The environmental movement: a status report and implications for pricing.

The last three decades have increased public awareness of environmental issues. The environmental awareness or "green" movement has prompted many industries to consider more environmentally sound ways of conducting business (Castro, 1990). These methods attempt to follow the three R's of reduce,

To date, most of the attempts at capitalizing on the green movement have been focused on recycled products and environmentally friendly consumer products and packaging (Peattie and Ratnayaka, 1992). Many companies have looked to these as potential premium-priced goods, but have found the market to be less receptive than expected (Wasik, 1992). This paper examines the relationship between pricing strategies and consumer perceptions of environmentally friendly or "green" products, focusing primarily on recycled products marketed to consumers.

The Environmental Movement

Over the last several years, new regulations have become effective that encourage industry to follow more environmentally sound practices. Areas that have gained substantial consumer interest are product recycling and packaging reduction. Some advocacy groups are pressuring Congress to force every community to recycle 50% of its trash and to restrict other options such as burning trash for fuel (Franke, 1992). Industry self-regulation has also resulted from the environmental movement. For example, the plastics industry has set a goal to recycle 25% of all plastics by 1995 (Naude, 1992).

Because of the environmental movement, some cities are implementing recycling plans by adopting mandates to reduce waste and reuse materials where possible and to purchase recycled materials (Sudol, 1992). Some cities have established financial incentives for recycling. One method is to use a garbage collection fee based on the quantity of garbage while also providing curbside collection of recyclable materials. Customers can then decide if they wish to recycle or discard their trash (Word, et al., 1992).

Effects of the Environmental Movement on Industry

The environmental movement has had significant effects on businesses in the U.S. and around the world. Environmental marketing will be an integral part of corporate life in the 1990s, affecting everything from product and packaging to positioning and promotion (Vandermerwe and Oliff, 1990). Environmental marketing has been elevated to a major element of the marketing mix (Coddington, 1990). Procter & Gamble, Unilever, and Coca-Cola were all early entrants into the environmental movement (Wasik, 1992). Despite good intentions and early customer acceptance, they and other producers are finding that the customer concerns about the environment tend to change over time (Schlossberg, 1992). As attitudes change, so do levels of acceptance for certain types of products and packaging. Wal-Mart has established an in-store labeling program for environmentally friendly products based on early research of customer attitudes. The lack of customer attention once the program was implemented, however, has led Wal-Mart to lower the program's priority (Wasik, 1992). This seems to indicate some disparity between customer attitudes and behavior and should be a cause of concern for marketers.

On an international level, companies and countries can use environmental regulations and recycling as a means of gaining economic advantage. In one example, Germany has created a legal obligation that is expected to be phased in during 1993 and 1994 requiring companies to take back their packaging and recycle it. This has been developed into an effective form of market protection. For some years, German car markers have been working to produce a recyclable car. When Germany introduces legislation to compel companies to take back and recycle their cars, German manufacturers will be able to do so. If other countries' auto manufacturers cannot follow suit, local procedures will have a competitive advantage (Enslow, 1992).

Consumer Support of the Green Movement

The belief that environmental responsibility is now a corporate function is based on research indicating that consumers want such changes and will theoretically repay industry investments by accepting higher prices. In a survey by Dagnoli (1990), 82% of the respondents claimed to have changed their purchasing decisions because of environmental concerns. Seventy-seven percent of those surveyed also reported that a company's environmental reputation influenced their choice of brands. Environmentalism is enough of a concern that 78% of the respondents said they would switch to an environmental container if it were priced 5% higher than a less-environmentally friendly container. Another 47% said they would pay as much as 15% more for environmental packaging.

Businesses currently involved with the environmental movement have noticed the increasing number of markets influenced by environmentally concerned consumers, and naturally are hoping this trend can boost their companies' long run profits. Proactive companies are attempting to take leadership roles in the area of environmentally friendly products in order to gain a competitive advantage (Smyth, 1991).

* The Green Consumer

To profit from the environmental movement, companies must recognize their potential customers. Schwartz and Miller (1991) have identified five behavioral segments of American consumers based on their environmentally friendly behaviors. These behaviors include the purchase of biodegradable items, the purchase of products made from or packaged in recycled materials, the practice of recycling household packaging, and the contribution of money to environmental groups. The five consumer groups are (1) True-Blue Greens, (2) Greenback Greens, (3) Sprouts, (4) Grousers, and (5) Basic Browns. The basic demographics of these groups are:

Of the groups listed, the True-Blue Greens are those individuals most dedicated to the environmental movement. They are likely to inspire and support environmental legislation and they make up a small but vocal part of the total population. True-Blue Greens tend to participate in environmental projects, contribute to environmental support groups, and be active in government legislation. They are the oldest of the groups with a median age of 44.

The Greenback Greens are environmentally concerned, but typically not willing to sacrifice convenience or time. This group is most likely to pay more for green products or packaging (up to 20% more). The Sprouts tend to be uncertain about environmental products. They have an interest, but are not sure about the trade-offs between environmental protection and economic development. The Sprouts account for a significant portion of the population and is considered a significant swing group by managers and marketers.

The Grousers and the Basic Browns are the non-environmental groups. The Grousers tend to be environmentally indifferent. The Basic Browns believe it is not their problem, and that their contributions would be insignificant. Either of these groups will only purchase environmentally friendly products when they are perceived as the best price or quality alternative (Schwartz and Miller, 1991).

[TABULAR DATA OMITTED]

Market Results of Recycled Products

For some companies, environmental marketing has become a primary marketing tool. Although much confusion still exists concerning the specifics of green marketing, one thing that has been learned is that consumers will not always pay more for green products (Winski, 1991). Despite consumer claims to the contrary, the initial sales of environmentally friendly products and packaging have been slow (Reitmann, 1992). Recent trends indicate a lack of willing-ness to actually pay premium prices for such products (Wasik, 1992). The fact that European consumers have continued to support corporate environmental efforts has prompted U.S. companies to expect the same at home (Reitmann, 1992). Nevertheless, more U.S. consumers than expected have placed a greater priority on economic interests than environmental interests (Hume, 1991).

One problem affecting the green movement is that the technology and reclamation infrastructure for recyclable materials has not kept pace with product demand (Bowtell 1991, Kemelor 1992). Early attempts at expanding the number of commonly recycled materials met with overwhelming success from consumers. This led to an overabundance of many recyclable materials and drove down the price of returned waste. Material recovery facilities have never gained a strong financial foothold, and the ability to expand their operations has been slow in developing (Naude, 1992). This has resulted in increased inconvenience for consumer efforts at returning recyclable materials and an overall decline in interest.

* Consumer Perceptions of Price

Consumers have found that recycled materials often cost more than their virgin produced counterparts (Moore, 1992). Dagnoli's (1990) research in potential buyer behavior revealed that most respondents claimed they would willingly pay 5% more for environmentally friendly products or containers. However, this roughly coincides with research by Kalwani and Yim (1992), who found that most consumers have a range of price indifference (about 5%) surrounding the products they purchase. It is possible that the reported willingness to pay more for environmentally friendly products is based simply on a range of prices that customers feel fair for a product. The lack of consumer interest may be strongly related to consumer perceptions of price and quality of environmentally friendly products (Reitman 1992, Wasik 1992).

The Green Movement -- Trend or Fad?

Because of the slow initial progress of green products and packaging, many marketers and manufacturers are cautioned about changing their product processes to accommodate the new consumer market. Manufacturers do not want to invest in this area without being sure that the green movement is a trend and not a fad (Schlossberg, 1990). While the recession of the early 1990s made consumers more price conscious, most consumer groups indicate that the environment is considered a serious issue that will not fade away (Lynn, 1991).

Continued legislative pressures are also a strong indicator that the green movement is more than a fad. As environmental laws are enacted, companies will be forced to reexamine the way they conduct business. Polls show that individuals view pollution and environmental issues as serious problems (Wasik, 1992), and environmental interest groups are pressuring representatives in government for continued legislative reform (Casey, 1992). Government and industry are rated lowest of the groups responsible for safeguarding the environment, while environmentalists are seen as protectors (Ottman, 1992). This view of government may be subject to change, however, given the reported importance placed on the environment by the Clinton administration. In the meantime, consumer opinions are forcing industry to act more responsibly. For example, several retailers have established guidelines regarding the types of packaging they are willing to accept (Casey, 1992).

Aluminum product recovery is a good example of a successful recycling program. Aluminum scrap recovery accounts for about 30% of all new aluminum products produced in the U.S. (Ambrosia, 1992). The primary reason for the success of aluminum recycling is that it is cost-effective. The promise of a substantial return encouraged the aluminum industry to invest heavily in reclamation infrastructure.

For many products, there has been technological progress in recent years in the areas of recycling. Despite this, what is still lacking for most products is the reclamation infrastructure. Even where producers have successfully integrated recycled materials into their production process, the public is often unaware of this information (Wasik, 1992). Institutional arrangements and market incentives are still the necessary ingredients to make recycling a costeffective part of production (Stone, et al., 1992).

A Review of Pricing Strategy

According to Oxenfeldt (1960), pricing should be a step in product positioning. Pricing is just one part of an overall revenue-generating strategy and must always consider the segment of the market being sought (MaGrath, 1991). Pricing should be approached from a multifunctional view that includes cost, customer, and channels of distribution. Cannon and Morgan (1991) include consumer knowledge, demand, and information as necessary inputs for pricing strategy. Pricing helps companies enhance and capitalize on their competitive advantage. Successful strategic pricing allows a business to maximize the potential of its resources and competitive position by increasing revenue without sacrificing volume and by altering customer buying behavior to the business' advantage. Price levels should be established to reflect customers' response to prices, the business' own cost behavior, and competitors' response to prices (Stern, 1989).

Pricing for the Green Consumer

The ultimate goal of pricing is to strike a balance between what a firm can charge and what the market can bear, in the context of current market conditions (Green, 1989). Price strategies aimed at the green consumer must consider many of the demographics of that particular group. Each of the consumer segments listed previously assigned a different priority to environmental concerns. Products targeted at each market segment must be geared toward the demands of that segment.

* Pricing Green Consumer Goods

Despite a slow start for many green products, industry should not abandon the concept of producing and marketing environmentally-friendly products (Wasik, 1992). Environmentally-friendly goods are aimed at preventing harm to the ecosystem. Examples include biodegradable goods and products that use non-CFC (chlorofluorocarbon) propellant or refrigerants. The largest portion of the market which claims to actively seek out environmentally-friendly goods are the True-Blue Greens and the Greenback Greens. This portion accounts for about 48% of the total consumer market.

Since this segment includes a more educated and wealthier consumer than the remainder of the market, a premium pricing strategy is logical. It is important, however, that the marketer convey to the public the company's commitment to environmental responsibility. The perceived benefit of purchasing such goods is that the consumer is helping the environment. This benefit should outweigh the premium price. Therefore, a firm wishing to appeal to this market should adopt an image that stresses total environmental awareness in all aspects of the business.

* Pricing Recycled Consumer Goods

Although pricing strategies for many environmentally-friendly products may include premium pricing, recycled materials seem to be received differently by consumers. The public perception is that recycling is free and that collectors profit by selling the materials (Franke, 1992). This perception may be instrumental in reducing a degree of "snob appeal" (Shapiro, 1968) that might otherwise be utilized for green products. In reality, the recycling of most materials costs at least as much as other alternatives (Franke 1992, Wasik 1992). Even when attempting to sell to the True-Blue Greens and Greenback Greens, this perception of value regarding recycled materials must be considered. The concept of psychological pricing may play an important role in pricing recycled materials. Psychological pricing involves making the price "sound right" to the customer (Green, 1989).

Initial attempts at sales of recycled materials has met with limited success, due largely to product pricing (Wasik, 1992). Most manufacturers and retailers expected recycled goods to ride the wave of green consumerism and command a premium price. For most products, the opposite has proven to be true (Reitman, 1992). For nearly all products, those made from virgin materials are perceived by the consumer as having higher quality, so consumers are unwilling to pay more for goods made from previously used materials. Consequently, skimming strategies for recycled goods should be avoided. While these might work for some green products, they do not seem fitting for recycled goods. The marketing problem is that while consumers perceive environmental friendliness as a positive benefit, they also view the perceived quality of recycled materials as only average or below average. Therefore, the justification for higher pricing is somewhat nullified in the mind of the consumer. Producers and marketers should aim their pricing strategies for recycled goods at capturing market share. Low price tactics may be necessary to fit consumer perceptions of what recycled goods should cost. If producers can make substantial gains in market share, then investments in reclamation infrastructure will become more worthwhile. As this infrastructure becomes established, producers can reduce the costs of producing recycled consumer goods.

Discussion and Implications

For consumer goods, what constitutes green at any moment keeps changing. This dynamic consumer market influence suggests that the brands that adapt fastest to consumer demands will be future leaders in the market (Ottman, 1992). Corporations can transform green into a competitive edge by integrating environmental planning into overall business strategies and forming alliances with environmental groups and regulators (Ottman, 1992).

Producers are finding that not all green products are created equal. To stay competitive in the dynamic green market, producers should be prepared to follow several pricing strategies. Green products can be divided into at least two groups: environmentally-friendly products, and recycled consumer goods. These groupings should be based on consumer perceptions of the products, and separate pricing strategies should be evaluated for each.

Today's market for recycled and recyclable goods is greater than ever (Griffin, 1992). To capitalize on this movement, managers and marketers must promote the environmental benefits of recycled goods and maintain prices in a range near that of the nonrecycled competitors. Promoting the environmental friendliness of recycled materials will be most attractive to some customers, while attributes aimed at convenience will be attractive to others. Although these aspects of the product mix are important, competitive pricing of recycled goods may be the key to capturing a significant market share. Once high market shares are reached, cost reduction programs should allow producers to increase profit margins from recycled products.

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