Going for the Green: Targeting Socially Conscious Consumers

Olympic athletes go for the gold, entrepreneurs should consider going for the green, market and consumer that is… Most Venture Capitalists will tell you that the three most important factors they look for when evaluating a business in order of importance are: market attractiveness, management team, and a method of gaining and maintaining a profitable share of the market. The often cited HBS professor Michael Porter distilled all such methods down to three basic strategies: product differentiation, market segmentation and cost leadership. A combination of these strategies is possible though not necessarily desirable. This article will detail why socially conscious consumers are desirable customers and provide insight into how your businesses product or service could be made more appealing to this market segment and demographic.

Attractiveness of market
A market is attractive if it is significantly large and growing, benefits from current economic trends and business cycles, has little or no current competition, contains or offers the possibility of erecting barriers to entry, creating switching costs, or enacting favorable legislation, and lastly offers generous and sustainable operating margins. Operating margin is more important to entrepreneurs than profit margin due to the necessity of becoming and staying cash flow positive.

The market for green products and services is sufficiently large and therefore attractive to investors like Venture Capitalists and it is growing. Segments of the market are benefiting from current economic trends and business cycles such as alternative energy, clean tech, any product or service that lowers operating costs or can be a substitute for an existing desirable product or service. Examples include wind turbines, bio fuels, waste reduction technologies from water and air purification to more efficient lights, engines, and manufacturing processes. Think of how many “green” products have been successfully introduced in the last few years. Even now, new market segments continue to be identified or created by innovative entrepreneurs, call it the “green ocean” strategy if you like.

If your business does not offer a “green” product or service you can still tailor your offering to appeal to the socially conscious consumers and purchasers in your industry/market.

Socially Conscious Consumer Profile
In the last few years a lot of research has been done identifying and understanding a new breed of consumers and purchasers, those that are looking at more than just cost, those that make purchases with a social conscious. Researchers have determined that the socially conscious consumer is more educated than average and with greater disposable income. They are increasingly young thus representing the future of consumerism. They even have a higher willingness to pay for products which they perceive to offer higher quality. For marketers they represent a veritable dream segment/demographic. This is evident in the rise of green marketing firms such as change.

To the socially conscious consumer higher quality = social benefits = ecological benefits. This is the key insight into understanding their purchasing behavior. The biggest trigger for them is health, their own and their family’s. Any product or service that is healthy from organic foods to more efficient air filters appeals to this segment. Demand for all health related services will only increase, both in the industrialized world as the boomer generation continues to age but seeks to maintain their quality of life and in the developing world where a large percentage of citizen’s increased income goes towards health care.

Health concerns in turn lead to environmental concerns both for animal and plant life as well as future generations of the human race. Products and services that reduce waste, are more environmentally friendly or improve the environment in some manner are present in more and more industries. Socially conscious consumer demand is directly responsible for many of these products being introduced to the market. It has also lead to the creation of innovative profit sharing and environmental offsetting programs such as “1% for the planet” and “Gold Standard” carbon offsets.

Beware Green Washing
Socially conscious consumers are media savvy, don’t try to sell them snake oil and whatever you do, don’t come across as trying to ‘green wash’ your product or services. Green washing consists of re-labeling and re-branding without actually making an effort to reduce the ecological footprint of the company/product or provide tangible benefits to the consumer. Socially conscious consumers want to see a business “walk the talk” or “put their money where their mouth is”, whatever cliché you prefer. If a business makes an effort, socially conscious consumers will reward them, it is in their nature, remember cost is not their only concern when evaluating quality. Socially conscious consumers want to support a brand or company, they embrace them often taking an active effort in promoting the product or service through “word of mouth”, which has proven highly effective for companies intelligent enough to harness and manage it. Socially conscious consumers are also influenced by ‘gurus’. Court these influencers successfully and they may voluntarily endorse your product or service which will lead to increased sales, cross them and your brand will be tarnished. Perception, i.e. brand building is still important to socially conscious consumers.

By now you’re hopefully thinking what strategy can I adopt if I go for the green with my own business? This leads us back to the prolific Michael Porter and his three core business strategies and how they are being used successfully to target socially conscious consumers and sell green products and services.

Product Differentiation Strategy
This is perhaps the most immediately obvious strategy to appeal to the socially conscious consumer, I make widgets, I’ll just make a “green” widget goes the logic. This is often a fallacy, first it can come across as “green washing”. In order to properly implement a differentiation strategy you have to make sure no one else can easily make a “green” widget just like yours. None the less product differentiation has been successful in a number of markets and industries, from Seventh Generation’s cleaning supplies to financial institutions even airlines who have made themselves carbon neutral such as Vancity and Harbor Air. The key when branding yourself “green” as part of a differentiation strategy is to make an authentic commitment that will be difficult for a competitor to duplicate. This often involves upfront costs but with the hope of recouping it and more through greater operational efficiencies and increased market share.

Differentiation can be a difficult strategy to pursue in industries involving commodities or near commodities. None the less several large corporations in these industries are trying to brand themselves as green or emphasize their environmental practices as part of their corporate social responsibility. The most well known example may be BP’s attempt to rebrand and reposition themselves from British Petroleum to Beyond Petroleum. The modern public can be pretty cynical but socially conscious consumers have shown a willingness to reward corporations even in industries involving resource extraction that make an effort to become more sustainable. This can be seen both on the bottom line and is also reflected in publicly traded share prices. The rise of Socially Conscious Investing has also contributed to altering corporate behavior. Modern media can also have a large effect on consumer confidence, which sounds greener “Beyond Petroleum” or “Exxon Valdez”?

Market Segmentation Strategy
Going for the Green often takes the form of a Market Segmentation Strategy. An entrepreneur has identified an attractive market then seeks to develop a product or a service targeted towards a portion of that market, in this case socially conscious consumers. Seventh Generation’s strategy can also fall in this category. Cleaning products aren’t sexy, none the less in good and bad economic times consumption remains fairly constant, that is why they are classed as consumer staples. A brief sojourn on the couch watching daytime game shows and soap operas will no doubt be intertwined with numerous ads for cleaning products all seeking to differentiate their brand with “new lemon fresh sent” and “20% more cleaning power”. Consumers have heard those lines before and stay at home moms are smarter than some marketers give them credit for. One other thing market researchers have determined about socially conscious consumers is more often than not, they’re female. Who do you think the multi-nationals were courting with their “increased grease fighting”? If you can answer that you shouldn’t be surprised that one of the first successful ‘socially responsible’ companies started selling cleaning products twenty years ago.

Cost Leadership Strategy
At first lowering prices, selling more stuff, and thus consuming more resources may not seem like an environmentally sustainable strategy which is likely to appeal to socially conscious consumers. But no less a corporate titan than Walmart, an empire built out of Bentonville Arkansas, using one of the purest and most successful cost leadership strategies in the history of mankind is now being touted by those ever important ‘gurus’ of the socially conscious consumer. Jeffrey Hollender, the CEO of Seventh Generation has publicly come out in support of Walmart’s recent improved environmental and sustainability practices. How did the world’s largest retailer make themselves more appealing to socially conscious consumers, the same way they got to be the world’s largest retailer, a cost leadership strategy.

Pursuing and successfully achieving cost leadership requires gaining and maintaining operational efficiencies over every other competitor in your market through such means as: economies of scope, economies of scale, and experience curve effects. This is more difficult to achieve and maintain than just pricing your widgets below your competitor’s widgets. Walmart built one of the world’s most efficient supply chains and their size and scope have allowed them to reduce the bargaining power of their suppliers dramatically. With this achievement and their continued dedication to pursuing a cost leadership strategy they are able to force suppliers to bow to their wishes if they want access to shelf space in their stores. In addition to ever lower prices, Walmart can encourage suppliers to say reduce the size of their packaging and through their world wide logistics dramatically lower their carbon footprint and landfill contributions on a scale almost unmatchable by anything short of a small country. The irony is Walmart achieved all this by using the means and methods their most vocal critics had long riled against.

But what if you’re not the World’s Largest Retailer, how can you pursue a cost leadership strategy and still target socially conscious consumers? Take a cue from Walmart look at your company’s supply chain and packaging. Supply chain and logistics people are problem solvers, get them thinking on how your company could reduce waste or lower its carbon footprint. These savings are reflected in your firm’s operating costs and eventually the bottom line. The David Suzuki Foundation has identified six advantages for a company becoming more ecologically sustainable, two of them basic tenants of the cost leadership strategy: cost savings associated with energy consumption reduction and increased operational efficiency in the supply chain.

Do you remember when recycled paper used to cost a lot more than un-recycled paper? Next time you’re in a Walmart or a Staples compare the prices on a package of 500 sheets, they will be very close, those cost savings were made possible by economies of scale and the growth in size of the socially conscious consumer demographic.

In Conclusion
Attractive market, competent management, correctly chosen and executed strategy; going for the green is no different than going after any other demographic or market segment. Know your industry, know your market, know your potential customers, give the people what they want, take away their pain, and beware green washing. The opportunities are out there, today’s startup could become tomorrow’s headline.

The above article was written for “Small Business Corner” by Andrew “Muskie” McKay in December of 2008, it may still yet be published.  Andrew currently works for Building Opportunities with Business (BOB) as Industry Initiatives Coordinator.