Costing a Green Future

Appliance subsidies, discounts, and tax credits provide cash benefits to consumers who purchase products which consume fewer resources and cause less environmental damage. The government agencies and nonprofits that fund these programs believe that consumers consider cost more important than environmental benefits, so reducing the cost of green products should lead to more sales. A study by Daniel Schwartz and George Loewenstein shows that sometimes, these discounts create the opposite effect, and discourage the purchase of green products.

The study measures two main strategies, adding a green label that proclaims the product’s environmental benefits and offering a price discount. The label increases sales, while the discount actually reduces sales if it appears without the label. The study does not explain why this behavior occurs. One answer may be that environmental advocates commonly promote the green lifestyle as a virtuous effort that hinges on a follower’s self sacrifice, like enrolling in a monastic order.

Altruistic appeal can convince a customer to spend more money for a product that provides few benefits, which may be necessary to market a product such as a bleach free cleaner that performs worse and costs more than a cleaner that contains bleach. The removal of the altruistic theme eliminates the main selling point for the product. This marketing approach also affects the perception of a brand by a customer who does not care about the environment. This customer believes that the product is not a good deal without considering the environmental factor.

These results also suggest that environmentally friendly products, such as compact fluorescent light bulbs, are effectively luxury goods. When customers demand more of a product at a higher price, the product is called a Veblen good. Veblen goods include fine artwork, luxury cars, yachts, and other status symbols that show off a buyer’s wealth, so they are more useful to the buyer when they cost more. The buyer may also believe that the product costs more because it includes better components, so it is a higher quality product.

Discounts may still have some effect on environmentally friendly products. If the discount reduces the environmentally friendly light bulb’s price enough so that a customer gains comparable performance at a lower price than a standard light bulb, a customer who primarily cares about cost still has an incentive to buy it.

The subsidy provider should consider the price of the non-green product when setting the size of the discount. If the green product is $10 and the subsidy reduces its price to $8, but a non-green product costs $5, the subsidy may be a bad idea. If the subsidy reduces the green product’s price to $4, it now has a cost advantage over every other product on the market. The subsidy will greatly improve sales, although the organization that provides the subsidy will incur high costs for that product. Eliminating subsidies for products in the first category may free up more funds to provide subsidies for products in the second category. For a product that does not receive a subsidy, this effect may help the manufacturer determine the proper price for the product.

With traditional media, such as a television show, an advertiser has very few ways of convincing a consumer to help him advertise his product. Humor is typically one of the few effective methods, as a consumer who watches a dancing frog may call his friends over to see the commercial. It is much easier for a Web marketer to offer an incentive to a consumer, because he can give a consumer a cut of the revenue.

The main problem with this advertising method is that the Web marketer usually makes a very small amount of money when the consumer shares his ad, so he can only offer a small reward to the consumer. If the marketer offers the consumer ten cents to watch a minute long commercial and share it with his friends, this deal is not very attractive. This is effectively a pay rate of $6 an hour, and the consumer is giving up part of his free time to help the marketer, so a better incentive is necessary.

One type of incentive is to offer a reward that the consumer does not perceive as cash. Many online games that are free to play use this feature. If a consumer can watch a commercial to get a new dragon slaying sword, an in game sword can appear more attractive than an offline dime. This can be especially effective if other players have used their credit cards to purchase in game advantages, so a consumer who has less disposable income, such as a college student, cannot simply buy the sword with his own bank account.

Marketers have recognized the importance of this concept to green business. Many environmentally beneficial actions are relatively cheap, but they are difficult for a consumer to conveniently perform. For example, planting a tree is easy if you live in a rural area, but it is difficult if you live in a city, even if buying an individual seed costs almost nothing.

Clean Technica reports that this problem has been solved by the web site Click it For Good. Basically, if you help promote a green business, the green business will perform an action such as installing a wind turbine or planting a tree. Another benefit of this method is that a consumer can easily make a fractional contribution. A wind turbine costs more than a dime, of course, but if 100,000 people click on a link, the business now has $10,000 to pay for its turbine.

PESTLE analysis is a marketing planning tool that focuses on the external forces which affect a company. This type of analysis adds the additional factors, environment and law, to the basic PEST analysis which includes political, sociological, economic, and technological factors. Rapid Bi provides some detail about PESTLE and its numerous variations.

PESTLE provides information about the implications of the Gulf Oil spill for British Petroleum, which is responsible for this event, as well as its competitors and all of the other people and organizations along the southern coast of the United States and the eastern coast of Mexico. Politically, this crisis provides a major advantage to environmental groups who wish to reduce the oil consumption of the United States and other developed nations. New offshore oil drilling has already been suspended by President Obama, and this crisis has impressed the risks of petroleum extraction on many people around the world.

Economic factors come into play with the large oil spill. The cleanup costs will be paid by British Petroleum, likely raising the price of oil since the petroleum extractors will budget the likely cleanup costs and other expenses into their sale prices. Additional regulations that restrict the areas that companies can drill in reduce the total amount of oil that can be easily extracted, requiring additional extraction from remote areas and materials where extraction is difficult such as shale oil.

Sociologically, this spill destroyed the reputation of British Petroleum. The company’s greenwashing will not be effective now, and competitors like Shell must prepare for a consumer backlash that can easily effect them. This spill increases the motivation of consumers to buy renewable energy from various sources.

Technologically, the cleanup methods have not been effective at cleaning up the mess. This includes the gigantic concrete containment dome, which does not appear cheap to make. This accident provides much greater motivation for researchers to invent new methods of cleaning up an oil spill, such as bacteria that eat the oil.

Legally, there will be many new restrictions on oil extraction in the future. This might convince the public to support other measures such as carbon taxes and increased restrictions on coal mining, especially when the spill took place soon after the mine collapse disaster. Natural gas may also be restricted because Liquid Natural Gas Terminals provoke concern about explosion risk in coastal communities.

Environmental factors include each of the issues mentioned above. This oil spill is one of the milestone events, and similar disasters such as the sinking of the Exxon Valdez catalyzed the necessity of environmental management for the public and lawmakers. This disaster caused people to recall several other large incidents such as the oil spill off Santa Barbara and the large oil spill in 1979 in the Gulf of Mexico.