Testing Green Promotional Benefits to Drive Acquisition

September 16, 2007

Promotional benefits are a popular marketing tactic used across almost every industry to acquire new customers.   Marketers like offering such benefits as they can greatly increase acquisition rates or drive repeat purchases over time.  

It should come as no surprise, therefore, that the use of promotional benefits has been extended to the green space.  Using “green” promotional benefits – that is, incentives that have environmental benefit – to drive acquisition, however, is unchartered territory as there are few benchmarks to validate their use or their effectiveness.

Nonetheless, such green benefits are increasingly being offered across a variety of product categories.  Here are just a few examples:

Autos: Volkswagen of America announced its “Carbon Neutral Project”, a campaign that offers to offset the carbon emissions for one year.  This promotional benefit is being offered on a trial basis and expires on January 2, 2008.

Banking: Several banks offer discounts on auto and home-equity loans that pay for environmentally-friendly goods. One of the most generous is the Carolina Postal Credit Union, which serves US Postal Employees and Federal Employees in North Carolina, which offers a 1% discount on auto loans when purchasing a hybrid.

Credit cards: Today, it is common for credit card companies to offer one-time bonus miles for signing up for an airline affinity card.  The latest entrant into the green card market, Metabank, puts a different spin on this promotional benefit: bonus carbon credits.  Every new applicant receives the equivalent of 10,000 lbs of CO2 offsets – the average annual CO2 emission of a car in the US – when they sign up for their green card.

Real Estate: NY-based Moss Real Estate Group offers both buyers and sellers in a completed transaction offsets for their carbon emissions for one year.

Telecommunications:  San Francisco-based wireless carrier Working Assets announced that it offers new subscriber a “carbon neutral phone” (a $55 value) to offset average CO2 emissions caused by phone use over the next year.

Green or not, promotional benefits come with clear economic trade-offs.  First, benefits can be very expensive, as not only do they reduce net revenue and increase costs, but they are likely extended to many prospects that would have converted anyway.

Second, promotional benefits tend to attract incremental customers with “lower repurchase rates and smaller lifetime values” according to Michael Lewis, Assistant Professor of Marketing at the University of Florida. 

In fact, his study of consumer-level data from the newspaper and online grocery industries offers sobering results: “a 35% acquisition discount results in customers with about one-half the long-term value of non-promotionally acquired customers.”  (“Customer Acquisition Promotions and Customer Asset Value”, Journal of Marketing Research, May 2006).  As such, while benefits attract new customers, they may not necessarily generate economic value in doing so.

As the impact of green promotional benefits remains uncertain at this time, Marketing Green recommends a cautious approach for marketers: test the efficiency and effectiveness of this type of program with a small, targeted audience before scaling more broadly.   

Such in-market tests should seek to answer five key questions that can impact program design, target segments and types of offers:

  • What value do consumers place on green benefits, either perceived or actual?  How does this value differ by target segment and product category?
  • Who should be the recipient of this benefit – the individual consumer or society (eg, via a donation to a non-profit organization, for example)? 
  • Do green benefits expand the market or simply reward those that would already purchase a product or service?
  • Do green benefits impact average customer lifetime value positively or negatively over time?
  • Do green benefits generate brand value by positioning the company as more socially responsible?

Moreover, Marketing Green recommends that marketers should assess whether consumers understand these green promotional benefits (eg, what do carbon credits mean?) as well as their equivalent economic value (eg, how much is it worth?).  Without broad acceptance of these promotional benefits by consumers, marketers may find that they also have to invest in consumer education if they want to target anyone today but the most committed green consumers.

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