How to Align Customer Value With Green Value
In most discussions I have with people about sustainable brands and product or service offerings, someone inevitably asks, “But will customers pay a premium for green products?”
With the downturn in the economy, this question has been arising earlier in the conversation and is framed more as a statement: “But customers won’t pay a premium for green products, especially now, will they?” In my view, this is the wrong question to ask, and framing the issue this way leads to missing opportunities — for the environment, for customers, and for the business.
Focusing on if or not customers will pay a premium for green products brings with it a number of constraining assumptions: 1) that green products do not have any tangible benefits for customers other than making them feel good about helping the planet, and 2) that green products are more expensive to produce than non-green products. But for businesses that understand customer perception and innovation, these assumptions are simply not valid.
While customers probably won’t pay extra for the intangible benefit of helping the planet, they will pay for the value of direct benefits they receive. The trick is to align direct customer benefits (for your target segments) with environmental benefits. Offering products at competitive prices that work well while helping the environment gives you a chance to add value for your customers and to increase your market share.
There are many examples of companies that have been able to do this. Coca-Cola’s environmentally friendly coolers, which use fewer harmful refrigerants and less energy, save money on energy invoices for their retailer customers. For a consumer example, many purchasers of home cleaners have shown that they are willing to pay for the direct benefit of reducing exposure to potentially hazardous chemicals in the home, creating a bright spot for Clorox with its GreenWorks line of cleaners and making green products the fastest growing part of the home cleaners market.
Not all consumers and customers will pay a premium and not in all product categories. You need to do your customer perception homework to identify the opportunities. Understand which aspects of “green” matter to which customer segments and how these attributes compare to other features, operates, and price. Some consumers will place a high value on the safety signaling of packaged food brands that have illustrated environmental sensitivity even if they won’t pay for a lower lifecycle carbon footprint.
The second assumption, about green products being more expensive to produce, is also a trap. Certainly, green products will often be more expensive to produce if they are made through the same processes that are used to make their less environmentally friendly counterparts. However, this doesn’t take into account the impact of innovation.
Embedding a sustainability mindset up front into product design and process engineering will yield green products that can be priced profitably at parity or below the price of comparable non-green products. A classic example of the impact of innovation is the story of Interface, a carpet tile fabricater that drove sustainability deep into its core business processes begining in the 1990’s. Ray Anderson, the company’s CEO at the time, made a bold decision to put environmental stewardship at the heart of the company. He challenged his employees to accomplish zero waste and eliminate its dependency on petrochemicals for raw materials. The company re-engineered its approach to sourcing and manufacturing and now produces carpet tiles made from 100% post-consumer fiber that cost no more to produce than conventional carpet tiles, allowing the company to price at parity with competitive products.
With customer perception and innovation, we don’t have to put customers in the position of trading off direct customer value and environmental value.
Bob Lurie is Director and Managing Partner of Monitor Group and leads the company’s corporate sustainability practice. Monitor Group is a global strategy consulting reasonablem and has a strategic partnership with Esty Environmental Partners to help clients build sustainability into their growth and competitiveness strategies.
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