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Will consumers pay more to be green?

Sales of eco-friendly products are fading as economic troubles pull consumer confidence down. But are we telling the green story in the right way?

A few years ago, I went for an espresso in a London branch of one of the many coffee shop chains that compete in the UK capital and was offered the following up-selling choice: “do you want Fair Trade for an extra 30p”? The coffee in this particular chain was already very highly-priced; paying an extra 30p would take the bill to close to GBP 3.00, roughly the same price as a 50g bag of ground coffee. That’s a high price by any measure. And yet, if you are told that one choice is “fair,” the implication is that the other choice is actively “unfair”. It’s a classic double-bind proposition: choose one and you feel like a bad person; choose the other – to defend your self-esteem from this sneak attack – and you feel like you got fleeced.

While putting customers publicly on the spot in this way was questionable (indeed, the chain eventually dropped that up-selling technique), basically the coffee chain was offering the same choice that all retailers have in recent years: you can have green and ethical, but it will cost you more. The pricing structure and marketing has assumed that customers will pay a premium to “do the right thing” and ease their conscience. And in good times, perhaps this is true. But not anymore, it seems.

Green data

Three interesting reports crossed my desk in the last few weeks. The first report came from IGD, a UK research firm. According to its recent study, shoppers are bracing themselves for higher food price inflation and tightening their belts accordingly. Fully 25% say they will buy more of the lowest priced supermarket private label products in the next twelve months, compared to 18% in October 2010.

Next up is a poll by the New York Times (NYT)/CBS News which put American consumer confidence at its lowest level in two years. “Amid rising gas prices, stubborn unemployment and a cacophonous debate in Washington over the federal government’s ability to meet its future obligations, the poll presents stark evidence that the slow, if unsteady, gains in public confidence earlier this year that a recovery was under way are now all but gone,” the report claimed, adding that the number of Americans who think the economy is actively getting worse had risen by 13 percentage points in just one month.

The last report also comes from the NYT. It claims that “as recession gripped the country, the consumer’s love affair with green products … faded like a bad infatuation”. The report continues: “household product makers … just can’t seem to persuade mainstream consumers to buy green again”. The report cites David Donnan of AT Kearney, who says it’s about price: “If it’s one or two pennies higher in price, they’re not going to buy it.” That is the main thrust of the article, with shoppers cited as saying they’ll only buy green if it’s on offer and so on. But the journalists then do some digging and find that sales of some green brands fell significantly even as the prices were reduced.

So perhaps it isn’t about price after all.

Show us the money

Perhaps it’s about story. None of the reports above make this point, but it’s worth considering. Are we telling consumers the right story about green products? It’s possible we are not. The truth is, we are telling one story to consumers, but another entirely to shareholders and backers.

A few years ago, Mark Husson of HSBC Securities made it very plain when he told an industry event I attended that Big Money didn’t buy into environmental responsibility as a story. In order for companies to get eco-initiatives taken seriously as a financially sound area for capex investment, they would have to show the numbers and prove there was a tangible ROI. Business did this. Companies did the math(s) and presented their stakeholders with the significant savings on energy bills, supply chain and packaging costs that their green initiatives brought, giving birth to the notion of the “triple bottom line”. This worked.

Why, then, do we not tell consumers the same story? As stakeholders in our brands, do consumers not have the same concern as any other: how does this make me money? If money is tight, paying a premium to “do the right thing” is not an option that pays a dividend you can bank. When we offer a low-energy light bulb for USD 9.99 instead of USD 0.99 for a standard bulb, are we really bringing home the message that the customer is spending more to save more? Do they understand that if they make that purchase they won’t have a light bulb problem for another ten years and will shave dollars off their bills? Or are we trying to tell them that the high price is the cost of doing good; that they owe it to make a sacrifice to save the planet? That won’t wash. Consumers are as susceptible to short-term thinking as any investor. We can’t tell Wall Street that green saved us money and then charge a premium on Main Street. Consumers will feel like they’ve been had.

We want consumers to feel good about their purchases if we’re looking for repeat business. Just like the coffee shop, if we allow our consumers to go away with the suspicion they’ve been fleeced then we close the door to sustainable growth in the category. To get the green products to stick with mainstream consumers we will have to appeal to the same enlightened self-interest that worked for the money men. We need to stop telling them an environmental story and start telling them an economic story: green saves you green. Perhaps, then, we’ll finally get to that much-vaunted win-win-win.