Green strategies offer product makers and retailers a competitive advantage in product differentiation and cost savings. Green initiatives have emerged across nearly all consumer sectors, including automobiles, electronics, durables, energy, health care, packaged goods, and retail. Some players harnessed their “greenness” as a 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 green agenda. It 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.
The Four Ps of Green Advantage Employ a Holistic Approach Across the Value Chain
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Embed green goals into incentives and reporting structures. What gets measured gets done. 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.”
- 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.
- 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.
- 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.
- 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.
- Winning the hearts (and wallets) of green consumers is a wise move for producers and retailers. But going green is not merely a tactic for a single product or a discrete process. Rather, companies should strategically employ green planning, which incorporates green targets and resources into corporate strategy; green processes, which allow companies to practice what they preach; green product offerings; and green promotion and messages.