Growing Business Opportunities in Home Lighting, Heating

November 10, 2012

A ban on incandescent light bulbs took effect in the European Union last month, making more efficient lighting technologies — including compact fluorescent lightbulbs (CFLs) and light emitting diodes (LEDs) — standard across Europe. Such a milestone reminds us that market shifts — whether spurred by regulation or innovation — open up new opportunities for businesses to sell greener products and services to consumers.

Many of these emerging opportunities focus on efficient home energy solutions for consumers. Here are two that businesses should consider:

Next-generation lighting

The European Union isn’t the only region phasing out traditional incandescent lightbulbs. In 2007, the United States passed a similar regulation that effectively eliminates many of those bulbs by January of 2014. Initially, this mandate spurred demand for CFLs, likely from niche consumers willing to pay a higher price for an emerging technology that promised lower electrical usage and longer product life. But, since 2008, CFL purchases have declined each year, despite a precipitous drop in price.

Today, according to the U.S. Department of Energy, two thirds of the energy savings potential from CFLs has yet to be realized. As such, with the U.S. pulling out of the recession and consumers more willing to open their wallets, businesses have an opportunity to spur demand for next-generation lighting products.

Retailers are showing renewed interest in efficient bulbs. Ace Hardware, for example, recently declared Oct. 18 to be Annual Light Bulb Day to raise national awareness for CFLs and other lighting technologies. It also offered discounts on purchases to motivate foot traffic and drive sales.

Alternatively, Ikea has chosen to bypass CFLs: It plans to stock LEDs exclusively by 2016 because it believes the rapidly evolving technology will likely outperform CFLs in the near future. By picking a winner in the lighting category, IKEA generated a lot of buzz for its stores and interest in this emerging technology.

Utilities and utility regulatory boards are also spurring demand as they comply with state energy-efficiency mandates. For example, Efficiency Vermont, an organization authorized and funded by the Vermont Public Service Board to promote energy efficiency, launched a successful campaign to increase the use of CFLs. The campaign tackled the perception that CFLs were more expensive by advertising 99-cent bulbs available at participating retailers. It also created a sense of urgency (“good while supplies last”) to drive demand. The campaign was so successful that it doubled the number of CFLs sold per month.

Natural-gas home heating

Meanwhile, another home-energy opportunity is emerging: converting home heating systems from heating oil to natural gas. Not only would shifting to natural gas greatly reduce carbon emissions and improve local air quality, but — in most cases where gas lines are nearby — would also generate very positive returns for homeowners.

Technology innovation is precipitating this opportunity by unlocking vast amounts of natural gas in shale formations across the country. Many such formations are concentrated in the northeast, a region that historically has relied more on heating oil, partly because of the region’s limited pipeline capacity for bringing gas from the Gulf of Mexico. With natural gas supplies increasing, the residential price has dropped dramatically from its peak in 2005-2006.

Simultaneously, the residential price of heating oil has grown dramatically, providing even more incentive for households to switch to natural gas. In fact, according to the Energy Department, the average heating-oil-heated household now spends more than three times as much on heating ($2,298) as the average natural-gas-heated household ($724).

Of course, many of the developments in natural gas are the result of hydrofracking, a controversial extraction process. Many believe that hydrofracking risks contaminating aquifers used for drinking water, although the degree of risk is up for debate. And while greener fracking technologies are emerging, they haven’t yet reached commercial scale. Still, the benefits of shifting away from heating oil to natural gas may outweigh the costs.

If shale gas extraction continues, there are many ways that businesses can promote natural gas conversion to consumers. Certainly, energy companies can motivate their own customers to make the switch through the use of incentives. Utilities such as Con Edison are already helping to coordinate clusters of property owners to convert together, thereby lowering the upfront costs for individual customers.

Banks also can promote natural gas conversions by extending loans to help consumers make the switch. One such loan program by People’s United Bank covers the upfront conversion costs for Southern Connecticut Gas and Connecticut Natural Gas customers.

Market shifts in regulation and technology are enabling new opportunities to provide efficient home energy solutions for consumers. Many businesses are already starting to take advantage of this. Those that aren’t yet should take note: As the U.S. continues to emerge from the recession, consumer appetite for such solutions is only likely to increase.


Reframing Ancestral Traits To Be Green

June 21, 2012

Certain human behaviors today reflect hardwired traits that helped our ancestors and their kin over time. Such behaviors provide individual benefit, yet the collective impact of such actions can be detrimental to the environment, creating a situation not unlike the Tragedy of the Commons.

Unfortunately, for green marketers, such individual behaviors are not easily influenced, creating an ever-present headwind that they must contend with. Confronting such behavior directly, such as asking individuals to make different choices because current ones are detrimental to the environment, has not proven very successful for marketers.

Instead, Vladas Griskevicius, Stephanie Cantú and Mark Van Vugt, in a recent paper published in the Journal of Public Policy and Marketing, suggest that there are alternative ways to shape such behaviors: Motivate individuals to take more pro-social (and therefore, more eco-friendly) actions by reframing them as having “evolutionary selfish” benefits.

Based on Griskevicius et al., there are at least three social motivations that will drive individuals to alter their behavior in a more pro-environmental way.

Social obligation. One ancestral trait that marketers must confront is that individuals promote self interest – or the interest of their kin – over others. Importantly, Griskevicius et al. note that this wasn’t always the case. For example, it is well documented that clans hunted together, generating mutual benefit. For marketers, this provides a window of understanding into how similar behavioral choices can be reframed today in order for individuals to generate positive benefits from collective actions.

One way marketers have tried to motivate individuals to do so is by creating a social obligation.  Hoteliers have attempted to do so by offering to make a donation on the behalf of guests if those guests reuse their towels once during their stay. Yet, when behavioral economists tested such messaging, it did not motivate significantly different behavior than traditional messaging.

Recently, economists have tried a different approach. This time, the offer of donation was reframed not as a choice but as a fait accompli. The hotel simply informed guests that a donation had been made on their behalf in exchange for reusing towels. In this case, guests felt more obligated to reciprocate, lifting towel reuse by 26 percent (from Goldstein, Noah J.,Vladas Griskevicius, and Robert B. Cialdini (2012), “Reciprocity by Proxy: Harnessing the Power of Obligation to Foster Cooperation,” Administrative Science Quarterly, forthcoming, as cited by Griskevicius et al.). For marketers, such reframing has broader applicability when companies can afford to incentivize consumer actions, but cannot track and reward individuals for their specific behaviors.

Social recognition. Another ancestral trait is that humans strive to achieve relative (though not absolute) status. This means that humans want a certain level of wealth, power or fame in relation to those around them. Such behavior – the proverbial “keeping up with the Joneses” – is well documented. For example, neighbors of Dutch lottery ticket winners have a higher propensity to purchase new cars or renovate the exterior of their existing homes within the following six months after the winner takes home the money. Such behavior, however, can be problematic as it can lead to over consumption.

Interestingly, consumption is not the only way to display relative status. In fact, as Griskevicius et al. mention somewhat counterintuitively, status can also be achieved through competitive altruism whereby wealthy donors compete for status based on the amount donated, with public recognition for their generosity as a primary motivator.

But marketers can drive eco-friendly actions more broadly with consumers, not just with wealthy donors. The Elan Inn in Hangzhou, China, for example, rewards hotel guests for reducing their carbon impact by moderating room temperatures in summer and winter, or even bringing their own towel. Such rewards would be even more powerful if status were associated with visible perks enjoyed during a hotel stay or meaningful badges displayed on Facebook or local social networks.

Social influence. A final ancestral trait is for humans to unconsciously emulate the behavior of others. For marketers, the challenge is to redirect the behavior by holding up pro-environmental behavior to emulate. For example, as Griskevicius et al. point out, it has been demonstrated that the conservation behavior of one’s neighbors is “often the strongest predictor of [one’s] actual energy use.”

Such benchmarking against others works well as long as a majority demonstrates the desired eco-friendly behavior. But, what happens if only a few neighbors do?

Griskevicius et al. suggest that in this situation, green marketers should reframe the message to create the perception that more people do. They provide an illustration: Instead of communicating that only 5 percent of municipal residents carpool, message that 250,000 do. Reframing the message from a relative to absolute basis can create the perception that more people support the eco-friendly behavior, elevating the social influence that a campaign can actually have.

Hardwired human traits present a challenge for green marketers, as individual behaviors that benefit natural selection may collectively be detrimental to the environment. Instead of confronting them head on, marketers should reframe behaviors to be more pro-social, while ensuring that they are perceived to benefit the individual. By doing so, marketers turn headwinds more favorable.


Can Flash Mobs Engage Consumers on Green?

December 21, 2011

Recently, National Grid launched a surprise dance performance in a Saugus, MA mall as part of its ‘Tap into Savings’ campaign.  In many ways, this performance resembled a flash mob, with dancers appearing seemingly from nowhere to engage an unsuspecting crowd of shoppers, and then dispersing.

As a social phenomenon, the flash mob emerged in the early 00’s, enabled by Internet and mobile connectivity. While some flash mobs organize spontaneously, most are actually well-choreographed events that often captivate unsuspecting audiences where they occur.  One of the most viewed flash mobs was a choreographed rendition of “Do Re Mi” from The Sound of Music in Central Station Antwerp, Belgium.

While flash mobs are no longer the rage, marketers have periodically embraced the medium, as they consider it a tested way to engage new audiences and promote viral marketing.  Two corporate flash mobs are stand outs: First, in 2009, T-Mobile sponsored a flash mob in 2009 at Liverpool Station, London.

More recently, Wells Fargo sponsored a flash mob in New York City’s Times Square as part of their 2011 launch (rebranding of Wachovia) in the city.

Marketers in the green space have also embraced the flash mob, though primarily to make political statements rather than promote brands.  One such statement was made by students at the University of Catania in Sicily in its “The World Has Been Stripped Enough” flash mob for the 2011 World Environment Day.

Intriguingly, as green marketers and brands try to engage a more mainstream audience, it seems that there is broader role that flash mobs can play.  Specifically, flash mobs can:

Capture and hold attention.  Flash mobs capture consumer attention through the element of surprise, and hold it by being entertaining.

Green marketers can take advantage of this by turning the event into a teachable moment, especially when engaging audiences that might not ordinarily tune into an environmental message.  National Grid, for example, used its dance performance to teach shoppers about energy savings.

Reach fragmented audiences.  As channels have proliferated and audiences become more fragmented, marketers have had to respond by investing across more channels in order to be able to reach their intended audience.  In an ideal world, flexible creative assets can be produced all at once and then distributed across various channels.  Flash mobs offer a great example of a tactic that naturally aligns with this shift.

Take T-Mobile, for example.  While the flash mob captured the momentary attention of the surrounding crowds, it was also filmed for a TV spot that aired 36 hours later.  Video cuts were also distributed through channels like YouTube and viewed by millions more users.  This use of flexible assets enabled T-Mobile to get the most out of a single event.

Cultivate peer endorsements.  Marketers recognize that consumer endorsements can influence the behavior and beliefs of their peers.  Many marketers take advantage of this today by actively encouraging such endorsements as a key objective of the campaign.  Interestingly, flash mob dynamics may facilitate consumer endorsement more deliberately, or perhaps even enable a marketer to stage it.

A flash mob sponsored by TVA Canoe, an Internet TV site in Quebec, provides a great example of this. In this case, flash mob participants effectively reversed roles with unwitting bystanders.  To initiate the flash mob, a performer left an empty plastic bottle on the ground next to a recycling container in a well trafficked area of a mall. Shoppers filed pass the plastic bottle without much notice, while participants waited, blending in amongst the crowds.

Then, one woman, an unwitting bystander, picked up the bottle and put it into the recycling container. When she did, she was met with a standing ovation from the flash mob ‘audience’.

From a bystander’s view point, it looked as if fellow shoppers spontaneously broke into applause in response to an altruistic act by a peer.  Such overwhelming praise has the potential, in of itself, to be perceived by consumers as a peer endorsement, reinforcing the positive behavior in the minds of the consumer audience

Transform brand enthusiasts into participants. It is important for marketers to remember that green consumers tend to be passionate about not only what the brand stands for, but how much they can reduce their impact by choosing one product or brand over another.

Marketers should cultivate this sentiment by finding meaningful ways for enthusiasts to interact with the brand and share those experiences with others.  One way may be to invite enthusiasts to actually participate in a flash mob itself.  What better way to engage with the brand?  It certainly provides fodder for generating and sharing social content afterwards.

It has been a decade since flash mobs emerged as a social phenomenon.  Over that time, marketers have embraced the medium to drive engagement and encourage viral marketing.  Interestingly, green marketers challenged to engage mainstream audiences may find the flash mob especially useful in reaching target audiences and influencing behavior change.


Pay-As-You-Go Pays for the Environment

December 23, 2010

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

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

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

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

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

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


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

October 4, 2010

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

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

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

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

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

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

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

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

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

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

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

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


Green Brand Leadership: a Fish Story

August 16, 2010

The customer is always right – so goes the mantra of every sales rep from time immemorial. But, as we know, what customers want may not be best for the planet. For some brands, this presents a dilemma: how do you satisfy consumer needs while remaining eco-responsible?

The dilemma can be quite daunting for a brand, especially if the eco-impact is caused by lifestyle choices consumers are long accustomed to. This challenge is only compounded when consumers are not yet aware that their very actions are having a detrimental effect – as no brand wants to be the bearer of bad news. Or, perhaps more challenging still, brands may find that the very behaviors and rituals that help define a brand itself turn out to perpetuate the very actions that are having a negative impact.

Whose responsibility is it to promote more sustainable consumer behaviors?

Many brands would say, it is the role of governments to regulate – and if they don’t, a corporate entity is not accountable for their failure to act. Others would say that it should be left to the discerning buyer. Should a brand itself take the lead? Some may argue yes. It is a demonstration of brand leadership, they say.

But, being out ahead of one’s customers may serve brands well only when their customers expect them to do so. Staking out a leadership position appeals to customers that want to know that they are doing good through the choices that they make.

Others may argue no. Brands sell products, not morality they might say. Worse, eco-responsible messaging may be antithetical to the experience a brand is trying to create. It is hard to enjoy pleasures guilt-free if one is constantly reminded of the impact that one is having on the planet.

But, regardless of where one nets out on this issue, one thing is clear: today, brands are increasingly left with little choice but to act – or react – whether or not their actions directly influence customer purchase decisions. Advocacy groups as well as individuals are leveraging the power of the media (and social media) to broadcast and amplify their voices to sway popular opinion.

Whether viewed as an opportunity to demonstrate leadership or take a defensive stance, it is likely that more and more brands will have to make such choices.

One example of such tension between brands and eco-decisions recently appeared in the New York Times Magazine article by Paul Greenberg, “Tuna’s End: The Fate of the Bluefin, the Oceans and Us.” (June 27, 2010), As Greenberg writes, Nobu, the internationally acclaimed sushi restaurant chain, faces a decision today over the selection of seafood that it serves.

The Atlantic Bluefin Tuna – a prized fish for sushi and sashimi – is now endangered. Continued commercial fishing may push it to extinction. Further, the timing of the BP oil spill in the Gulf likely exacerbated the situation by polluting one of two known breeding grounds in the Atlantic for these fish right as mating season was to begin.

Today, Greenpeace is pressuring Nobu – in large measure because it is a category leader – to no longer serve Bluefin to its patrons. Nobu has resisted. Nobu co-owner Richie Notar noted, “The Japanese have relied on tuna and other bounties of the sea as part of their culture and history for centuries. We are absolutely appreciative of your goals and efforts within your cause, but it goes far beyond just saying that we can just taken what all of a sudden has been declared an “endangered” species off the menu. It has to do with custom, heritage and behavior.”

Arguably, Nobu’s brand identity emanates from a careful balance of adherence to the tradition and ritual of sushi – its creation, its presentation, its consumption – and hip appeal: swanky ambiance, innovative food creations and celebrity ownership. Out of balance, the brand does not deliver on the experience consumers have come to expect.

With this balance in mind, Nobu has tried to stake out a middle ground by updating its menu with the following message: “Bluefin tuna is an environmentally threatened species. Please ask your server for an alternative”

Such a simple message informs patrons of the issue and then let’s each consumer make their own choice. Additionally, such phrasing invites a dialogue between the patron and server regarding food substitutes, though it is unclear as to how many patrons would be inclined to do so.

What Nobu has missed, however, is an opportunity to leverage this situation to evolve its brand appeal – keeping the balance between tradition and hip appeal while elevating each to the next level.

Nobu could find an alternative to Bluefin tuna and not jeopardize the brand, but arguably reinforce consumer perception of Nobu as hip and trendy. Greenberg asserts that what Nobu needs is a new substitute for tuna. As part of his research, he went searching for a Bluefin substitute and may have found one in a fish known as kahala. Arguably, Nobu is missing an opportunity to be one of the first to introduce kahala across its menus, reinforcing its trendy image.

Ironically, by introducing such a substitute, Nobu would not be breaking with tradition, but rather, returning to it, as Bluefin was not widely popular in sushi until just 30 years ago. It was nowhere to be found in sushi before 170 years ago.

Thus, shifting away from Bluefin and offering consumers a tasty substitute could actually enhance Nobu’s reputation for seeding new trends while maintaining close adherence to the tradition of sushi.

In this case, what is good for the brand may actually be good for the planet.


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

August 31, 2008

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

 

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

 

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

 

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

  

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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


Environmental Marketing Guideline Challenges

July 3, 2008

Recently, the Canadian Standards Association updated its guide for making environmental claims.  While not legally binding, such standards provide guidelines for industry and advertisers when it comes to making environmental claims.  The intent is to protect consumers from false advertising claims regarding the environment.

 

In many ways, this document foreshadows likely changes from a similar review of US guidelines underway by the Federal Trade Commission (FTC).  Arguably, the current FTC guidelines are long overdue for a refresh given the dramatic evolution in the green space that has occurred since they were last reviewed a decade ago.  As such, it is widely expected that the FTC will expand its jurisdiction to include terms that have only recently been added to the vernacular including “renewable energy”, “sustainable” and “carbon offset”.   While such clarity will be welcome in marketing circles, it may fall short given the complexity of today’s environmental issues.

 

First established in 1992 by the FTC, the Guides for the use of Environmental Marketing Claims provide an “administrative interpretation” of what constitutes a fair environmental claim: transparent and accurate disclosures that clearly delineate benefits between a product and its packaging as well as across different products.

 

It is hard to overstate the importance of such guidelines.  For consumers, guidelines ensure that they have the necessary information to make informed purchase decisions.  For advertisers, guidelines enable companies to feel confident that the environmental claims they are making will not open them up to scrutiny, or worst, accusations of greenwashing. 

 

In clarifying these guidelines, however, the FTC faces three major challenges today:

 

First, regardless of what guidelines the FTC puts into place, it is increasingly difficult for consumers to substantiate corporate environmental claims.  This is especially true for carbon offsets or renewable energy certificates (RECs) that consumers (as well as corporations) rely on to reduce their carbon footprint.  Indeed, for such financial instruments to have substantive impact, they must abide by the “additionality” principle: they must lead to environmental improvements that would not have occurred but for the consumer’s investment in an offset or REC.  Assessing true adherence to this principle is out of reach for consumers as it requires sophisticated financial understanding and time.

 

Second, it is difficult for consumers to discern from current guidelines what the likely secondary environmental impacts are from a particular product.  Take biofuels, for example.  Crops themselves can be grown sustainably and disclosures can be made accordingly.  Yet, arguably, diverting cropland for fuel production reduces the amount of food produced, contributing to (though not necessarily the primary cause of) rising prices for food staples globally.  Moreover, land used to raise biocrops may create added pressure to deforest lands elsewhere in order to grow food crops or raise cattle for human consumption.  In either instance, it is difficult to claim that the fuel was grown in a truly sustainable manner.

 

Third, as the FTC’s guide is only an administrative ruling, the FTC does not have the legal authority to enforce them.  Instead, the FTC can take only “corrective action” against those who violate them which limits their punch in market.  Jay Kilby explores this issue more in-depth on his blog, WeBuyItGreen.

  

Nonetheless, Marketing Green welcomes upcoming revisions of the FTC guidelines for making environmental claims.  Despite their limitations, FTC guidelines provide an essential guide for green marketers as well as empower consumers with information to make informed purchase decisions.  While gaps remain, consumer advocacy groups will likely step in to police environmental claims.  Given the strong interest in green, it is likely that advocacy groups will hold advertisers accountable for their claims in court or in the court of public opinion.


Managing Environmental Risk by Looking through the Rear-view Mirror

June 1, 2008

A recent survey by The Economist Intelligence Unit identified both the top influencers of – and benefits derived from – corporate environmental risk management (CERM) programs.  Two things are curious about these survey results.  First, customers and investors rank relatively low in influence (fourth and seventh, respectively) despite the fact that “better corporate reputation” among these groups ranks as the primary benefit for launching CERM in the first place. 

 

Second, “regulators” and “government” exert significant influence – second only to “executive management” – on companies to initiate CERM programs; in terms of benefits, however, “improved relations with regulators” ranks only eighth.

 

Risk Manager Responses from Recent Survey by                    The Economist Intelligence Unit

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The high level influence of regulators and government suggests that corporations consider regulatory compliance as the primary measure of CERM success.  This focus is understandable given the stiff fines imposed for non-compliance.

 

Moreover, it also suggests that corporations believe that regulatory compliance is the way to improve its reputation with customers and investors.  Yet, while compliance is arguably important with customers and investors, it is simply the place to start.

 

When it comes to customer and investor groups, focusing solely on regulatory compliance is like driving a car by looking through the rear-view mirror.  Quite simply, regulations do not necessarily reflect current consumer and investor expectations regarding corporate actions toward the environment; instead, they reflect those held in the past when the regulations were passed.

 

This is an important distinction because consumer and investor expectations regarding corporate environmental responsibility continuously evolve.  As such, it is likely that current expectations have far surpassed current regulations in place today.  Take climate change, for example.  There is a growing consensus that carbon must be regulated, yet no binding limits yet exist in the US.  

 

There are other cases where customers or investors actively challenge management’s environmental policies.  For example, led by members of the Rockefeller family, ExxonMobil shareholders have made it clear that they believe that when it comes to climate change, compliance with existing regulations is not enough for this oil giant.

 

As such, corporations that primarily focus on regulatory compliance are likely falling short when it comes to improving their reputation with consumers and investors.  Instead, management should try to better understand current customer and investor expectations toward the environment, and how these sentiments evolve with time.  This will require corporations to take action that go beyond current regulatory mandates.  It will also require recognition that customers and investors hold greater “influence” on CERM decisions than what is commonly realized today.


Eco-labels Impact Consumer Behavior

May 24, 2008

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

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

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

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

 

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

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

 

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


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