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The Secret to Getting a Green Premium

The SSC Team August 2, 2016 Tags: , , , Strategic Sustainability Consulting No comments

Enjoy this post from the SSC archives

There has been a lot of talk lately about whether or not customers are willing to pay more for green products. And just like any kind of market research, you can usually find a study to support whatever theory you're currently promoting.  

For example, in August 2013, an article from Sustainable Brands proclaimed, “50% of Global Consumers Willing to Pay More for Socially Responsible Products”. Just a few months earlier, a Harris Interactive poll said that, “78% of U.S. consumers were already buying products specifically because of their social or environmental profile”.

Not so fast. There are a number of articles that argue the opposite -- that consumers are NOT willing to pay a price premium for so-called "green" products. In September 2012, an Advertising Age article noted, “As More Marketers Go Green, Fewer Consumers Willing to Pay For It”. And perhaps most compelling, P&G's CEO flat out declared that, “consumers aren't willing to pay a green premium,” in a video hosted by the Wall Street Journal.

Why the disconnect? Turns out the devil is in the details -- it's the difference between what consumers SAY and what they really DO. Here's an excerpt from No, Consumers Will Not Pay More for Green:

“Consumers will consistently tell surveys that they are willing to pay more for socially and environmentally superior products…A major utility company, for example, surveyed rate payers asking if they would pay a small premium for ‘green electricity.’ The response was overwhelmingly ‘Yes!’ However, when the product was offered, fewer than 5% actually signed up.”

 This leaves companies in a bit of a conundrum. How do you get consumers to pony up extra money for green products? This issue is important for many reasons--innovation can be expensive, and paying better wages for laborers and higher margins for raw materials can seriously impact the profitability of a product or product line. 

So how do you do it? 

The secret might be in how you talk about the sustainability or the "green-ness" of your product or service. It's not enough to spout out key statistics or throw an eco-label on the packaging. New research suggests that it's all in the story. 

In her article, Want to Raise Prices? Tell a Better Story, Francesca Fenzi shares insight about consumer purchasing practices.  “As a business owner, you probably believe that quality is what drives consumers to buy your product. Certainly, superior execution and customer service go a long way toward making your business a success.”

Ty Monague, author of True Story: How to Combine Story and Action to Transform Your Businessbelieves that customers will pay more for a good story.  Take, for example, a 2006 experiment by New York Times magazine columnist, Rob Walker, which tested a hypothesis that stories sold products. Writers were asked to create a story that evoked human interest to accompany a handful of cheap items worth less than $5 each, such as a wooden mallet, a lost hotel key, a plastic banana. He put the objects up for sale on Ebay with the narratives- and was surprised by the results. “On average, the value of the objects rose 2,700 percent,’"wrote Montague. 

Maybe the reason that today's eco-conscious products have trouble commanding a price premium is because their social and environmental stories are communicated poorly--or worse, not at all. Unless the consumer can make a human connection to the story behind the product, it's likely going to remain at a price disadvantage and fighting it out with other traditional products in a competitive marketplace.

So the next time you think about green products--whether you are buying them or selling them--consider whether the story has been crafted in a way to appeal to your values, your history, or your humanity. Are you more willing to shell out a couple extra bucks to be part of that story?  Leave us a comment or join the conversation on Twitter!

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