Green business and the conscience premium
Green business is arguably the most important marketing innovation of the century. And it’s here to stay.
When we talk about green business, we’re really talking about the provenance of the products and services we sell. A business is green if its creators take into account its impact on the environment, and on society. Like a historic work of art, a pair of running shoes now has a provenance – a chain of collaborators, stakeholders and events that led to its appearance in your closet.
Did the factory owner in Guatemala employ child labor? Are the materials carcinogenic? What about the environment downstream from the factory, is it threatened? Did the shipping company control the pollution from its freighters? Does the U.S. distributor pay a living wage?
And because consumers care, businesses can charge a premium for conscience.
Take the green building sector for instance. People often mistakenly assume that the boom in green building technologies was driven by conscientious consumers. In fact, contractors and manufacturers largely invented green building, then introduced it to the consumer as a way of differentiating, and premium-pricing, new products and services.
Builders are finding value in that differentiation. Every year about 20,000 building professionals attend the annual GreenBuild conference organized by the U.S. Green Building Council. Every day, about $500 million worth of construction registers for the LEED (Leadership in Energy and Environmental Design (LEED) rating system. There are LEED projects in 69 countries.
Then there’s the legendary Toyota Prius. Sales climbed from 29,000 cars sold in 2001 to 126,000 in 2004 to 281,000 in 2007. From January to April of this year, over 107,000 Prius hybrids were sold, and that number would likely have been even higher if production had kept pace with demand. Until the financial meltdown a couple of months ago, the waiting list for new Prius hybrids averaged around six months in the United States. No other fuel-efficient car came anywhere close to those growth numbers.
Yet the Toyota Yaris, which gets 80 percent of the Prius’ gas mileage and costs about half the cost of a basic Prius, sells about half as many units. You’ll never earn back the difference in fuel savings. Even more mysteriously, the Honda Civic Hybrid has been a relative dud. Why? It’s not reliability. It’s certainly not durability. What’s the quality difference? The uniquely styled Prius, as it goes down the road, advertises the driver’s conscience. The Civic looks like any other Civic.
The consumer cares about the product’s provenance, and the brand is enhanced when it’s widely recognized as more conscientious than its competitors or, in the case of the Prius, it’s merely more recognizable.
The decline in traffic at Whole Foods stores this year has been cited as a sign that consumer interest in sustainability is on the wane. That’s not what it looks like from our perspective.
The biggest retailer of single copies of Mother Earth News is not Whole Foods — it’s Wal-Mart. That’s right, Wal-Mart. In fact, the big discounter sells two-and-a-half times as many copies of Mother Earth News as all the health-food and luxury grocers put together. Mother Earth News has about 2.3 million readers of the magazine and almost a million unique users at the Web site each month. And Wal-Mart is its best ally.
Subscription circulation is up significantly, too, but it’s the newsstand we look to for signs of new trends, and sales have continued to grow through the recession so far.
In fact, it looks like the declines at Whole Foods may be a sign of the mainstreaming of the green consumer. Wal-Mart is, according to a 2007 study from Scarborough Research, the nation’s largest organic retailer. Scarborough reported that 29 percent of organic consumers had shopped at a Wal-Mart Supercenter during the previous week, in spite of the retailer’s relatively poor reputation among the green elite.
The discount grocer Aldi is the biggest retailer of organic food in Germany. In Switzerland, the world’s most enthusiastic organic consumers (6 percent of all food sales) have made a mainstream grocer, The Coop, the nation’s largest organic retailer with the nation’s largest grocer, Migros, close behind in second place.
In a recession, a luxury retailer will naturally suffer more acutely than other retailers. Evidently, the same is not true for green products in the retail aisles.
And sometimes, blessedly, a greener product that preserves energy is also less expensive to manufacture or operate, making it even more attractive in a down economy.
Several times a year someone meeting me for the first time says something like, “I’m not an environmentalist, but I love Mother Earth News.” The first time I heard that it surprised me. Then it occurred to me that clean air, clean water, self-sufficiency and social conscience are universally popular qualities. It’s the political labels that sometimes alienate customers.
In their groundbreaking 2007 report, “Sustainability from a Consumer Perspective,” The Hartman Group suggests that one of the greatest value enhancements to a product or company, today, is the attachment of an “origin narrative” that connects “consumers to the people, places and processes that epitomize your company.”
Narratives are necessary to define products as green. They are the newest tools of product engineering.
Genuine narratives that translate easily across cultural borders are, of course, no small feat of engineering. Like all good engineering, it must produce a genuine improvement in quality, specifically the quality of the story and quality of the conscience with which a company does business. In today’s world, an ad slogan is a relatively weak differentiator. “Coke: The Real Thing” had its day. In tomorrow’s marketing environment marketers will need thorough narratives and companies will need verifiable value systems to rise above the competition.