Pay-As-You-Go Pays for the Environment

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.

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

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. 

Open Skies Agreement Provides a Glimpse of What’s to Come in a Carbon-Regulated Environment

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

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.

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.

Drought Can Spark a National Dialogue on Climate Change – Part II

“You can’t call it a drought anymore, because [the US Southwest is] going over to a drier climate.  No one says the Sahara is in a drought.”   — Richard Seager, Scientist, Columbia University’s Lamont Doherty Earth Observatory as quoted in “The Future is Drying Up”, New York Times Magazine, October 21, 2007 

As first published in its July 14, 2007 posting, Marketing Green believes that persistent drought in the US can be an effective catalyst that sparks a broader, national dialogue on climate change.  With drought conditions worsening in areas of the US, the time is now for such a conversation. 

Drought can be a catalyst for a broader dialogue for many reasons. First, drought will directly impact the human condition, causing inconvenience and suffering.  Second, drought will likely cause economic hardship by limiting growth, reducing output, and significantly increasing costs (eg, building infrastructure to move water long distances or desalinate water).  Finally, droughts force political leaders to make unpopular trade-offs that require voter sacrifice. 

Indeed, as tomorrow’s New York Times Magazine reports, drought conditions are worsening in the historically dry Southwest while expected population growth will put more demands on limited resources in the years to come.  Shortages are on the horizon across the region, but are especially apparent in cities like Las Vegas which is dependent on water from Lake Mead, the largest man-made reservoir in the US, that is currently at less than half of its capacity.   Moreover, continued shortages will likely pit one entity against another in price wars and legal battles as individuals, businesses and governments compete for scarcer resources. 

Drought conditions in the typically temperate US Southeast may demonstrate a more alarming trend because they are so unexpected.  With scorching heat this past summer and a hurricane season that failed to materialize, the city of Atlanta confronts the drier winter season with record low water levels in its reservoirs.   Most experts agree, it is the driest period every recorded in the Southeast; few signs are on the horizon that suggest the situation is likely to improve any time soon. 

Interestingly, extreme drought in the Southeast is fueling water disputes between regional states over scheduled water releases from Lake Lanier, the primary water source for three million Georgian residents, that are mandated by the Endangered Species Act and enforced by the US Army Corps of Engineers. 

Currently, as Georgia enters what is typically its driest month, Lake Lanier holds a mere 81 days of stored water left.  Georgians have responded by imposing severe restrictions on water use, but unbridled growth over the past decade and limited water use planning up until now have put a strain on existing resources.   

But, it is the actions by the Georgia legislature that, perhaps, are generating the most controversy.  Pending legislation would temporarily wave compliance with the federal Endangered Species Act and allow Georgia (via the Corps) to suspend water releases from the Lanier that currently protect endangered mussels and sturgeon downstream.  So far, the Corps refuses to budge which means that a legal showdown is likely ahead. 

The state of Florida has leveled a complaint already, asking Georgia to release more, not less, water to protect Floridian biodiversity.  Moreover, Gov. Bob Riley of Alabama has asked the Corps to release additional water from other Georgian water sources in order to alleviate shortages in that state.    

It is likely that cross-border disputes will only intensify if sufficient rains do not come soon.  In fact, facing severe water shortages, Atlanta may soon become the first metropolitan region to reduce water available for commercial and industrial activities, a threat to the local economy.   These threats will only be compounded if reservoirs do not refill before next summer when water use is traditionally the highest.  

As water become more scarce and entities compete for dwindling resources, marketers have an opening to leverage drought a conversation starter for a national dialogue on climate change.  In many ways, expanding drought conditions will force the conversation as we will have to deal with consequences of a drier climate whether we are prepared to do so or not.  

Because the populous in the US is geographically dispersed, however, marketers risk that such discussions will be isolated to those regions most affected.  As such, it is an imperative for marketers to broaden the discussion regarding worsening drought conditions and their causes to create a truly national debate.

Launching Sprig into a Rising Tide of Green Consumerism

An interview with Mark Whitaker, Editor-in-Chief of New Ventures, Washingtonpost.Newsweek Interactive 

Consumer spending on green products is growing: the 2007 Cone Consumer Environmental Survey cites that nearly half (47%) of all Americans purchased eco-friendly products in the past year.  Such green products included:

• Products with recycled content (62% of consumers who purchased green)
• Energy-efficient home improvements (56%)
• Cleaning supplies (48%)
• Organic or other third-party certified foods/beverages (24%)
• Energy-efficient cars (13%)
• Green apparel (10%)

Given the choice, American consumers say that they prefer to purchase more eco-friendly products.  Yet, there are stipulations: when while most people say they will buy green, they typically do so only when product “price, accessibility and attributes” are similar to green alternatives.  (“The Rising Power of Green Spending,” Kenan Institute Asia, December, 2006) It is not surprising then that online business models are emerging to capitalize on this growing interest in greener consumerism including:

Shopping sites: Amazon recently added a “Sustainable Living” section, joining existing sites including VivaTerra and Organic Fair Trade that sell greener products directly to consumers. 

Shopping advice sites: Online publishers – including Washingtonpost.Newsweek Interactive which launched Sprig last week and National Geographic which recently acquired The Green Guide – are joining existing green shopping advice sites such as Great Green Goods and Ideal Bite to inform consumers on green products and lifestyles.

 

Sprig – short for “Stylish People are Into Green” – is a compelling online shopping advice and lifestyle site offering original content and news on stylish products that happen to be green.  The site’s goal is to become the Daily Candy of green – and then some. With a robust web site that aggregates green products – 1,500 at launch and counting across the food, fashion, beauty, home and lifestyle categories – and provides exclusive editorial content, Sprig promises an engaging shopping platform for the growing audience who values green style. 

Last week, I had the opportunity to speak with Mark Whitaker, Editor-in-Chief of New Ventures at WashingtonPost.Newsweek Interactive.  We talked about the decision to launch Sprig, its growing target audience and the emerging interest in green consumerism. 

MG: What is the impetus for Sprig and what will it offer consumers?

MW: Sprig is the convergence of two things.  First, a willing appetite at the [Washington Post Company] board level to do more investing online.  Last year we generated $100MM in revenue [online] with 250 employees devoted to the channel.  That is where we expect the growth. 

Second, we were approached by an editorial business team that had been involved with Organic Style at Rodale.  [The magazine] had folded for a variety of reasons.  They came to use and said: “We think that the idea of having a publication that identifies great products that are also environmentally friendly would be a great service.  And this is the moment.” 

And if anything, it is better done online.  One, the online [channel] is more environmentally-friendly.  Two, people who are forward thinking about the environment are also more likely to be online.  And three, it offers instant delivery. 

MG: Who is your target and what are you offering? 

MW: We plan to target women as the primary consumers and decision makers about these products.   

The original concept was focused on the newsletter. You know the Daily Candy? 

 

MG: Yes. 

MW: The Daily Candy has shown that model of short daily newsletters – devoted everyday to different products that makes you feel like you are getting the latest information – works.  The newsletter is a very viral thing both in terms of the technology and with its target: women as an audience are evangelists and tell each other.  They have shown that has worked.  Let’s take that kind of model and apply it to this space. 

But, then we decided to be far more ambitious and launch a website and have it more than an archive of our newsletters.  [The website] will have video 2-3 new clips a week, ranging from consumerist profiles of companies to “how-tos” with interviews with green experts.  Green celebrities that we interview will fill out an online questionnaire that we upload with pictures that they send to us.  We will also allow them to go into our database to identify products that they like, to create sort of a celebrity wish list. 

For consumers, we will also have a template that users can use to create your own page.  They can fill out the questionnaire, upload pictures, fill out the questionnaire, pick products from the database and [create] a profile page that looks like our expert pages. 

What I think is really the killer app in this is the interactive, searchable database of green products.  We are hoping to have as many as 1,500 products at launch and then keep adding to it.  For each product, we will have a blurb about why we think it is a good product and what is an environmentally friendly product, along with the name of the product, company, price information and a link to the [product] site. 

MG: How do you leverage the data? 

MW: That is a very interesting question.  What we know we are good at is selling display advertising against quality content.  But, obviously, we have the potential to experiment with other things like more targeted advertising.   

The other thing that is interesting about this space is that more and more products are coming onto the market.  The two principle editors say that when they go out to the shows, the increase in good products has grown exponentially even compared to a year or two ago. 

MG: Do you feel that you are bringing style to the green market or green style to the mass market?

MW: I think it’s more the latter.  Until recently, there were many people that thought green style was an oxymoron.  We do not think that is true anymore; we think it is one of our core convictions behind the site.   

Some elements within the traditional green community won’t [embrace the site] because so much of it is about shopping and consumerism.  By definition, Sprig will not be for them.   

But, we think the real opportunity is with people who are becoming aware of [green] but don’t quite know what to do.  If they are in a position where the do not have to sacrifice anything – style, quality – they will be interested.   

This is not a site that will overtly push a lifestyle on you; it is going to give you options.  One of our mantras is that the world may be better off if 95 percent of the people became 5% more green than 5% of the people becoming 95% more green.   

MG: You are providing consumers with a place to find green products.  But you also may be spurring supply because you are providing a low cost channel for suppliers to test and distribute green products.  Is that not the case? 

MW: That’s right.  To say upfront that we have that effect would be presumptuous.  Some people would say that we are being “light green”.  That may be true, but the fact of the matter is that by being light green we will encourage more mainstream producers to actually start producing new products. 

One thing you will notice is that in terms of the aesthetics: [Sprig] is not about shouting green at you.  If you go to most of the existing green sites and publications, the color green almost become a cliché. 

We wanted something that felt distinctly like a brand.  We wanted a design and color palate that evoked what we were talking about without being heavy-handed and literal.  We also wanted to project out ten years and said: “What if green is universal then?’’ And calling yourself “green” does not really give you something extra.  So we are hoping people will embrace [the brand] not just because it is green but because it is cool and they like our tastes and aesthetics. 

MG: Why is this the right time to launch Sprig? 

MW: I think that we are at the front edge of the wave.  You can see the wave building, but it has not crested yet, and we are jumping on at the right moment. 

MG: You say that women are your primary target.  Tell me about their demographic makeup?  

MW: [Our target] is based on both demographics and psychographics.  It is women with a fairly wide age band.  But, elements within each age group will connect with us for slightly different reasons.  It is for younger women who want to be hip and stylistic.  They are also a generation that cares about the environment.  If there tends to be an activist movement on campus, that tends to be it.  So they are attracted to it.   

There are also enlightened baby boomers who are getting more into this.  The Laurie David [co-founder of Stop Global Warming and a producer of An Inconvenient Truth] type.  Or, in between people who have been turned on to it because they are mothers and are concerned about what is good for their kids.

MG: Are these women purchasing green products today or are you going to open up a whole new world for them? 

MW: I think it will vary.  Some people will be very knowledgeable, but given the depth of our [product] database, we will introduce them to a lot of products they didn’t know about. 

But then I think there will be some people who have literally never really thought about this.  We want [the brand] to be accessible to those who do not think of themselves as green. It is almost like it is the kind of site that they would want to shop or check out anyway.  And all of this stuff is good for the environment.  That’s cool.

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

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

 

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

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

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

 

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

 

 

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

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

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

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

Green Labels as Driver of Consumption and Loyalty Programs

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

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

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

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

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

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

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

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

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

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

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

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

Green Consumer Behavior – Part II: Evolving Social Norms toward the Environment

Joel Makower’s recent blog entitled “Is ‘Carbon Neutral’ Good Enough?” speaks to the growing trend to offset carbon emissions generated from personal or business activities.  Consumer sentiment is changing in the US, with a growing consensus on the need for action to mitigate global warming.  As Makower points out, companies such as DHL and UK-airline Silverjet have recently launched new services that include carbon offsets into the price, while TerraPass, Kärcher USA and Sam’ Club announced the first carbon-balanced retail product.  In fact, as Makower notes, carbon neutral “is rapidly becoming a minimum expectation of companies, concerts, conferences [and] celebrations.” 

Marketers should take note of this emerging trend and its underlying motivations: when it comes to global warming, social norms are evolving.  Quite simply, it is becoming less and less acceptable for companies not to take responsibility for their own (or their customers’) carbon emissions. 

The notion of carbon responsibility first became popular on the global stage in relation to leisure and non-essential business activities.  Examples include global sports events or conferences.  Recently, it has spread to corporations that anticipate the inevitability of government caps on carbon (if not governed by them already), as well as to consumers who are increasingly conscious of their own responsibilities and frustrated by the inaction of their own governments. 

Academic literature addresses this impact.  In his Focus Theory of Normative Conduct, Cialdini et al (1990) suggest that social norms influence acceptable and unacceptable behaviors.  He identifies two types of social norms: 

• Descriptive norms: “what [other] people typically do”
• Injunctive norms: “what [other] people typically approve or disapprove [of]”

“Only by aligning descriptive norms…with injunctive norms,” Cialdini et al proposed, “can one optimize the power of normative appeals.” 

Cialdini presents empirical evidence for his theory and how it impacts environmentally responsible behavior.  In one experiment, he tested the propensity for people to litter given different social norms and cues.  Results demonstrated the power of the descriptive and injunctive norms for littering: people displayed a higher propensity to litter when the environment dictated litter as the norm (e.g. there was more litter on the ground or others were observed littering) and a lower propensity to litter when it was clear cleanliness was the “approved” norm (e.g. after observing someone else litter within a clean environment).  

One could argue that similar dynamics are in play when it comes to action (or inaction) on global warming.  In this case, at least until very recently within the US, the prevailing descriptive norm was to do nothing, because that is what everyone else was doing. 

Two things are occurring that seem to be changing this.  First, descriptive norms within the global community apprear to be evolving.  These norms have shifted more dramatically in Europe and Japan and provide tangible examples for the US to follow.  Some initial signs of change have appeared: 1) US multinational companies have joined the Chicago Climate Exchange and committed to voluntary carbon reductions, 2) state and local governments have enacted sweeping legislation to cap carbon emissions and 3) individual consumers are purchasing an increasing number of higher gas mileage vehicles. 

Second, injunctive norms are also changing as global social norms shift toward responsibility for carbon emissions.  Much like the smoking ban enacted in 2003 in New York City, which is credited for inspiring similar bans globally, global social norms are shifting in regard to global warming.  As Al Gore stated in his movie, we have a “moral responsibility” to take action – and it seems that we are slowing beginning to do that. 

So, marketers should take note.  Campaigns should take advantage of – as well as reinforce – evolving social norms and do so in a way that incorporates both descriptive and injunctive norms into their messaging.

References

Cialdini, Robert, R Reno, and C Kallgren, 1990. “A Focus Theory of Normative Conduct: a theoretical refinement and re-evaluation of the role of norms in human behavior.”  Advances in Experimental Social Psychology, 24, 201-234 

Cialdini, Robert, 2003. “Crafting normative messages to protect the environment”, in Current Directions in Psychological Science, 12-4, 105

Leasing the Sun

An interview with Jigar Shah, CEO, SunEdison

SunEdison was founded with the goal of making solar power accessible and affordable for businesses.  It has done just that.

Traditionally, an investment in solar energy was complex, requiring a company to acquire new skills and make significant capital investments with uncertain returns.  For solar marketers, such deals – with so many inherent barriers to overcome – are complex to message, let alone to explain.  Quite simply, how can companies be convinced to invest in solar energy when such an investment is not core to their business? 

SunEdison pioneered a way that makes it possible.  Through its model, SunEdison finances, installs and maintains solar cells for businesses in exchange for a long-term commitment to purchase the energy at a competitive rate.  For SunEdison, such installations break even in 7-10 years, and provide a low risk annuity for the company and its investors thereafter.  

Recently, Marketing Green caught up with Jigar Shah, SunEdison’s Founder and CEO.  Here is what he had to say: 

MG: You are considered by most to be the pioneer of the “solar energy services” model. When SunEdison launched this model, it represented a clear shift in the way solar energy was financed and marketed. What was the impetus for the change? How has this model evolved over time? How successful has it been?

JS: Deploying solar has always been complex. It still is. For many years there were significant disincentives that deterred commercial, government and utility customers from turning to solar energy. No one could justify the upfront capital outlays or the lengthy periods required to recognize a return on investment, and no one wanted to manage the complex transactions.

So that was the impetus: By moving from a manufacturing-based product model to a turn-key services model, SunEdison was able to absorb the upfront costs of building a solar system at the customer premise. Most important, we have simplified the entire process for the customer.

The model is evolving. We’re becoming more refined and looking at our solar services model in terms of a complete service. For example, while our primary offer is renewable power services, we also offer complementary services such as power usage monitoring for internal recordkeeping. We expect to continue to evolve in that direction because the services model has been very successful. It’s has been adopted by high profile users such as Xcel Energy, the State of California and Staples.

MG: What is SunEdison’s brand promise?  How does your company fulfill on this promise each day?

JS: Our brand promise is that we simplify solar and deliver predictable pricing of renewable energy services that meet our customers’ energy requirements at or below current retail utility rates.

At the end of the day, we sell electricity, not just solar equipment. Unlike a traditional product vendor, who might sell you an installation of solar panels and then walk away, we go in under the promise of selling the customer electricity that we generate at their facility. If we don’t generate it, they don’t pay for it. Because we own the solar energy systems, we have a strong, built-in check to maintain our brand with the customer. We only make money when our systems actually produce energy.

MG: Selling solar services must require a high touch sales process with along sales cycle. What role does marketing play throughout this process? What channels are used – both online and offline – and how are they leveraged? 

JS: It does indeed require a high touch sales process. That said, the sales cycles aren’t necessarily as long as you would expect. We’ve removed many of the barriers that would slow down other offers: financing, installation, maintenance, etc. For our customers, if it makes business sense the decision becomes a no-brainer. Solar is really becoming a mainstream component for commercial, government and utility entities. People are more comfortable with it. They see the opportunity costs of traditional solutions and there are coming to the point now of saying, “Why not solar?”

From a marketing standpoint, I’ve never been in a space where there was such pent up demand for a service as I’ve seen in this industry.

The real marketing challenge is how to position us relative to other vendors in the industry. For us, this is clear: We are a solar energy service provider. We’re the first and largest solar company to offer solar electricity as a service, so we’re in a pretty good spot in terms of differentiation.

Most of our customers come to us through references. We cover a lot of national accounts that provide good revenue and new development opportunities. Plus, we also pursue a lot of channels in government and the utilities sectors. We stay acutely aware of the government environment through extensive research – whether it be RFPs or other funding vehicles.

MG: What are the key factors that influence your customers’ decision-making process? Does the decision to sign a solar energy contract have more to do with the underlying ethos of their brand or is it simply based on cost-saving considerations? 

JS: First, none of them want to own a power plants – it’s just not core to their business. But they want solar power to lower energy costs through predictable pricing, and to improve the state of their environment. They want a solution with little or no disruption to their existing business. An example is Whole Foods. We offered a contract that locked in electricity rates for ten to twenty years. That removes volatility from their utility bills and provides a hedge against increasing rates in the electricity market. So that’s a strong business rationale. There is literally no other solution on the market where you can lock in part of your electric utility costs for that length of time.

So, it’s got to be cost-effective or people won’t make the decision. In addition, renewable energy provides a lot of supporting messages that ultimately are emotional triggers for decision makers, which helps them justify the proposition. Those supporting measures are everything from global warming to a keen desire, especially in the U.S., to break away from our current dependency on foreign oil.

MG: How will this model be scaled in the coming “solar decade?”  What are the key barriers in doing so? 

JS: From a scalability standpoint, the industry confronts a number of challenges. One is straight forward logistics; we’ve got to have trained and qualified installers – people who can install systems in such a way that they’ll last for 20 to 30 years – and second, we’ve got to have the supply chain built out sufficiently for the demand. Manufacturers are doing that now but we’re not there yet.

The third major challenge is that we’ve got to look at the industry in a broader sweep. Solar vendors have tended to look at their systems as isolated energy generation systems, but they’re really all inter-networked through the connectivity of the grid. There is a tremendous untapped network effect that’s not being accounted for by most players in the market. That is, the ability to monitor, control, and dispatch energy or shed load onto or from the public grid in a highly centralized manner from thousands of distributed energy assets. That will be incredibly valuable. Right now the industry lacks some key standards that will really enable that market and that function, but those standards are being worked on and as they evolve the effect will be knock down those barriers.

MG: Can this model be extended to the residential market?  If so, how will the way it’s marketed be different than it is today?

JS: It doesn’t really for work for our business model just yet. The economies of scale really don’t come into play when you’re dealing with thousands of small power plants at each home. Having said that, I think the right way to look at this is to recall the way in which the PC and the networked PC model evolved. What kind of computing power was available to the average homeowner in 1975? There were really no PC’s, and nobody was buying a mainframe or mini-computers for their home use. The switch really didn’t happen for another five to ten years. Broad scale adoption will probably happen in a similar manner in this market as well.