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The Entrepreneurial Agenda by Robb Mandelbaum
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April 22, 2008
Will Your Customers Pay to Go Green?
Posted at 2:51 PM
Take a simple paradigm: plastic bottles. The cheapest way to make a plastic bottle is to use 100 percent virgin plastic (the worst thing for the environment). If you want a "greener" bottle, you can integrate some recycled content, but with every extra gram of recycled plastic, you will be increasing the price of that bottle (and decreasing its strength). If you wanted to go "uber green," you might use biodegradable plastic -- like Ethos water, which is available at your local Starbucks. That move would result in the most expensive way to make a plastic bottle today.
The trend that this example shows is typical of the dynamic with almost all eco-friendly/organic products today. In other words, the more eco-friendly a product, the higher the cost. This translates, of course, to higher priced products.
Most CEOs of green companies argue passionately that consumers are willing to pay more for green products and that green products should be premium priced. But are they saying this because they have no choice and are just trying to justify a high price? Every time I give a lecture, I ask the audience if they would be willing to pay a penny more on a one dollar product if it were a green version. Typically, only 5 percent of the people raise their hands.
So what is the solution? Should green products be premium priced? If so, is the job of green companies to educate consumers that they should be willing to pay more because it's better for them in the long run?
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I feel that the initial cost to increase green products in the mainstream will be required. But once it becomes the norm, prices of the products produced won't be as high and the environment will benefit as well. At this time, there are many people supporting green businesses, but not enough to consider it mainstream. Businesses should absorb a part of the cost of production in the name of "cost of doing business" so as to make greener alternatives more attractive and to promote the shift.
A segment of the population is very willing to pay for green products. This also extends to green packaging as well, including cloth bags and biodegradable "peanuts". Net-net, consumers love the option -- what not provide it?
Good conversation topic, but a couple points were raised that I think are misleading. First, recycled plastics can give you a material cost savings. The easiest way to make a bottle is from virgin material, but not always the cheapest way. The price of delivered virgin resin vs. recycled flake depends a lot on your geography (ie freight costs will be a significant factor, and good luck finding flake if you aren't in a bottle bill state). If you are packing any food or beverages, you also will be challenged to find FDA compliant recycled plastic. Basically, what I'm saying is that while its certainly not as easy as sourcing virgin, there is hope that switching to recycled source material can save money. Not in all or even most cases, but definitely in some cases...
I also have to argue that the "uber-green" choice is not to use bio-plastics since the system is broken on the upstream side (corn as feedstock means massive monocultures, chemical farming, food vs fuel, etc.) and downstream side (no munical composting infrastructures, and home compostors like me know that bioplastics are harder to break down than egg shells). The "uber-green" choice for most all CPG manufacturers, sadly enough, is to stop making their products, since nearly everyone of them contributes in some way to the wasting of fossil resources and degradation or our air and water. Obviously not a possibility, but the honest to goodness truth right now.
You are not accounting for the "long tail". It may only be necessary to market to that 5%. Most people I know wouldn't pay a heck of a lot more for "green" or "organic" products, but companies like Whole Foods prove that somebody is (and somebody else can profit from it).
My guess is also that those 5 out of a 100 are growing and those companies poised to get their business will profit even more.
I agree that people are more interested in a remarkable product and that being "green" is but one of many factors that even people in that "5" would consider. It would, therefore, be lazy and foolish to have the "build it and they will come" mentality.
I would love to see slightly more "scientific" data on the subject.
I wonder why it always takes a national crisis for anything to ever be done! Always a day late and a dollar short. Thank you Dictator Bush.
JT
http://www.FireMe.to/udi
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