Green, Despite the Downturn

Catherine Roche, a partner and managing director in The Boston Consulting Group’s Düsseldorf office, is an author of “Capturing the Green Advantage.” She spoke with MIT Sloan Management Review editor in chief Michael S. Hopkins about what has changed since she conducted the study—and what hasn’t.

Image courtesy of Roche.

Your survey was done in July. Between now and then much has happened. What is different now compared to when you collected the data?

Companies have been shocked by what they’ve seen out in the marketplace. There’s been a major drop off in consumer demand. Now the initial shock and fear is probably starting to settle down a bit and people are coming back to asking: What was our agenda before? What’s still valid? What needs to change?

We think green was on everyone’s radar screen back in September, before the economic crisis took center stage. And the good news is that it won’t disappear in the fallout from the crisis.

For many companies, the focus now is on getting leaner as fast as possible. Let’s make the most out of the resources that we have—which fits in perfectly with the goals of “green.” If nothing else, green is about trying to use our resources more efficiently, stretch them as far as we possibly can and avoid waste. I think companies, at least the way they act internally, are still going to be very much looking for this as a lever for cost savings.

Now in terms of their dialogue with consumers, I think green remains an important message that companies need to keep delivering. Beyond our July survey, BCG also conducted pulse-checks on green sentiment in October 08 for Europe and January 09 for the United States and it’s clear from those findings that green is still something that’s on consumers’ minds…and that they’re regularly factoring it into their shopping behavior.

The one thing companies might emphasize more is the message that green doesn’t have to cost more – for either consumers or companies. You can be green in an affordable way and in a way that’s going to fit into your tightened budgets. Companies that can make that point credibly, and show that they can offer green in a way that’s convenient, won’t cramp a consumer’s style, and won’t hurt a consumer’s budget, are going to do very well from this.

Wal-Mart is a great example. . They have fared well compared to the general retail sector over the last three or four months because their value message is so established and so credible—and its value message on green is also well established and credible. Wal-Mart spoke that way even before the economic crisis began. Now, it’s a message that’s finding strong resonance with consumers.

The leading players on green are saying: “Before the crisis, green was about health and safety, green was about savings, green was about things that are directly beneficial to you—it’s still about that.” Let’s not lose sight of that.

What are the big differences between what you might have been saying to companies six months ago and what you are saying now?

We’re saying essentially the same things, but we nuance it differently. We try to prove to them quite clearly and strongly the business case for green. It’s not only about consumer differentiation; it can also save you a lot of money now—not two or three years from now, but now. Also, it’s more of a motivational spin for your own internal organization to say “we need to save cost, not only for the good of the company but also for the good of future generations.”

A green message motivates a lot more internal energy and brings a lot more enthusiasm, bottom up, than you’d get with ordinary cost-saving messages. When I talk to companies now, I really emphasize the fact that green need not cost the company more and need not cost the consumer more.

I would’ve made that point a year ago, but a lot of companies might not have heard it. They would’ve noted that they can charge price premiums for green. But that is a tougher sell in many categories in this economic environment.

I’d also encourage companies to make sure that they’re clear on the benefit they’re delivering to the consumer and have identified the right price that consumers are willing to pay.

A year ago companies were very interested in starting internal initiatives to move on green. They felt compelled to because their consumers expected them to and they wanted to drive action. And a lot of them implemented new positions in their organizations, such as a “Head of Sustainability.” There was some groundswell of activity. Now there’s a little bit of backing off, with companies saying, “Let’s wait and see, let’s do the urgent things now, fight the fires that we really have to, and we’ll come back to it.” There are still things being done, but it’s harder to get a CEO’s immediate attention.

You said companies see green as a lever for cost savings, but do consumers see it that way?

Yes they do. When we ask people to identify their most regular green behaviors, the ones at the top of the list have a clear “saves-me-money” benefit. We get answers like “I’m going to use energy efficient light bulbs” and “I’m going to turn off the lights in my house when I go out.” and “I’m going to bring my own bags to the grocery store.” and “I’m going to try to cut down on driving and watch my gas consumption.”
Consumers say they can do these things fairly conveniently, that it doesn’t really cramp their lifestyles, and it has a clear bottom-line benefit for them. Consumers have definitely caught on.

With all that’s happened in the economy, are there any ideas in the study that you wish you could have pursued more?

CEOs are wrestling with the question of how much to communicate. “Do I risk being accused of “greenwashing”? “How bold should I be?” “How do I back up my message to make it feel meaty enough and real enough?” They want to get more credit for what we’re doing, but on the flip side they’re afraid to make too many promises.

Afraid of what?

Afraid of backlash. Afraid of somebody saying, “You’re saying you’re doing all this great stuff on green, but we just researched what you’re doing elsewhere. Your factory in Malaysia still has some questionable labor practices and the two things don’t hang together. You’re inconsistent, less than sincere.”

That risk leads a lot of senior executives to say, “I’m interested in green and I’m pursuing it, but I’m doing it in a very under-the-radar way. I don’t want to talk about it in the media because I’m too worried about backlash.”

Speaking as a media member I’m happy to hear that. We have seen, it’s safe to say, over the last year an explosion of sort of green PR for companies. It’s become very difficult to parse it enough to know what is substantive and what of it is not.

Exactly. Consumers can be skeptical, wary of trusting a company. Our research shows a high instance of consumers saying “it’s important for me to get information and I need guidance,”. But trust of retailers and manufacturers to provide that information is very low.

Georges Kern of IWC Schaffhausen says the most important thing about green is the internal benefit he gets at his company. What sort of HR advantages emerge from adopting a greener product and service strategy?

We’ve seen that motivational benefit cited elsewhere, too. Several companies cite statistics that their employees are prouder to work with them because of major environmental initiatives and commitments.

Many have introduced employee suggestion programs around green to pull in many new ideas for cost savings that the company wouldn’t have thought about otherwise.

Some even go much further—for example letting their employees take short leaves from work for personal green initiatives, and they even provide some funding for that. Such efforts can produce satisfaction levels among employees that are outstandingly high.

You make much in the report about the need to educate consumers. How do you imagine that education process will unfold?

We were looking at it from the standpoint of retail, asking why so many consumers who would be interested in green products don’t buy them. We found there were two main obstacles—and surprisingly price was not one of them. First, it’s awareness. Consumers don’t know that there are green alternatives in many categories. They don’t know the benefit. Second, it’s perceived lack of choice. There’s a perception that if I buy green I’m going to be limited to a product from a separate section in the store that might not be as effective as the conventional alternative.

Retailers and manufacturers both have some burden to bear on that front. Retailers need to communicate choice and give consumers a sense of why green matters in this category. They must also figure out what to communicate to consumers both when they are in the store and before they get there.

There’s also a lot that manufacturers need to do about communicating on the product itself. What’s it about? What’s in it for the purchaser? And manufacturers need to work with retailers on independent standards that consumers can trust and rely on to really tell them if something is in fact green and can live up to its product claims.

Standard-setting is a big issue. There are many standards around “green” out there now, and for the most part they don’t mean much. They aren’t closely regulated unless there’s a lawsuit and some specific complaints, like there has been in the beauty industry as well as other areas.

So who is going to set the standard? Industry? In many cases they should be the ones that are lobbying for standards and proactively shaping them, but will consumers trust them? Consumers have told us they’re looking for independent third-party standards to overcome the trust issues.

Although there is much uncertainty about standards, it’s a huge opportunity for companies that can get out ahead of it and nail it. Early movers will have more of an opportunity to affect the way those standards are formed. Companies that wait might find themselves left behind.

Imagine you’re talking to a CEO who can’t hire you, for the sake of argument, and you’re going to give some advice about just a first move. What’s the first thing you ask executives to do, when you go in and actually begin an engagement or for that matter if you’re just going to throw some advice over the wall so they make some moves on their own?

It depends on where they are starting from. For companies at the average level of competence around green—they’ve got some stuff going on but it’s not tightly organized—the first thing they need to get a grip on is where they are vis-à-vis their competition and customers. What’s going on? How do they stack up?

When it comes to green, many companies don’t know what’s happening in their own companies. We’ve often found that things happen in bottom-up ways, driven by employees’ good intentions. They start happening over in operations and procurement and logistics, on the marketing side in product development, but there’s nobody standing over it all and figuring out how it adds up to a consistent strategy that will make sense to the consumer. Companies really need to see how all of these things come together, which issues are worth prioritizing and putting money against, and which ones are going to be most important.

Related to that, companies need to be clear on their aspirations for green. What kind of green do you want to be? Do you want to be a leader in this topic space, a company that’s very active and aggressive and vocal about its green initiatives, or rather more subtle and “under the radar”? Do you want to be with the pack? Ahead of it? Behind it? What kind of compromises are you willing to make in your business model to make it happen?

Companies need to know where they are, what they’re doing and how that stacks up against the competition. They need to know where their weaknesses are. And then, after the senior leadership is engaged and talking about where they want to go on green, companies can put together a credible pathway to get there.

In the report, you note that the planning is critical. Many companies are grappling with green and don’t yet have a coherent strategy.

To get the ship sailing, you really need to know in which direction you’re going. Then you can organize for it, put some targets down, and build a clear view on how you might actually meet them. That’s much more effective than making a bold statement like “we’re going to be carbon neutral by year X,” when no one in your organization knows the plan to get there.

When we start conversations with our clients on what pushing “green” to the next level could be worth to their organizations, CEOs pay attention. They’re saying “What? They’ve been managing to get that kind of logistics or store operations savings? We should be getting that and more…” But it requires getting the numbers and facts on the table in order to size the prize.