Capturing the Green Advantage for Consumer Companies

Capturing the Green Advantage for Consumer Companies

          
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Capturing the Green Advantage for Consumer Companies

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    Our research proves that green matters to consumers around the world, and green strategies offer companies and retailers a competitive advantage in product differentiation and cost savings. Many companies understand this and are starting to take action. Indeed, green initiatives have emerged across nearly all consumer sectors, including automobiles, electronics, durables, energy, health care, packaged goods, and retail. Some players have succeeded in harnessing their “green¬ness” as a real competitive weapon—a path to leaner operations, greater market share, and more attractive brands. Others have encountered bumps in the road that have resulted in higher costs, allegations of greenwashing, and disaffected customers. What separates the winners from the losers is a clear plan for how green the company wants to be. Such a plan calls for a top-down vision and coordination across the value chain—in other words, a holistic approach to going green that enlists every part of the organization: the four Ps of planning, processes, products, and promotion.

    We’ve looked across the consumer industry and identified ten best practices for gaining a green advantage. Below we explore each practice, singling out a few companies as exemplars. Needless to say, most of the companies we mention are working on several fronts, not just one or two.

    Planning
    1.  Factor sustainability into strategy, future resources, and budgets. A leading hotel chain in Europe has been tackling environmental issues since 1994 and highlights proactive sustainability as a core value in its mission statement. In 2007, the company announced that it planned to halve its carbon-dioxide emissions by 2011 and eliminate emissions entirely by 2025.

    2.  Make the rules, don’t just follow them. Joining in industry partnerships with respected certification programs is a smart long-term investment. Many companies are beginning to adopt the standards of a few of these programs. One is the Energy Star label, created by the U.S. Environmental Protection Agency in 1992 to reduce energy consumption and greenhouse-gas emissions from power plants. Some 2,000 manufacturers use the label, which appears on more than 40,000 energy-efficient products at more than 1,000 retailers.

    3.  Make a clear business case for sustainability initiatives. A consumer-packaged-goods company was able to improve its balance sheet and help protect the environment through changes made to one of its household-cleaning products. By shrinking the product’s midsize container by two-thirds and greatly increasing its concentration, the company was able to lower production costs for water, cardboard, and resin; reduce logistics costs through more efficient warehousing; decrease the number of trucks needed to carry the product; and increase sales through reduced out-of-stocks and improved shelf efficiency. These moves increased profits by about 16 percent.
    Processes

    4.  Go green across the full value chain. Consumers have wide-ranging expectations for green businesses, and they—and their national governments—are likely to grow even more demanding over time. These facts should spur companies to go beyond discrete, one-off responses—a switch to recycled packaging, say, or the offer of a low-fat alternative. Wal-Mart, which received high ratings among our survey participants, is turning itself into the reference company for green by its determination to put a green stamp on the entire life cycle of the products it sells: the raw materials they contain, how they are supplied and transported, how they are displayed in the store, how they are used by the customer, and how they are disposed of.

    For example, Wal-Mart can provide farmers with an incentive to produce organic cotton because it is the world’s largest purchaser of this material. The company uses its sourcing clout with packaged-goods suppliers as well, in one instance working with a supplier to make concentrated laundry detergent. That move supported a program to increase the energy efficiency of Wal-Mart’s truck fleet, since concentrated products require smaller packages, which mean more products onboard. In addition, the company is working toward a goal it set in 2005 to reduce greenhouse-gas emis¬sions by 20 percent in seven years at its stores, Sam’s Club locations, and distribution centers. Efforts include such energy-saving steps as installing solar power, LED lighting, and white-membrane roofs. It also tracks customers’ green-shopping habits across products and categories in order to keep on top of what customers want. Finally, Wal-Mart has established a zero-waste goal, which it is realizing by examining its own waste stream and by increasing recycling. Currently the company recycles more than 30 different commodities, including plastic film, prescription bottles, and paperback books, in its “super sandwich bale” process. (See “Wal-Mart Leads the Way.”)

    Wal-Mart Leads the Way

    In 2004, when Wal-Mart became the largest private user of electricity in the United States and one of the largest owners of private truck fleets, the company decided to rethink its practices. It wound up initiating a series of highly visible sustainability programs that are driven from the top down. For example, the company recently announced that it will require its suppliers in China to adhere to environmental standards. Over the next two years, Wal-Mart China will open a prototype store that will use 40 percent less energy, and it aims to reduce energy use by 30 percent and water use by 50 percent at all of its stores.

    Wal-Mart is counting on its tremendous buying power to keep prices low, even as it demands more from suppliers in terms of quality and standards. It has signaled that it is moving toward longer-term arrangements with a smaller group of suppliers. To ensure that its suppliers are making improvements, the company requires factory audits by both vendors and an outside party, as well as random, unannounced audits by representatives of Wal-Mart itself.

    Wal-Mart’s environmental program has resulted in an immense improvement in public relations for the company, and it has also become the foundation of a very profitable sustainability strategy.

    5. Target early wins to build momentum, credibility, and motivation. When developing a change agenda, it is essential to have the whole team onboard. An easy way to rally the troops is to leverage quick wins. By replacing or retrofitting equipment such as lighting, toilets, electronics, heating and air conditioning systems, and water heaters, companies can demonstrate immediate results—with a return on investment as high as 150 percent in some cases. A national supermarket chain with more than 400 stores saved $12.2 million in one year by retrofitting lighting and installing energy management systems. An office building with leasing revenues of $6 million a year recouped 25 percent of its investment by taking similar measures. These are the kinds of results that inspire employees and boards of directors to begin thinking and going green.

    6. Embed green goals into incentives and reporting structures. What gets measured gets done. In order to achieve long-term, sustainable success, companies need to transform their goals into specific initiatives and integrate them into their overall reporting structure. Tesco has designed metrics that track such granular data as CO2 emissions by source. It has also introduced a set of key performance indicators that measure these emissions against specific targets, such as “reduce CO2-equivalent emissions from our existing stores and distribution centers worldwide by at least 50 percent by 2020” and “restrict air transport to less than 1 percent of our products.”

    Products

    7. Make sure consumers understand why your green product is superior to all the others. As far back as 1997, Toyota knew that automobile owners would become increasingly concerned about the effect of their driving on the environment. Since then, advertising campaigns for the Prius clearly spell out the hybrid’s environmental benefits as well as the excellence of its engineering. That has made the Prius the world’s most well-known gas-and-electric hybrid vehicle. It is the brand most consumers have in mind when they go shopping for an automobile that will save money on gas, reduce pollution, and announce to the world that they care about the environment.

    8. Get the pricing right. “Just because it’s a sustainable product doesn’t mean it has to cost more,” says Matt Kistler, senior vice president for sustainability at Wal-Mart. “When buyers come to me expecting an environmentally friendly product to be more expensive than the current one, I tell them they need to ask the right questions. A green product should use less packaging and cost less for transportation. Sustainable products should be the same price or less than the products we are replacing.”  

    Companies should aim for products that are affordable as well as environmentally friendly. Yet it’s a mistake to jump to the conclusion that consumers won’t pay more for green. If all possible costs have been taken out and the green product is still priced higher, consumers will pay the difference if they value the additional benefits in health or safety. That’s why it’s necessary to make sure that such benefits are communicated as fully as possible.

    Promotion

    9. Direct green efforts from the top and get buy-in from key stakeholders. “What I thought was going to be a defensive strategy is turning out to be precisely the opposite,” says Wal-Mart’s CEO, Lee Scott, on the greening of the company. Scott has become the public face of Wal-Mart’s 2005 commitment to cut greenhouse-gas emissions at its stores by 20 percent by 2012, double the fuel efficiency of its truck fleet by 2015, reduce solid waste in its U.S. stores by 25 percent in the next three years, and sell organic food at prices its customers can afford. By staking their own names and reputations on these promises, Wal-Mart’s leaders have overcome a good deal of skepticism about how serious the world’s largest retailer is about protecting the environment.

    10. Be consistent in order to be credible. Goals, actions, and messages must have a common underlying vision. General Electric never misses an opportunity to send out messages about its “ecomagination” efforts through TV and print ads, conferences and trade shows, press releases and magazine articles, sustainability reports, podcasts, educational online games, and a dedicated Web site. It also measures the effectiveness of each medium and knows which channels have the greatest impact.

    To skeptical minds, sustainability may appear to be the media’s topic du jour. But our research shows that being green isn’t just a fad for consumers, and its attraction goes beyond sustainability. A big appeal (especially these days) is that green products can offer money savings in addition to the benefits of health and safety. As long as consumers continue to worry about energy costs and their budgets, and as long as they continue to be conscientious about the ingredients of their food and personal-care products, being green will be an attractive business.

    But the actions companies take will have negligible impact unless they make them an integral part of a compelling case for competitive advantage. Capturing the green advantage involves incorporating green strategies into planning, processes, products, and promotion—reducing costs in some areas and improving materials and ingredients in others—and making sure customers understand the benefits of being green.