Capturing the Green Advantage for Consumer Companies

Capturing the Green Advantage for Consumer Companies

          
Title image

Capturing the Green Advantage for Consumer Companies

  • Add To Interests
  • SAVE CONTENT
  • PRINT
  • PDF

  • Related Articles
    Who's Afraid of a Green Premium

    Many companies in the consumer industry believe that higher prices often keep consumers from purchasing green products. According to a manager at one company that participated in our survey, “It’s a no-brainer for most consumers—why pay more? If prices were closer to what they are for conventional products, green sales would be much higher.” But our findings show that price is not a significant obstacle for most buyers. (See Exhibit 7.) In fact, it ranks much lower as a barrier to green purchasing than lack of awareness of green alternatives or a perceived lack of choice. Furthermore, although some consumers, particularly those in China, are unwilling to pay a premium for green products, fully one-third of consumers across all the other countries we surveyed said they would pay 5 to 10 percent more for green products—if they were convinced that the products offered direct benefits.

    exhibit

    Of course, consumers’ willingness to pay more depends on a product’s category and perceived benefits. To explore this further, we grouped products into five categories according to how consumers use them:

    • Ingestible products, such as foods, beverages, and over-the-counter drugs

    • Products applied to the body, such as lotions, cleansers, and creams

    • Wearable products, such as apparel and shoes

    • Plug-in products, such as appliances and electronics 

    • Disposable products, such as paper and plastic products and household cleaners

    We asked consumers to rate both the quality of green products in these categories and their willingness to pay a premium of 10 percent or more. The results were surprising. Nearly half of respondents in all countries said that green products offer comparable or superior quality over conventional alternatives. (See Exhibit 8.) In the ingestible-products category, about 30 percent of consumers are willing to pay a 10 percent premium or more for fresh meats, seafood, produce, and dairy products—and nearly two-thirds perceive green products in those categories to be superior. (See Exhibit 9.) 

    exhibit
    exhibit

    Willingness to pay a price premium is also fairly high in the plug-in-products category, with between 20 and 30 percent of consumers open to paying a 10 percent premium or more over conventional offerings for some products. In this category, the money-saving benefit is a powerful motivator of green purchasing. Similarly, for products applied to the body, the perceived benefit of enhanced health fuels price premiums, since green is often a proxy for all-natural and healthier ingredients. In the wearable-products category, 20 to 30 percent of consumers see green products as better than their conventional counterparts, and about the same proportion are willing to pay a premium for them.

    The results were somewhat different in the disposable-products category. Here consumers are accustomed to green alternatives and have almost come to expect green attributes as a given. Therefore their willingness to pay a premium for green products is lowest in this category. Green features of disposable products clearly matter a lot and can be a key lever for differentiating the quality and appeal of product offerings—in terms of their safety or ease of use, for example. But disposable products have a limited ability to command a significant premium on green benefits alone; these attributes are viewed almost as a commodity.

    Being green is not a license to charge more. In all the countries we surveyed except China, consumers will pay more for green products, but only if they offer added value. They must taste better, be safer or healthier, or help consumers save money—on energy bills, for instance. (See Exhibit 10.)

    exhibit

    But green products need not cost more. Many companies could lower the price of green products by eliminating as much as 16 percent of their own costs. Reducing the amount of product packaging, for example, would permit more products per truck and per shelf at the store, thereby saving on fuel, logistics, and out-of-stock costs.

    With better products and lower costs, everyone stands to win—consumers, retailers, and manufacturers alike. This is especially true in an economic downturn.

    Price also affects merchandising. Consumers across all countries told us that they want to see more green offerings at the stores where they shop. In many countries, as many as two-thirds of survey participants said they would shop more often at a store if it carried green products, and an even larger proportion said they would buy more green products if they were available.

    To facilitate green shopping, retailers must manage the tradeoff between convenience and price transparency. A large majority of the consumers we spoke with would prefer to see green products offered next to conventional products on store shelves, rather than in a separate section. Of course, that arrangement makes price differences more apparent, and retailers fear that consumers could balk. But since many consumers are already prepared to pay more for green features if the product offers added value, and since fewer green products will be sold if they are banished to a separate section, retailers may benefit in the long run from displaying green and nongreen products together.

    When we asked consumers to rate the “green competence” of the stores where they shop, the ones they rated highest across several countries included Carrefour, Ikea, Auchan, and Wal-Mart. The top stores in the United States were Whole Foods Market and Trader Joe’s. In Canada they were Loblaw and Ikea. And in the United Kingdom they were The Body Shop and Marks and Spencer. It is interesting that our survey participants ranked price second in terms of these companies’ competencies—further evidence that consumers aren’t as price sensitive about green products as manufacturers and retailers might think. Instead they ranked choice and assortment first, suggesting that retailers should focus on educating consumers about the benefits of green products and making it easier to locate green products in the store.