Consumers 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 the world over 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, We 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.
- When asked in which product categories they are willing to trade up, consumers ranked organic foods 20 on a list of 108 product categories (up from 43 in 2006).
- 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. Most interesting, its attraction for consumers can have little to do with concerns about 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.
Customers expect companies to take the lead on green
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. Yet when we asked consumers what they were doing for the environment, the most popular actions were also budget-conscious ones:
- Turning off home electronics when not in use
- Recycling or reusing products
- Using less water
- Using energy-efficient appliances and light bulbs
In contrast, consumers were not nearly as likely to lay claim to more costly actions, such as buying a hybrid car.
Companies also have dual motives. The good a company does for the environment must also do good for its bottom line—whether in reducing costs or attracting more customers with green products. The expansion of green consciousness around the world makes the business case for green a compelling one, especially in a tough market.
- 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 of survey participants said they would shop more often at a store if it carried green products
- More than two-thirds said they would buy more green products if they were available.
Awareness and Choice
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. (See “Awareness and Choice.“) In fact, it ranks lower as a barrier to green sales than lack of awareness of green alternatives or a lack of choice.
Yet consumers’ willingness to pay more depends on a product’s category and perceived benefits. To explore this further, we grouped products into five categories according to how consumers use them:
- Ingestible, such as foods, beverages, and over-the-counter drugs
- Products applied to the body, such as lotions, cleansers, and creams
- Wearable products, such as apparel and shoes
- Plug-in products, such as appliances and electronics
- Disposable products, such as paper and plastic products and household cleaners
We asked consumers to rate both the quality of green products in these 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. (See “Product Category and Perceived Benefits.”)
Product Category and Perceived Benefits
Willingness to pay a price premium is also fairly high in the plug-in-products category, where the money-saving benefit is also a powerful motivator. But the results were somewhat different in the disposable-products category. Here consumers are accustomed to green alternatives and have come to expect green attributes as a given.
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.
Businesses challenges to satisfying the green consumer
Producers and sellers of green products need to a better job of helping consumers understand product claims, providing more information about choices available, and better displaying those choices in the store.
What does “green” mean?
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. Nearly all the consumers in our survey reported being confused when shopping for green products and uncertain about exactly what being green means, what benefits it provides, and how to tell if a product is green. In fact, when presented with a list of 13 sources of information about green products, most of the survey participants ranked independent consumer reports as the most credible source, followed by academic and scientific publications, family and friends, and nongovernmental organizations (NGOs) and public-interest groups. Manufacturers were ranked eighth, and retailers were even closer to the bottom of the list.
USDA Labels for Organic Foods
When organic products began to hit the shelves in the 1970s—and for several years thereafter—the efforts of government agencies and NGOs in the United States to certify them created chaos. Both private organizations and individual state governments began to generate their own standards, resulting in overlapping standards as well as countless arguments among labeling agencies about how to certify products containing multiple ingredients.
Those varying and conflicting claims forced industry players that wanted access to foreign markets to take on either the costs of private accreditation or the equally steep costs of having their overseas shipments certified one at a time. Finally, the U.S. Department of Agriculture (USDA), with participation from several retailers (including Whole Foods Market) came to the rescue with a single USDA label for all organic foods. The USDA program set standards for organic farming and handling, and its seal may be used only on agricultural products that are between 95 and 100 percent organic (there are penalties for misuse). So far, 10,000 companies participate in the program and 25,000 products have been certified.
Yet when we asked consumers how they judge whether a product is truly green, one-half to three-quarters of respondents 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.
As the “Awareness and Choice” graphic shows, lack of awareness and information about green product offerings seem to be the major reasons why consumers don’t purchase green products. When we asked survey participants who said they don’t shop regularly for green products why they don’t, lack of choice (“I’m not satisfied with the range of green product offerings”) and relevance (“I don’t think green issues are relevant in this product category”) were the next most commonly cited reasons for not shopping green. Price (“green products are too expensive”) ranked below those factors as a barrier to green shopping.
Partnering with NGOs
Unilever provides a good example of partnering for green action. At one time, the company produced a brand of packaged frozen fish, but because overfishing had led to a serious decline of its fishing stock in the 1990s, it feared for the future of its fishing business. In response, Unilever worked with the World Wildlife Fund (WWF) to create the Marine Stewardship Council (MSC), which established what has become the leading global standard for certifying wild-capture fisheries. To be certified to the MSC standard, fisheries must prove that they do not overfish their stocks, that their fishing practices do not damage the marine ecosystem, and that they have strong management systems in place to ensure compliance.
Initially a WWF project that was jointly funded by Unilever, the MSC became a completely independent nonprofit in 1999. Today the organization certifies 7 percent of the world’s edible wild-caught fish. Many other companies including Metro, Whole Good Markets, Sainsbury’s, and Wal-Mart, have started sourcing from MSC-certified fisheries.
We estimate that companies lose, on average, nearly 20 percent of potential purchasers when consumers aren’t adequately informed about their green-product offerings. Some companies are rising to this challenge by improving their advertising of green products and striving to earn consumers’ trust in their green credentials. One popular strategy is to partner with respected NGOs and government agencies for the purpose of solving an environmental problem. Not only are such partnerships likely to have a greater impact than efforts undertaken by companies on their own, but the company also benefits from the associated publicity and goodwill while avoiding claims of greenwashing.
First steps toward capturing the green advantage
Successful Green Transformation:
The Four Ps
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.
About the authors
Joe Manget is a senior partner and managing director in the Toronto office of The Boston Consulting Group. Catherine Roche is a partner and managing director in the firm’s Dusseldorf office. Felix Münnich is project leader in BCG’s Munich office
