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How do you put a price tag on green products?

On my recent trip to Costa Rica, I visited the production facility of a certified organic and sustainable pineapple plantation, a Dole supplier, as it turned out. At the end of the visit, I was escorted into a cooling hall where one of the plant managers proudly pointed me to neatly stacked boxes containing the freshly plugged fruits, classified by size and quality, of course. My gazing at the unusual sight was quickly interrupted by the plant manager’s question to me: "You know how the consumer can tell that these pineapples are organic, right?" They looked perfect to me but that was not a good enough answer. "Look at their colour. They are green. Organic pineapples are green".

 

The question that immediately jumped to my mind was how much of a premium consumers in EU and US economies (the pineapples’ final destinations), including myself, are willing to pay for such ’green’ products.

 

Having returned to my desk in London, I was reminded of my unanswered question when I came across the results of a recent US study published by OgilvyEarth, the sustainability-focused communications arm of the Ogilvy empire. The study revealed that of the 86% of US respondents who said that they have green intentions, only 16% are fully acting on them. The research further suggested that the way in which sustainable products and services have been marketed has actually contributed to the problem. In fact, price came up as the number one obstacle to taking green action across respondent groups.

 

How can this gap between peoples’ intentions and actual actions be explained? Some green products, such as home cleaning products or hybrid cars, can carry a price premium of as much as 100% on conventional alternatives. This evidently places such products out of reach of the mainstream consumer. But there also is a psychological barrier; higher prices send the signal that the product is for rich people, and as such, the green choice does not feel normal.

 

Green procurement should not fail on pricing. Instead, organisations need to become smarter about how they pass on premiums down the supply chain. OgilvyEarth suggests one possible scenario: a laundry detergent maker produces an eco-friendly detergent that for now, is more expensive to make than its standard laundry detergent. Instead of basing shelf prices on manufacturing costs, the company could price its eco-friendly laundry detergent the same as its standard laundry brand. This pricing strategy might make it easier for consumers to follow through with making the more sustainable choice.

 

Such a scenario could give procurement, marketing and all pricing experts a headache, but if it proved to work, it could be a significant breakthrough for sustainable products and the supply chains that produce them. One thing is for sure: no supply chain can absorb the premium that comes with sustainability in the long term. Something has to give. Some companies may decide to raise shelf prices incrementally to avoid the shock factor, some will re-engineer production processes, others will collaborate with their suppliers to bring prices down. The list goes on. There may not be a one-size-fits-all approach, but nonetheless, developing the right marketing strategy around sustainability can go a long way.

Maggie Slowik
Posted by Maggie Slowik