It ain’t what you do it’s the way that you do it – that’s what gets results
For a long time misperceived as just a passing trend, the active choice and purchasing of green products by consumers is today not only a reality but also one that is gathering great pace. Manufacturers have responded in part to this rising demand for eco-friendly goods and services from a marketing and production perspective, but are there not further ways in which they can keep green consumers happy and make financial gains at the same time?
The desire for and purchasing of green products and services can no longer be deemed a new phenomenon – recycled paper, unleaded petrol and bio food products are amongst those to have become so “commonplace” that we know longer pose the question as to how they came into being in the first place. The demand was identified and manufacturers responded accordingly. However, for some time consumer demand for eco-friendly options was undermined as a passing fad and then viewed as something of an expensive luxury. The difference now, though, is that more and more consumers are prepared to put their hands in their pockets and pay that little bit extra for such products. In the case of Europe alone, over the period 2005-2008 the number of people who declared their intention to “buy green” regardless of price difference jumped from 31% to 75%. So why are some firms still a little fearful of offering a green option of their existing products and services?
The cost implications of “green demand”
The most obvious areas in which green product manufacturing has effects are at the very beginning and end of the whole process – the raw materials put in and the finished article. Invariably, the former will come at a higher price, while the latter will be sold at a higher one. However, the re-percussions go deeper than that. From a marketing perspective, one is no longer targeting exactly the same consumer group, so the message needs to be adapted. Whilst image should not be everything, for a manufacturer to be perceived as being environmentally-friendly, it will need to seriously re-think not only its product marketing but also its self-marketing.
In terms of research and development, the consequences are enormous too and the same applies at the rather less glamorous but just as essential legislative level – the successful launch of green products requires certification, an official rubber-stamping of a product that legitimises the marketing approach adopted and, green fingers crossed, helps boost sales of the product.
The fear that all the above generates in companies is cost or, more to the point, if I successfully launch a product that proves popular, how am I going to cover all the extra costs generated during the process or, better still, raise my profits? The answer potentially lies in the process.
Process and procedure are no longer dirty words!
To test the theory that the cost effect of green product manufacture can be offset by improving the logistical process, two scenario could be considered – the company that launches just one product, the success of which depends upon consumer demand for greenness; and the company that performs market segmentation and consequently offers different products with different levels of greenness to different consumers.
Logically, one would expect the latter case to be the more expensive. However, the green supply chain offers a number of opportunities for companies to optimise the manufacturing process to such an extent that the multi-product offer could just become the more financially viable one in the long run. The ever-present danger with the former case is the potential loss of customers due to a loss of control over differing demands – green or not green. In that instance, the company is at the mercy of the consumer, rather than listening to its consumers and making an adapted offer.
When red tape becomes green tape
For a company that is serious about doing green business, one of the first hurdles to overcome is legislation – from emissions thresholds, potential taxes and penalties through to output allowances, they have to make sure they do the job properly. The final product is not the be-all-and-end-all. The process is crucial. Re-cycling, re-manufacturing, transportation and carbon emissions all need to be taken into account. Also, from an internal strategic perspective, the company needs to buy into the entire green concept, not just via a marketing slogan but also in terms of policy-making and supply chain decisions.
The shoots of recovery
Certain situations have not changed in recent years – for many companies, the scope of their environmental policy will be dictated by its ramifications on the cost of the final product or service and how risk-averse they are as a result. However, there is now a clearly discernible market sensitivity to eco-friendly consumer goods, a fast-growing phenomenon that more than helps companies offset some of the extra manufacturing, marketing and research costs that they will incur as they will be able to set prices higher than the equivalent, less green products. In addition, many consumers actually want to demonstrate “green awareness” by actively choosing more expensive but more environmentally-respectful products over cheaper alternatives. This change in attitude, along with the new internal processes that they will have to adopt, should not be overlooked by companies in the process of sowing the seeds of an environmental policy but who are unsure of how long it will take them to recover the extra costs involved.
However, within all this green positivity, let’s be very honest – times are currently pretty hard for a lot of people and buying green represents an extra investment some cannot afford. That said, the current financial context provides an extra, compelling argument for market segmentation, a broader and more customer-oriented offer and a logistical as well as customer and product-based approach to manufacturing. A more flexible, customised approach as recommended above might just help businesses at a time when “growth” seems more of a concept than a reality.
This article draws inspiration from the paper Optimization of manufacturing systems under environmental considerations for a greenness-dependent demand, written by Imen Nouira, Yannick Frein and Atidel B. Hadj-Alouane and published in Int. J. Production Economics 150 – 2014.
Imen Nouira – ESC Rennes School of Business, France
Yannick Frein – Grenoble-INP, UJF-Grenoble 1, France
Atidel B. Hadj-Alouane – Université de Tunis El Manar, Ecole Nationale d’Ingénieurs de Tunis, Tunisia
Imen Nouria is an Assistant Professor at ESC Rennes School of Business, France. Her areas of research interest include purchasing and supply chain management.