Hybrids Shift into the Mass Market

Part II of an Interview with Bruce Ertmann, Corporate Manager of Consumer Generated Media, Toyota  

Shifting a company’s customer base from early adopters to mass market consumers is one of the key challenges facing green marketers.  Few green companies have been able to expand their niche beyond a core set of customers.  One of the primary reasons is that consumers tend to not like paying price premiums for green products.  Another reason is simply that consumers have not traditionally prioritized “green” as a deciding attribute when making purchase decisions. 

Yet, certain green brands like the Toyota Prius seem to be crossing this “chasm” into the mass market.  Though still in the early stages of their adoption, hybrids have already generated broad appeal with mainstream consumers.  Moreover, the stereotype of hybrid owners as treehuggers is far from the truth: in fact, they are high income, mainstream consumers.   

The results from a recent consumer survey by Topline Strategy Group (“Why People Really Buy Hybrids”, 2007) concur.  Topline found that 73% of Prius owners surveyed acted like mass market consumers (ie, they had a financial incentive to purchase the vehicle such as lower sticker price or operating costs than other choices considered) versus 23% of early adopters who paid a premium over alternative choices to purchase the hybrid.  Moreover, for marketers, Prius owners are an attractive target audience: 71% have household incomes over $100,000, with 28% at $200,000 or more.  

While it is uncertain whether this research is statistically significant (n=118), it is at least directionally representative of what Toyota itself is observing in the market.  Recently, I had the opportunity to speak with Bruce Ertmann, Corporate Manager of Consumer Generated Media at Toyota.  We spoke of Toyota’s success in the hybrid market, its target audience and the shift to the mass market consumer.  Here are his words: 

MG: What kind of consumers purchase Prius vehicles? 

BE: When we first launched the Prius, people joked about all of the tree huggers who bought the car.  Yes, we had those diehard owners, passionate people.  But, it truly has become a mainstream vehicle.   

For the longest time, we were undersupplied with the Prius.  [Toyota’s] US president went to bat for us this past summer and was able to get additional production in Japan.  Production came on late last year [followed by a] big sales push in December which most manufacturers have.   

And then in January our Prius sales dropped off significantly.  At the same time, we had all of this new inventory coming into the dealership.  So instead of a six month waiting, list we had inventory at our dealerships – which is frankly normal.  We began to see some of the traditional media ask whether the bloom was off the rose for the Prius and hybrid technology in general. 

But, in February we had a strong sales month.  Just this past weekend, we sold 2,000 Prius vehicles nationwide – a record for us.  So, [March] will be a record sales month. The vehicle continues to be hot and the hybrid technology still seems to be a winner with consumers. 

MG: Are you seeing the same customer shift across all your vehicles? 

BE: Yes, definitely.  We are seeing this with the Camry, our top selling car.  That vehicle as a hybrid version has become very hot.  The demographic is such that the more mainstream Camry buyers interested in a hybrid version found the premium to be tolerable.  

Right now, our belief is that integrating hybrid technology into more of our vehicles is the smart thing to do.   

MG:  How have you evolved your marketing as your audience shifts?  

BE: We have changed our marketing approach to push it towards a more mainstream audience.  We pulled all of our Prius advertising for a while.  While was kind of unique in of itself – and perhaps green-oriented you might say – because we did not have enough vehicles to supply demand.  But we have changed that now.  

We do some different things besides straight advertising.   We have a hybrid synergy tour, for instance, that launched last month.  It really is an educational effort on our part. It is almost like a moving auto show on a semi-truck that exhibits our hybrid technology and how we are trying to integrate it into other vehicles that we are bringing to market.    

We show [consumers] how the technology works.  People like the idea of the regenerative nature, where you are actually recharging the battery when you put on the brakes.  At the same time, there are others who want us to develop a Prius that you can plug-in to the electric grid to recharge the battery.   

From a pricing standpoint, we are trying to offer more in that vehicle for the money.  For instance, we are coming out with different versions of the Prius, a sports version.  We put leather in the car last year and added more features.  People wanted a little bit of a luxury feel to the vehicle which may seem counter to the type of people that we may think buy that vehicle.    

MG: Overall, how would you characterize your target audience?  

BE: We are seeing a broader customer demographic base that we have in the past based on our research.   

People feel it is a smart decision on their part to drive a vehicle with hybrid technology.  They do not think that they are bragging or showing off or becoming a tree hugger.

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.

fluorescent-bulb-economics2.jpg 

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 Consumer Behavior – Part III: Changing Behavior without Changing Attitudes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Portal Strategy – Part II: Targeting Green Consumers on Yahoo!

For online advertisers, Yahoo Auto’s Green Center provides a rich opportunity for targeting consumers receptive to a green message.  While Yahoo has clearly enabled opportunities for contextual advertising, smart marketers may work with Yahoo to enable targeting of consumers based on user behavior within the Green Center and an across the Yahoo portal based on an affinity for products that are green.Yahoo’s Green Center offers advertisers a powerful way to focus their ad spend by targeting only those that are interested in green cars.  Today, Yahoo enables two ways to do so within the Green Center:

  • Affinity marketing.  It is likely that everyone who visits the Green Center has an affinity for green cars.  For advertisers, therefore, any ad placements within this section are likely to have greater impact than equivalent placements within the general auto portal due to this affinity.
  • Contextual advertising.  Yahoo offers its advertisers the opportunity to place contextually relevant ads on key content pages of the site.  Contextual advertising is common practice today and entails matching page content or page categorization with relevant advertising.  For Yahoo’s Green Center, this means that if a user is searching for information on the Toyota Camry hybrid, Toyota has the opportunity to serve ads on related (contextual) content pages.  In a sense, the ad complements the site content, providing Toyota the opportunity to reinforce its brand message and value proposition. 

Contextual Advertisement (on right and at top) Aligns with Search for Toyota Camry 

camry-advertisement.jpg

While current options provide advertisers with valuable ways to target prospects, Yahoo may have the opportunity to do more for its advertisers.  Specifically, Yahoo may have the ability to enable:

  • Behavioral targeting within the Green Center.  Not only can ads be dynamically served based on page content or categorization, but they also could potentially be served based on online user behavior.  For example, let’s say that the user who was browsing Toyota Camry hybrids decided to click on financing options.  Using behavioral targeting, Toyota (or a local dealer) could place a relevant ad – highlighting current financing options and incentives for the Camry – next to the generic financing content on the page.  If that same user clicked on the generic gas mileage impact calculator, Toyota could serve a relevant message about how the Camry has higher gas mileage and lower emissions than its competitors.  If the user had started by searching for a Honda Civic instead, Honda could serve similarly branded messages on these content pages based on the consumer’s online behavior.

Opportunity for Behavioral Targeting on Generic Financing Page 

financing.jpg

  • Affinity targeting across Yahoo portal.  When a user visits any site, a cookie is dropped onto his/her web browser which enables the site server to recognize that user when he/she returns.  This cookie may also store specific information about the user including site preferences.  When a user visits a particular page of the site, embedded site “tag” appends additional information to the cookie that enables tracking of usage patterns on the site.  Smart green marketers may work with Yahoo to leverage this information to target consumers in two ways by:
  •  
    • Serving different ads to returning visitors (e.g., different messaging, more aggressive offers) within the Green Center.
    • Targeting users that have a green affinity (i.e., those that previously visited the Green Center) across the Yahoo portal.  By leveraging this information, green car companies may serve (green) affinity-based ads to users anywhere on the Yahoo portal to entice them to reengage.   It would even be worth a test by other companies to leverage this “green affinity” in order to target prospects that may be more receptive to eco-friendly messaging than others.

Portal Strategy – Part I: Engaging Green Consumers on Yahoo!

Yahoo Auto’s Green Center is a powerful auto buying portal focused on hybrid and other eco-friendly vehicles.  Its web pages are packed with engaging content, tools and community features that help users evaluate, compare and find the green car that is right for them.   

Site features target consumer needs at every stage across the purchase funnel – from building awareness of green cars and technology to enabling comparison of available choices to facilitating purchases at the dealerships.  Moreover, Yahoo built the site using relevant proprietary applets such as Yahoo Answers, Groups and News that are used across its portal, while forming partnerships to do the rest.  In doing so, Yahoo is able to integrate best-of-breed tools within the site experience.

 

Yahoo Auto's Green Center

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Green Center Site Features and Partners

Features

Partners/Yahoo Applets
Content  
  Car information including pricing (MSRP and invoice), rebates and incentives, features & specifications, performance reviews, photos and videos JD Powers
Exclusive “Green Ratings” Environmental Defense
Federal and state purchasing incentives HybridCars.com
Gas saving tips; Hybrid newsletter HybridCars.com
Relevant news articles Yahoo! News, del.icio.us
Tools  
  Car comparison  
  Gas mileage impact calculator (consumption, costs, emissions) HybridCars.com, ACEEE's Green Book
  Alternative fuel gas locator US Department of Energy
  Financing (rates + quotes) CapitalOne, CarsDirect, Bankrate.com
  Insurance (quotes) Allstate, Progressive, GEICO
Community  
  Groups Yahoo! Groups
  Q&A Yahoo! Answers
  Opinion polls  
  Most popular/viewed cars  

One of the most engaging tools is the Gas Mileage Impact Calculator which enables direct comparison of vehicles based on gas milage, fuel costs and emissions.  Here I have provided a direct comparison between the Camry and the Camry hybrid.  Note the 2,500 lb reduction in carbon dioxide emissions when shifting to the hybrid.

Gas Mileage Impact Calculator
gasmileageimpactcalculator.jpg

One of the best community features on the site is Yahoo Answers which allows users to pose questions and others to provide answers. Users then select the best answer through popular vote.

Yahoo Answers on the Environment & Ecology


yahooanswers.jpg

Climate Change in the UK Market – Part II: Consumer Tipping Point

Carbon Trust (CT) predicts that by 2010, the UK consumer market will have reached a tipping point: Purchase decisions will take into account climate change impact and how companies are actively addressing it.  Like all tipping points, the shift will be marked by abrupt and rapid change in consumer behavior with potentially significant consequences for corporate profitability and brand value (see Climate Change in the UK Market – Part I: “Brand Value at Risk”). 

According to CT, three factors must align for consumers to reach a tipping point on climate change.  Specifically, consumers must:

 

·         “Be concerned about climate change

·         Make the link between environmental issues and their daily actions, and

·         Modify their purchasing behavior to reflect their concerns about how companies are addressing the issue.”

 

CT offers analogies where similar tipping points have been reached on social and environmental issues: unleaded gasoline, dolphin-friendly tuna, and more recently, mass market organic foods.  Tipping points such as these occur when consumers “both want to, and can, take action”.  As such, there are two critical questions for today’s marketers to consider: Are similar dynamics in motion for climate change and, if so, when will they reach a tipping point?

 

If you were to make a prediction solely by examining the mindset of the average British consumer today, you would be hard pressed to conclude that a tipping point may be fast approaching.  While 67% of British consumers claim that they know “a great deal” or “a fair amount” about climate change, there is little evidence to suggest that a substantial number of consumers have made a clear link between their own actions and the environmental consequences. 

 

Nonetheless, CT identifies five factors in play that may accelerate these dynamics:

 

·         Personal experiences (e.g. draught, perceived temperature shifts) make the issue more relevant and “provoke the strongest reaction” from consumers

·         Exposure to media which enables consumers to better comprehend and “internalize” the message

·         Leadership by other countries provides a road map for others to follow

·         Supporting regulation which reinforces desired consumer behavior

·         Realistic and available substitutes enable consumers to make other choices without changing consumption patterns

 

While CT projects such factors will accelerate the onset of a tipping point by 2010 in the UK market, do similar dynamics exist in the US?  It could be argued that such dynamics may be emerging:

  • Though a more-mild-than-anticipated hurricane season defied forecasts this year, heat waves, droughts and continuing recovery from Katrina will keep the potential consequences of climate change fresh in consumers minds
  • Exposure to climate change issues is increasing, and is becoming more ingrained in our mass culture (keep an eye on An Inconvenient Truth at Oscar time).  This will only be reinforced next year as a massive awareness campaign spearheaded by Al Gore is set to launch in early spring.
  • Given the political climate in Washington, at least until this month, leadership on climate issues has emerged from states such as California or New York (both, incidentally, led by Republicans). These states have passed bills that cap carbon emissions or mandate use of renewable energy.
  • Substitutes are emerging: Green energy is becoming more cost competitive and hybrid vehicles are being rolled out in conventional styles.

While the US consumer market may still lag behind the markets in Europe and Japan, seeds continue to be planted that will inevitably move US consumers closer to the tipping point. Marketers should take note.

Turning Advertising Publishers Green

An Interview with Rachael Ostrom, Director, Consumer Marketing and Advertising, Aveda 

Since its founding in 1978, Aveda (an Estée Lauder Company) has been leading the personal care product industry toward a more sustainable future. Sustainable practices not only guide its business practices but serve as inspiration for a “corporate culture that breeds personal responsibility, value-based decision-making, rigour and frugality.”

It is not surprising, then, that a company with such a religious adherence to sustainable principles is also committed to ensuring that its suppliers and partners do the same.  In doing so, Aveda has become an activist in the publishing industry, requiring that its advertising publishers adopt sustainable practices as the price of doing business.  Aveda not only wants to change the percentage of post-consumer recycled paper in the magazines where its ads are placed, but also wants its publishers to rethink their internal practices in order to lower their overall carbon footprint from their day-to-day activities.  Such an activist approach has facilitated real change in the industry, and sets Aveda apart from even its most eco-friendly competitors.

This week I had the opportunity to speak with Aveda’s Rachael Ostrom about the company’s sustainability initiatives in the advertising industry.  Here is what she had to say:

MG: Aveda strives to demonstrate that profitability and environmental responsibility are synergistic goals.  It has done this by making sustainability one of its core operating principles as a manufacturer, distributor and retailer of natural beauty products.  While this is commendable in its own right, it is fascinating that the company is able to project these goals on to its suppliers and partners – for example, by requiring advertising publishers to adopt similar goals. Why this commitment?

RO: It is one of the big things that makes Aveda different.  Aveda is tasked with doing so from the President on down – not only to improve the way we do business, but to “green” our partners as well.  

In 2003, we wrote an environmental media strategy which outlined gradual steps to begin working with advertising partners.  We primarily spend media in national magazines so we have focused on identifying ways to change their [environmental] impact – like printing on recycled paper or using post-consumer recycled office paper.  We have communicated our goals with them, shared best practices and told them what we wanted them to do.

In 2004, we developed a survey to assess how environmentally-friendly their practices were and to give our partners things to think about such as recycled paper, chlorine free paper, soy-based inks. 

MG: Were publications receptive to your survey?

RO: Most of the magazines completed the survey. 

MG: How were survey results leveraged for change?

RO: We developed standards based on two consumer media plans:  One for fashion and beauty-driven publications and one for environmentally-driven magazines.  We have different standards for each: for environmental publications, we require a minimum of 10% post recycled consumer paper for environmental publications.  This aligns with our consumer messaging in these publications that focuses on our sourcing practices and sustainability.

For fashion and beauty publications, one of the questions that we ask in the RFP process is what the percentage of post-consumer recycled paper is used.  This is a strong factor in our decision making processes [on whether to advertise in the publication or not].

MG: Have you seen real results?

RO: Yes. For example, since we started working, Shape magazine – one of our fashion and beauty magazines – made the switch to 30% post consumer recycled paper.  Natural Health was already doing so and Shape is its sister magazine.

MG: How does this reflect the core beliefs of your company and brand? 

RO: From a brand perspective, our initiatives are aligned with what we do.  It is similar to how we create the product and package it. 

MG: What are the expectations by your customers? Are they a driving source?

RO: Our guests [customers] expect this from us.  They want to feel good about what they purchase from us.  They are interested in the environment and it is important to them. 

This is not explicitly coming from our guests though.  We have not publicized this to them.  But, we make sure that we are telling these stories. 

MG: How can you expand compliance with your sustainable principles?

RO: Ideally, we will come up with choices [for publisher compliance].  We would love to look at the bigger picture footprint of publisher.  If it’s not recycled paper for one company, then look at cutting back other things or changing processes.

We have also started working with other [environmentally conscious product] companies – Patagonia, Timberland, Stonyfield Farms, Seventh Generation.  We have shared our survey with them.  All have agreed that [sustainability] is a very important topic and plan to bring it up in conversations [with advertising publishers].  But standards are not in place yet.

We have worked with Co-op America [a non-profit that focuses on economic strategies to solve social and environmental problems] to help facilitate these dialogues.  We have also printed a tool kit with them to share with other companies.

MG: Tell me about the Aveda Environmental Awards

RO: Aveda sponsors two Environmental Awards at the Folio:Show – a magazine industry show.  Two environmental awards [given annually to magazines that demonstrate environmental leadership] in two categories: one for magazines with circulation 250k or more and one for magazines with circulation less than 250k.  Natural Health and explore magazines won at the second annual event.

MG: Were you surprised by recent News Corp announcements regarding its commitment to reduce its carbon footprint?

RO: We were surprised on a couple of levels.  We did not think that it would be easy to open a dialogue with some magazines.  Some people get it right away, while other people you have to repeat the message many times.  It depends on the publisher.  It is more difficult with larger publishers.

MG: Are attitudes changing in the publication industry? If so, what are the primary drivers motivating this change?

RO: Environmental issues are becoming more mainstream.  We do not have to fight people to believe that global warming is real.  Not as much education is needed for people to see that it is happening.  Instead, people are focusing on steps to help solve the problem.