change coverage across evening and Sunday news programs between 2009 and 2011.

In the absence of regular reporting, Americans are going elsewhere for information. For example, a recent CNN interview with Bill Nye the Science Guy making the connection between wildfires and climate change has nearly a half million views on YouTube.

As the effects of climate change hit home, consumers will become more attuned to corporate efforts addressing the matter. Over time, they’ll indicate brand preference as well. Companies should take this into account when considering future commitments to more sustainable actions.


Three Lessons for Fulfilling on a Green Brand Promise

January 29, 2012

When it comes to the environment, consumer behavior can be inconsistent or even a bit hypocritical.  Two-car families will buy a hybrid and a gas guzzling SUV.  Parents will teach their kids to turn off the water while brushing, but take a few extra minutes in the shower to enjoy the peace and quiet.  Somehow, we tend to overlook our own inconsistencies, while holding others accountable for their actions.

Perhaps, then, it should not be surprising that consumers tend to be less forgiving of a brand’s missteps than their own.  They are quick to assume green washing regardless of good intensions.

Why is it that consumers hold green brands to a higher standard than they do themselves?

It is not an easy question to answer.  Certainly, as human beings, we have a harder time taking stock of our own actions than another’s.  But, the distinction goes further.

First, consumers turn to brands as a form of self-expression based on who they are today, or who they ideally want to be.  For consumers to do so, brands need to clearly articulate what they believe in and be consistent in how they express these beliefs.  Arguably, this is especially important for green brands, as most mainstream consumers tend to be less familiar with them or how they benefit the environment.  As a result, consumers tend to rely more heavily on green brands for guidance when making purchase decisions.

Second, consumers expect green brands to deliver on promised reductions in environmental impact.  When they don’t, consumers feel disappointed that expectations are not met, or frustrated because, despite good intensions, they are not able to make a positive impact that they anticipated.

A recent personal example:

For the past year, I have turned to OZOcar, the eco-friendly car service, to help me reduce my eco-impact from business travel.  On one recent occasion, OZOcar ran out of cars and farmed my ride out to one of several livery companies in its network.  Instead of a Prius, the vehicle that arrived was a gas-guzzling Suburban.  An eco-friendly car service providing about the least eco-friendly ride.   In marketing terms, the Suburban was off brand.

While this was not part of my typical experience with OZOcar, it offered clear lessons for all brands:

Be clear about what a brand promise is and isn’t.  Brands should set clear expectations about their brand promise.  For example, it is not unreasonable for a small company like OZOcar to send a gas-powered substitute – preferably a sedan instead of an SUV – when its fleet is being fully used.  That said, brands should clearly set expectations upfront so that consumers know what to expect and are not free to interpret perceived (or actual) inconsistencies in their own way.

Fulfill on a brand promise, or modify the promise.  A customer service manager at OZOcar did offer to change my individual profile to state that I did not want to be picked up in an SUV.  I asked if they would consider changing their policy so that their network would not send SUVs to any OZOcar customers.  They said that they would look into it.

Know how consumers perceive a brand. What matters most is not what a brand says about itself, but how consumers perceive it.  As such, marketers should stay abreast of how consumers perceive their brand by soliciting feedback during customer interactions or monitoring (and perhaps joining) online conversations in social media.  This will enable a brand to quickly adjust its messaging – or its offering – to reinforce its brand promise.


Uncharted Waters: Reframing Climate Change Around Water

October 17, 2011

Einstein is credited with saying that “everything should be made as simple as possible, but no simpler.”

Such words have renewed meaning when it comes to messaging about climate change as everything about it seems complex – its cause, its impact, and the challenges that humans face to address it. Just describing climate change poses a formidable challenge for communicators. Its causes are many and not necessarily intuitive to grasp.  Likewise, its impact is difficult to comprehend, especially given how interconnected Earth’s natural systems are.

Like any marketing communications challenge, consumers needs sound bites that relay information as simply as possible, but no simpler. The message needs to be relevant to their daily lives. The narrative needs to be easily digestible and sharable so that it quickly becomes part of the broader lexicon. It also needs to instill a sense of urgency, but not leave a feeling of being overwhelmed.

One possible way to address this challenge is to reframe the climate change conversation around water. This shift is necessary for many reasons:

First, the current narrative around global warming is too complex and abstract for most audiences to grasp fully: rising temperatures, melting polar ice sheets, burning rainforests, rising sea levels, and so forth. Focusing on water enables communicators to simplify the message, as water is familiar to all of us and essential for our own survival. Rather than shortchanging the complexity of climate change, communicators that narrow the message enable consumers to more easily digest it.

Second, focusing on water allows us to shift communications away from the cause of climate change to its impact. Natural water variability is expected from year to year, but overall, supplies in the US, even in the arid west, have traditionally been relatively predictable from year to year. In the current world, a “100-year” drought actually only occurs every 100 years.

Yet, climate change has already disrupted this paradigm. Today, we are shifting to a world of water volatility, where the probability of extreme droughts and floods increases dramatically. For example, in 2010, the Amazon rainforest experienced its second “100 year” drought in 5 years. When this happens, people start to pay attention.

Finally, water enables communicators to reposition global climate change as an inherently local issue. It has long been the case that consumers have had a difficult time connecting with – let alone financially supporting – global environmental issues. Redefining climate change as a local issue makes it more personal, and provides an opportunity to motivate more grassroots support for action at the local level.

Yet, today, the impact of climate change is being felt closer to home. Local communities in the US are being devastated by water – or the lack there of – from extreme droughts and wildfires across Texas to torrential rains and flooding in Vermont. Globally, the impact has arguably been more severe because people in places like Pakistan, Bangladesh and even China have fewer resources to cope with it.

To this end, it is important to outline a communications construct that shifts the focus of climate change to its impact on water. Here is one approach:As communicators, we face the ongoing challenge of constructing the right narrative that engages audiences on this important issue of our time.  Simply, but no simpler.

The best way to do so is still open for discussion.

What is your approach?


Green Product Paradox: When Too Much Good Is Bad for the Environment

October 4, 2010

A common mantra in green marketing is that if you want the masses to buy your product, focus your messaging on more traditional attributes such as price, quality or service.  A product’s “greenness” is likely secondary for many mainstream consumers. For green marketers then, the holy grail may be to offer a product that is competitive on dimensions both traditional and eco-friendly.  This would result in the greatest number of products sold and greatest impact on the environment.

But, things are not always that simple.  Consider the scenario when an innovative green product spurs new demand across an entire product category, rather than just replaces the existing generation of products in market. Is the individual product still green if the aggregate impact of the category is greater than what it replaced? 

Take, for example, household lighting.  Most of us are aware that switching from incandescent to fluorescent light bulbs can result in a dramatic reduction in energy use.  But, overall adoption has been relatively modest in comparison to the potential market, likely due to the premium price commanded for the bulbs. 

Today, an even newer generation of lighting technology is on the commercial horizon.  Solid state lighting, described as a “souped up” version of the light emitting diodes (LEDs) that are commonly used today to illuminate electronic displays on alarm clocks and audio equipment, promises to provide lighting at a fraction of the energy used by today’s bulbs.  (“Not Such a Bright Idea”, The Economist, August 26, 2010)  Mass adoption of such technology could have significant implications for the environment given that 6.5% of the world’s energy is used for illumination.

In many ways, we should celebrate such technology fixes given their benefits to the environment.  For marketers, solid state lighting clearly has the potential to be one of those “holy grail products”. Yet, green products such as solid state lighting also present a paradox in that their adoption in mass might actually be detrimental to the environment. How could this be the case?  Well, according to J Y Tsao and colleagues at the Sandia National Laboratory, cheaper lighting that sips energy will likely increase overall demand and uses for light, and with it, overall energy consumption.  (J Y Tsao, et. al., “Solid-State Lighting: An Energy-Economics Perspective”, Journal of Physics D: Applied Physics, August 19, 2010)

The rationale? Today, Tsao et. al., contends that consumers underconsume indoor light – with current fixtures providing 1/10th of the illumination as ambient outdoor light on cloudy days and 1/60th of ambient outdoor light on sunny ones.  Tsao rationalizes that there is plenty of room to consume more – including in new ways that have yet to be thought of.

As evidence, Tsao et. al., models historical lighting use and adoption rates for new technologies – from gas lanterns to fluorescent bulbs – and extrapolates forward demand based on the amount of light produced (measured in lumens) and cost per lumen.

Historic trends clearly indicate that consumer demand greatly increased when cost dropped and other attributes – such as faster turn on/off and greater cleanliness – expanded lighting uses.  Extrapolating into the future, Tsao et. al., predicts that with solid state lighting, demand has the potential to increase10x by 2030 and with it, perhaps a 2x increase in energy use.  How paradoxical. 

It is important to note that the green product paradox is not isolated to LED lighting.  Increased demand for electric cars, for example, could result in a similar dilemma if the added electricity load needed to power the vehicles is generated using higher polluting coal.

As such, the green product paradox presents quite the challenge for a marketer.  For individual companies, such products can be both profitable and (at least appear) socially responsible.   It is only by looking at the forest from the trees – and perhaps a little into the future – does it become apparent that, in aggregate, such products may, paradoxically, have a negative impact.

A sustainable brand might try itself to mitigate any impact that its products may have.  But, this will only have broad impact if it ultimately compels competitors to follow suit.  Given this, marketers should recognize that a solution to the paradox may not lie within an individual company’s grasp.  Alternatively, it may take an industry consortium to make the necessary product changes or evolve consumer expectations.  Or, it may take collaboration across industries to have lasting impact.  In both examples cited above, a shift to lower-polluting sources for energy generation would mitigate an increase in demand for both products.

Overall, the green product paradox presents a difficult challenge for green marketers.  Doing good for the planet may not always be as a simple as motivating purchase of greener goods.  In some cases, it just might be too much of a good thing.


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.


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. 


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.


A Look Back at Green Marketing in 2007

December 29, 2007

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

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

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

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

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

 green-marketing-2007_technorativ2.gif 

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

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

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

 green-marketing-2007_google-trendsv2.gif

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

Rank

Country

1

India

2

UK

3

US

4

Thailand

5

Australia

6

Canada

7

China

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

marketing-green-site-meter-map.gif

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

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

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

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


Waning Opportunity to be Early Mover on Green

November 18, 2007

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

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

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

 

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

 

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

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

States with Green House Gas Emission Targets 

states-with-ghg-targets_pdf.gif

based on Pew Center research and announcement of MRGGRA accord

 

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

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

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


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