May 2010: For your low-carbon product, do you really want to charge people extra for ‘being green’?

By , December 27, 2010 7:23 am

May 2010, Market Intelligence Article for Sustainable Business Magazine, reproduced with permission.

Peter Winters, President, Haddock Research & Branding

Double-click on the offprint below to see it in a larger size.

There is sometimes a sense that green products should be charged at a price premium. But how often is this the right approach? Instead consider, for your green product, whether it can be positioned as being both greener and better value than competitors. Also, think what could be done to enhance each customer’s post-purchase satisfaction.

Companies developing low-carbon brands should be wary of charging a premium to customers for ‘being green’ – the danger is that people will feel ripped-off.  This is how Peter Tertzakian, the environmentally-minded economist, felt when offered a hire car upgrade to a Prius for an extra $15 a day. As he described in a blog article[1], unless he was going to drive a very large distance to defray the extra rental costs, ‘going green’ would cost extra. There was a dissonance between his desire to use the energy-efficient, ‘green’ car, and his wish to have the best value-for-money.

Indeed, evidence from the marketing literature strongly suggests that the most powerful marketing propositions align both emotional and rational appeals[2]; and that building brand equity requires positive brand experience over time[3].

So, instead of trying to get people to ‘pay extra to buy green’, companies can often make the case that their low-carbon brand is both green and saves money. When it comes to getting people to invest in improving the energy-efficiency of their home, it is usually a matter of overcoming people’s reticence to pay up-front capital costs in order that they can generate savings over time. (p.5; pdf[4] In line with behavioural economics, different versions of the value proposition can be tested among target consumers to discover which is actually most effective in getting people to buy.

 

In the UK, the well-established ‘A to G’ scale is a brand device which successfully integrates emotional desires and rational rewards. It provides information helping to determine how environmentally-friendly a product is, and delivers benefits to the individual customer allowing them to save energy running-costs, and enhancing resale value on major products (cars/houses). According to the first wave of our Environmental Choices survey, conducted in late 2008, 72% of English people recognised the ‘A to G’ scale, and 47% of English people indicated that this scale had had an impact on their behaviour. This impact was higher amongst those most concerned about climate change (Climate Citizens; 59%) compared to those least concerned (Sceptics & Uninvolved; 32%).

A recent UK marketing device is ‘Carbon Labelling’, a system designed to show that the manufacturer is measuring, and committed to reducing, the carbon footprint of a product. It is an impressive achievement to be able to provide this information, enabling people to make ‘low-carbon’ consumer choices. But how much do such choices directly benefit the individual? Could more be done to encourage adoption – maybe with prize draws, social recognition and/or some form of ‘Green Credits’ (a scheme suggested by Zerofootprint (pdf[5])?  Whilst the ‘A to G’ scale has become largely mandatory, carbon labelling is not – and I wonder if consumers, and businesses, expect that ‘carbon labelled’ products should command a price premium, taking into account the extra work involved? By late 2008, our Environmental Choices survey showed that just 9% of English people recognised the ‘Carbon Labelling’ logo, and only 2% indicated that it had affected their behaviour (mostly Climate Citizens) – though we should recognise that ‘Carbon Labelling’ is still quite new.

We are not arguing that it is never appropriate for companies to get people to pay extra for their low-carbon offering. For example, Canadian clean-electricity provider Bullfrog Power is currently undertaking an advertising campaign enticing people to ‘Pay More For Energy’. Yet this is likely to be part of a niche strategy within a crowded market; I suspect that they would be delighted to achieve 5% market share. They also clearly communicate why they charge extra. For their customers, they provide the individual benefit of becoming part of a Facebook Bullfrog Power community[6]. By late 2008, our Environmental Choices study shows that Bullfrog Power is best known in Ontario, where (based on 398 respondents) 18% were aware of the company and 2% used them.

In summary, here are three integrated marketing challenges for any low-carbon value proposition:

First, how well does it evoke emotional desires – especially amongst those concerned about climate change? This could be to do with how it helps the customer do ‘good for the environment’, and/or its visceral, aesthetic appeal.

Second, how can the proposition be designed so that it ‘makes sense’ to a consumer to buy? It is about satisfying the individual customer, and likely to be at least in part to do with financial justification – although a creative use of other rewards might also work. Depending on the type of product and buying situation, this can be about rational argument, or it could be more about framing the customer decision in a more sub-conscious way.

Thirdly, once the customer has bought the low-carbon product, what could be done to enhance each customer’s satisfaction in this purchase? This is about a rational reflection of ‘making a good decision’, leading to emotional attachment to the brand. This is the basis of building brand equity, and word of mouth recommendation.


[1] http://www.endofenergyobesity.com/blog/?p=159

[2] Page 27, Selling Sustainability, NESTA (2008), http://www.nesta.org.uk/selling-sustainability-report/

[3] How to Use Advertising to Build Brands: In Search of the Philosopher’s Stone, Spike Cramphorn, IJMR, Vol. 48, No. 3, 2006

[4] Page 5, The Growth Potential for Microgeneration in England, Wales and Scotland, 2008, (pdf) http://www.berr.gov.uk/files/file46003.pdf

[5] http://www.zerofootprint.net/images/uploads/Green_Credits.pdf

[6] http://www.facebook.com/BullfrogPower


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