Charge Less, Sell More: How to Price Green Products
Charge Less, Sell More: How to Price Green Products
Price is the number one reason more Americans are not going green, according to OgilvyEarth’s recently published study, "Mainstream Green: Moving Sustainability from Niche to Normal."
At first we at OglivyEarth weren’t too surprised by this finding; years of consumer research have taught us that consumers will always claim price is the biggest barrier to purchase, but the picture is usually more complicated than that. However, as we dug deeper into the green gap — the gap between people’s stated intentions and their actual actions when it comes to living and purchasing sustainably — we realized that in this case, price really is a major barrier to a mainstream green movement in the U.S. for a whole host of reasons.
Our study looked at the green gap across the U.S. population and found that, of the 82 percent of Americans who say they have good green intentions, only 16 percent are fully acting on them. The other 66 percent, the Middle Green, otherwise known as the mainstream consumer, is failing to convert their intention to action. We set out to understand what was keeping the gap propped open and how we might begin to close it.
We found that some of the ways we’ve been marketing sustainable products and services have not just been ineffective, they've actually contributed to the problem. Pricing these items at a premium and often positioning them as premium products is a very important example of this.
Price came up as the number one barrier to taking more green actions across our respondent groups. There is a very rational dimension to this. Some eco products, home cleaning products for example, can carry a price premium as high as 100 percent over the conventional alternatives. The premiums apply whether you are talking about cleaning products, jeans or hybrid cars. At the most basic level, this may simply put these products out of reach of the mainstream consumer.
Bear in mind Walmart shoppers have an average of $65 a week to spend on groceries for their families. If you are trying to work within a $65 budget, there's just no way you make that kind of premium work, however much you might want to. Plus, the greener products are tainted by a history of poor performance, so we're asking consumers who can't afford it to pay more for products they may feel are of lesser quality. Then layer in the guilt; we make consumers feel really guilty about not choosing the green option. So now we've made customers feel bad for not buying a sub-par product they can't afford. This is not a great consumer proposition.
Then there's the psychological barrier; high price sends the signal that this product is for rich people, not for you. Our study found that 50 percent of Americans think green products and services target "rich elitist snobs" or "crunchy granola hippies" rather than people like them. In the study we heard the critical importance of social norms to driving behavior. Right now the green choices don't feel normal. A premium price compounds the perception that these products are different somehow, not normal, not for the mainstream. So psychologically price props the gap wide open.
But there’s more. In the report, we describe the price premium as a de facto sustainability tax that manufacturers are levying on the consumer. Think about the signal it sends: Typically we tax a behavior we want to penalize and discourage — smoking, drinking — and offer tax breaks on things we want to encourage — mortgage interest, for example. Sin tax is one thing, but why in this case are we asking consumers to pay a tax for their virtuous behavior?
The high prices of many of the greener products on store shelves suggest that we are trying to limit or discourage more sustainable choices. More generous government subsidies for carbon-intensive coal and oil than for clean solar and wind energy offer the same impression.
We need to kill the sustainability tax. Eliminating the price barrier puts these products within the reach of more people. It eliminates the notion that these products are not for normal citizens. And it removes the disincentive to action a tax implies.
We are waiting for brave companies to do some creative pricing in the short term to tear down the price premiums put on these greener products. Imagine this scenario: A company making laundry detergent has one eco-friendly detergent that, for now, is more expensive to manufacture than their standard laundry detergent, which costs less to make but costs more to the environment. Instead of basing their shelf price on their manufacturing costs, they price their eco-friendly laundry detergent at the same price as their standard laundry detergent. Their standard product may have to come up in price for their eco-friendly product to come down in price, but to the consumer the prices have been normalized, making the more sustainable choice easier to make.
This could give the pricing experts and accountants a huge headache, but if it could be pulled off, it would signal to consumers a real commitment for driving positive behavior change and create a virtuous default option. Ford recently did an industry-first by pricing their Lincoln MKZ Hybrid as the same price as the gas version, and their hybrid option take rates skyrocketed. We need more of this.
And while we’re killing the sustainability tax, can we please also kill the headlines which read like "Consumers Willing to Pay Up to 65% for Greener Products and Services, Report Finds?" Regardless of what they might say in research, in most cases mainstream consumers either will not or cannot pay more for that greener option, nor should they have to.
We need to stop thinking of green as a value add and start thinking of it as simply normal, a key dimension of modern products and a right for every shopper. How we price these products reveals how we think of them and influences how the consumer will think of them. If we want green to be mainstream and normal, the price must be normal too.
Cleaning products - CC license by adrina.richards/Flickr