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The Secret to Getting a Green Premium

woofter, jennifer, strategic sustainability consultingThere has been a lot of talk lately about whether or not customers are willing to pay more for green products. And just like any kind of market research, you can usually find a study to support whatever theory you’re currently promoting.

For example, in August 2013, an article from Sustainable Brands proclaimed, 50% of Global Consumers Willing to Pay More for Socially Responsible Products. Just a few months earlier, a Harris Interactive poll said that, 78% of US consumers were already buying products specifically because of their social or environmental profile.

Not so fast. There are a number of articles that argue the opposite — that consumers are NOT willing to pay a price premium for so-called “green” products. In September 2012, an Advertising Age article noted, “As More Marketers Go Green, Fewer Consumers Willing to Pay For It”. And perhaps most compelling, P&G’s CEO flat out declared that, “consumers aren’t willing to pay a green premium,” in a video hosted by the Wall Street Journal.

Why the disconnect? Turns out the devil is in the details — it’s the difference between what consumers SAY and what they really DO. Here’s an excerpt from No, Consumers Will Not Pay More for Green:

“Consumers will consistently tell surveys that they are willing to pay more for socially and environmentally superior products…A major utility company, for example, surveyed rate payers asking if they would pay a small premium for ‘green electricity.’ The response was overwhelmingly ‘Yes!’ However, when the product was offered, fewer than 5% actually signed up.”

This leaves companies in a bit of a conundrum. How do you get consumers to pony up extra money for green products? This issue is important for many reasons–innovation can be expensive, and paying better wages for laborers and higher margins for raw materials can seriously impact the profitability of a product or product line.

So how do you do it?

The secret might be in how you talk about the sustainability or the “green-ness” of your product or service. It’s not enough to spout out key statistics or throw an eco-label on the packaging. New research suggests that it’s all in the story.

In her article, “Want to Raise Prices? Tell a Better Story,” Francesca Fenzi shares insight about consumer purchasing practices.  “As a business owner, you probably believe that quality is what drives consumers to buy your product. Certainly, superior execution and customer service go a long way toward making your business a success.”

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One thought on “The Secret to Getting a Green Premium

  1. The “Premium of Green” should translate into enhanced value of the products intrinsics and not in any way translate into a price premium. Of course there are some products where this may not be possible, but in the main, most producers can avoid pushing the premium into pricing.

    One way to achieve this is to “ring fence” the various sustainability initiatives which the organization has identified, before they are launched. The benefit of doing so, is to secure the financial savings brought about by the various initiatives and utilize these savings to fund further initiatives.

    Going Green is about creating efficiencies, seeking out & reducing areas of waste (energy, water, process, time) and these definitely translate into financial savings. By allowing these savings to merely fall to the bottom line to enhance profitability will definitely make Going Green appear to be an add on cost when capex is used, for example fitting of variable speed drives to motors, lighting replacements, costs associated to waste fine sorting, water treatment plants etc.

    When managed holistically and the implementation of sustainable initiatives are geared to the business in an appropriate manner, Going Green should not be about the consumer having to shell out a couple extra bucks.

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