PAY THE PRICE OR SUFFER THE CONSEQUENCES

In my previous blog we considered the pressures on many retailers to offer merchandise at increasingly lower prices to ward off competition and satisfy the ever-demanding needs and requirements of shopper. This often leads to dubious practices with respect to their sourcing of material and their relationships with their supply base.

At the end of that blog I raised a question as to the attitudes of shoppers with respect to “green” merchandise or items that are environmentally friendly. In particular are they willing to pay a premium for the privilege of purchasing such goods?

Before we consider that question it might be appropriate to examine the changing approaches of companies in general and retailers in particular to the issue of sustainability.

Prior to the beginning of this century (the noughties) the overall issue of sustainability covered a number of broad areas encompassing: ethics, social responsibility and environmental concerns. Governments and policy-makers began to introduce legislation which placed the issue of sustainability on the agenda for many organisations. Many retailers adopted what we might call a preventative approach to dealing with sustainability issues. By this I mean that they took a compliance-based approach – where they addressed areas that could not be ignored by the legislative measures that were introduced.

Other retailers saw an opportunity to generate “good news stories” and propagate some favourable publicity. In some cases of course this led to cynical practices – often referred to as “greenwashing”, which we discuss in the text-book in our chapter on sustainability.

Over the past decade or so the issue has moved on in general and features much more prominently on the overall strategic agenda of many organisations. Marks and Spencer has often been cited in the literature as a retailer that was one of the first to fully embrace to issue of sustainability into its overall retail strategy. You can read more about their approach in the text-book.

What impact has this had on the shopper? We constantly see references in the academic and business literature to the “green” shopper, the “ethical” shopper and the “environmentally-concerned” shopper. Is there any evidence to suggest that shoppers are “buying into” such concepts? Is there a danger that we make the presumption that they are? On the basis that the issue is presumptively good for society in general and individuals in particular. Like many similar debates and discussions on “climate change”, is there evidence to suggest that shoppers are cynical about such initiatives and see them as increasing the price of items and merchandise in the shops?

Before we consider some of the evidence I inject a cautionary note. Many of the studies and surveys reported in the media (I encourage you to do some browsing on the internet) are either “region or country – specific”, focus on particular categories of shoppers, for example students or internet users. As a consequence the findings and inferences cannot necessarily be fully accepted as being fully representative of shoppers in general or generalizable to the public.

McKinsey, the US consultancy firm interviewed 1,000 respondents across the USA and Europe in 2012. This indicated that seven in ten people would be prepared to pay an additional five per cent if it met the same standards and performance as a non-green alternative product. If the premium for a “green” product came in at twenty-five percent however, only ten per cent would be prepared to make such a purchase. This provides perhaps an indicator as to the attitudes of shoppers to such products and initiatives.

Another study challenged the conventional view of the demographics of “green shoppers”. The traditional view is that they tend to be young, well-educated and on middle to high incomes. A study by Deloitte challenges this and argues that there is no pattern or prescription as to the typical profile.

Recently in my classes with undergraduates (a class size of over three hundred) and postgraduates (a class of 125), I posed the following question to them. Indicate the level of interest, non-interest or whether you are neutral about green products. In the case of the undergraduate about five per cent raised their hands and said that they were interested in such products. About thirty per cent indicated that they had no interest and the remainder: about fifty-five per cent indicated that they were neutral. Similar findings emerged with my postgraduate students (around forty per cent stated that they had no interest). In this class it was almost exclusively made up of non-UK students.

I am not claiming that my “unscientific” question is in any way generalizable or applicable to society in general. However it is revealing and indicates a number of issues that are of potential interest to the stakeholders in this debate: retailers, policy-makers and shoppers.

For instance it suggests that there are potentially a large number of people for whom “green” issues are not seen as relevant or important in terms of their lifestyles or shopping behaviour.

While other studies indicate that increasingly there are more people around who are interested in learning more about green products and services, this tends in the case of the UK to come in at around twenty-five per cent. A study conducted by www.retailmenot.com suggests that four in five people view “green” products as being more expensive. Three out of five people indicated that they would consider purchasing environmentally friendly products if they cost the same or less than “non-green” products.

If you are interested in this topic, I encourage to engage in a search on the internet on the level of interest and willingness to pay for green products.

There is of course no definitive evidence that we can rely on to make an accurate judgement on the matter. The variation of views and opinions in any event is likely to be wide across different geographic regions.

However I would make the observation that a lot of work needs to be done in order to overcome the reluctance on the part of shoppers to pay more for “green” products. There is also an imperative to be more transparent about the potential benefits that are likely to accrue to shoppers. It can also be argued that it is important for manufacturers and suppliers to address the cost issue and make “green” items that are priced at, or very close to the price of non-green products.

I suspect there is a perception (possibly cynical) that suppliers and retailers a seen to be ripping people off by charging a premium on the basis that the target market is perceived as coming from a middle to high income bracket. As we have noted earlier however it can be a dangerous presumption to suggest that “green” shoppers follow a stereotypical pattern when it comes to demographics.

The active “green” shopper may still be relatively small, relative to the number of people who indicate that they see themselves as being interested in such products and that they make be a focus of good for society.

As legislation in the area is likely to increase over the next few years across a range of areas: from recycling to packaging through to the ingredients that go into products, stakeholders such as retailers and suppliers cannot ignore the trends. In order to speed up the growth of the active green consumer segment however they are going to have to demonstrate a stronger value proposition for the shopper. This certainly will have to revolve around the cost of producing such products and passing on savings to the shopper in the form of prices that are comparable to non-green products. Otherwise they may have to suffer the consequences.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s