Capturing the Green Advantage

by | May 7, 2009

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bcg-columnistsConsumers around the world talk about the environment as if they were discussing their own backyards (which, of course, they are). But will they continue to care about green issues now that the economy has taken a nosedive?

That’s what companies want to know as they consider their past investments in green strategies and plan for the future. The answer, according to our research, is a resounding “yes.”

Green products and processes not only allay the depletion of natural resources, they can allay the depletion of cash flow for both companies and consumers.

In July 2008, The Boston Consulting Group conducted a global consumer survey to assess green attitudes and shopping behaviors and followed up with “pulse-check” surveys in Europe in October 2008 and in the United States in January 2009. In the October survey, BCG found:

  • More consumers systematically purchased green products in 2008 than in 2007.
  • Although consumers are cutting back on big-ticket items, they are reluctant to cut back on organic foods.
  • Consumers said they are willing to pay a higher price for green products if they are better.

To skeptics, sustainability may appear to be the media’s topic du jour. But being green isn’t just a fad. A big appeal (especially these days) is that green products can offer money savings in addition to the benefits of health and safety. Furthermore, consumers believe that companies can be more effective than private individuals in acting on green issues, including health and safety, and they expect them to do so.

  • Most of the consumers we spoke with consider a store’s green credentials when choosing where to shop—a clear opportunity for savvy retailers.
  • Two-thirds said they would shop more often if a store carried green products.
  • More than two-thirds said they would buy more green products if they were available.

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.

Price Is Not the Obstacle

Many companies believe that higher prices keep consumers from purchasing green products. Our findings show that price is not a significant obstacle for most buyers. In fact, it ranks lower as a barrier to green sales than lack of awareness of green alternatives or a lack of choice.

We asked consumers to rate both the quality of green products in various 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.
  • About 30 percent of consumers are willing to pay more for fresh meats, seafood, produce, and dairy products—and nearly two-thirds perceive green products in those categories to be superior.

Being green is not a license to charge more, however, and 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.

What Does Green Mean?

Producers and sellers of green products need to do a better job of helping consumers understand product claims, providing more information about choices, and better displaying those choices in the store.

Because the industry lacks clear definitions and standards, some companies have been able to make sweeping and unsubstantiated claims about their environmental credentials. That’s caused many consumers to become skeptical about green products and companies to become wary of offering them.

When we asked consumers how they judge whether a product is truly green, most admitted that they rely on product advertisements, although an even greater portion said they are skeptical about advertising claims. Consumers told us they often consult labels, too, even though they don’t always believe them. Only 28 percent said that they understand the differences among various symbols for green certification. And a majority of consumers consider many certification labels to be misleading.

Where Are All the Green Products?

Despite the media attention to green, consumers remain unaware of green options in many categories and believe that the choices are limited when compared with conventional alternatives. They also complain about the “green ghetto” in the supermarket, where a limited assortment of organic products are crowded together in a low-traffic location.

Retailers should reconsider the tradeoff between convenience and price transparency. Most 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 they offer 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.

First Steps Toward a Green Advantage

There’s no doubt that consumers everywhere are increasingly choosing green products, but they are also expecting more from the companies that make and sell them.

The first challenge for green-minded companies is to understand which actions will be most meaningful in their categories and for their customers. Next, they should make those actions 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.

The green movement is about reducing waste and minimizing our impact on the environment. Companies that translate these goals into a holistic approach to offering differentiated green products and bringing down costs across the entire value chain have been rewarded with higher margins and market share.

Joe Manget is a senior partner in the Toronto office of The Boston Consulting Group. Catherine Roche is a partner in the firm’s Düsseldorf office. Felix Münnich is a project leader in BCG’s Munich office. BCG surveyed approximately 9,000 adults, aged 18 to 65, in nine countries through online questionnaires sent to respondents in Canada, France, Germany, Italy, Japan, Spain, the United Kingdom, and the United States.

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