What does it cost for a manufacturer to deliver a more sustainable product or package to our retail store shelf and what should the resulting price be to us as consumers?
There is a perception that going green increases a manufacturer's cost, but does it really? We have found that the answer is, not usually, especially if it is done correctly. There is also an equally inaccurate idea out there that we as consumers are willing and perhaps even eager to pay a premium for a more sustainable product or package. As a consumer who happens to be in the packaging business, the answer is definitely not, unless the higher price is truly necessary and justified.
These perceptions open the door for Consumer Packaged Goods (CPG) manufacturers to quietly raise prices. Today I confirmed what I already suspected. While doing something positive for the environment, going green has become an opportunity for manufacturers to improve the profitability of a mature and perhaps less profitable product.
'Cleaning up' in the Detergent Aisle
Being the well trained husband that I am, I made my trip to the nearby big-box retail store, knowing the laundry detergent my wife wanted me to buy and what I should pay for it. I headed straight for the detergent aisle and immediately saw the 200-ounce bottle that we usually buy and the brand new, concentrated version, bragging about its increased strength and the fact that only one half of the usual amount was now needed.
"That's great," I thought, knowing enough about packaging to appreciate the fact that the new version's design meant:
- overall less packaging
- substantially less plastic resin used
- reduced corrugated usage
- lower inbound material and outbound finished product shipping costs
- a smaller carbon footprint
Then I took a closer look at the numbers that were NOT in big, bright, bold print.
Reformulating, Resizing and Best of All … Re-pricing
The 200-ounce bottle, which sells for $9.99, promised it was good for 64 loads. The new 100-ounce bottle, the one that was double strength so only half the usual amount was now needed, also sells for $9.99 -- but promised only 52 loads.
The bottom line for my sustainable purchase? A load of laundry which used to cost my family 13.2 cents in detergent now, thanks to the new sustainable design, will cost 15.6 cents per load. That, my co-consumer friends, amounts to a price increase of 18.2 percent -- a splendid windfall for the manufacturer by any standard.
Of course, these calculations do not even take into account that we are all creatures of habit. No doubt, the manufacturer realized and even projected that most of their customers would use more than the recommended "half" of their more expensive product, despite the new concentrated formulation and labeling. Hmmm ... sell the consumer more product at a substantially higher profit margin? You've got to love this sustainability. And incidentally, the big-box store where I shop, the one that took credit publicly for driving the package design change, isn't complaining about the windfall, probably because they are participating in it.
Justice or Justification?
If confronted, I am sure this unnamed manufacturer of laundry detergent would justify the higher price by citing higher than anticipated conversion costs, retooling charges, a need to recoup their sustainability investment, and the cost of building public awareness.
Sorry, Mr. CPG Manufacturer, we know this change lowered your costs substantially, not increased them. Certainly there were some temporary conversion costs for this well publicized and applauded change but for a manufacturer of your size, and the sales volume of this product, your ROI will probably be measured in weeks or months, not in years.
Do you really want to improve your public image? How about announcing that because of the difficult economic times many families are currently experiencing, you are going to make these terrific eco-driven changes plus reduce the price of your product by 10 percent? Wouldn't that look great as a headline on CNN, Fox and every other news outlet? I am willing to bet that profits would increase anyway. Why? Because your good deeds would attract new customers in droves and keep current customers with you longer -- quite possibly forever.
Wall Street -- The Motive and the Movie
I spent 12 years of my packaging career working for a publicly traded, multi-billion dollar corporation, so I understand why increasing shareholder value and enhancing profit margins may drive many of these sustainable changes and decisions. But manufacturers and their shareholders need to learn that moving to more sustainable packaging can and should be immensely profitable without an accompanying, unjustified price increase.
Consumer, beware: Don’t pay a premium for any product simply because it or its packaging is sustainable. Examine the numbers and insist that the manufacturers pass the sustainable savings on to you.
Small and mid-size manufacturer, beware: There is much to be learned -- good and bad -- from the CPG giants about how to develop and promote sustainable products and packaging. Above all, it is essential to think strategically about sustainability, in terms of both product development and pricing.
Anyone who has ever seen the 1987 film "Wall Street" will never forget the classic line spewed out by the evil Gordon Gekko: "Green is good." Or was it Greed Is Good? I hope in this new sustainable world, the two words are not becoming synonymous.
Dennis Salazar is the president of Salazar Packaging Inc., a certified MBE (Minority Business Enterprise) company specializing in flexible packaging products, equipment and sustainable packaging solutions. A slightly different version of this essay originally appeared on SustainableIsGood.
