Green as a luxury? Premium pricing and conspicuous consumption
A theme has emerged from my conversations with Portland, Oregon real estate professionals: fearing overspending, home buyers these days are unwilling to pay a premium for green features, and instead decide with their pocketbook based on price and value. In other words, green* is a luxury these days, for homes and I suspect for many other product categories as well. What financial and psychological factors caused green to become luxury? How to fix the situation?
The green of green
That the sales of luxury items should decline in a recession is logical – as disposable income declines, luxury items slide out of reach for many. Tough economic times turn price into a primary decision factor, ushering an era of the frugal consumer.
In her recent Sustainable Brands Boot Camp presentation, Amy Hebard said, “The green premium is dead”. Consumers don’t buy the high price of green products while being informed that sustainable practices reduce costs. The willingness to pay a green premium dropped by half between 2008 and 2009 and high price is the #1 green deal breaker across products.
Recall that under the product evolution model, the nature of competition proceeds from functionality to reliability to convenience to price. It would appear that in the case of Portland home buyers, we’re in the last stage: green features add nothing to the first three aspects of competition, hence price matters most.
Green’s pricing model itself is to blame as well. The purveyors of green recognized the their eco-conscious consumer also happens to be more affluent than average and willing to pay the price to differentiate herself (see below). The niche positioning brought with it the green premium. When customers cut back their spending, conventional replaced green in the shopping cart, and green shifted toward luxury. If green wants to move beyond its niche status and into the mainstream, price-based positioning must disappear.
We may be at a turning point. The law of supply and demand commands that with low demand, the quantity of supply will be correspondingly lower and prices will be higher. When compact fluorescent lamps were a novelty, they were expensive. As the technology matured and demand increased due to marketing and subsidies, the price of CFLs decreased. Green is almost at that threshold when prices will start falling dramatically with rising demand, though the effects of the recession must subside first. Indeed, Amy highlighted pent-up demand for green, implying that as consumers get out of the funk, the green floodgates will open. (And no, I don’t advocate for subsidies to provide the push in that direction.)
Now you see green, now you don’t
Andrea Learned has pointed out similarities between conscious consumption and the consumption of luxury items: the purpose of both is social signaling or making a statement about self. In other words,conscious consumption is conspicuous consumption. As conspicuous consumption decreases, conscious consumption follows.
What’s more, buying green comes with other psychological baggage, namely the tendency to compensate for ethical consumption with subsequent unethical or otherwise contrasting behavior. For example, hybrid car owners drive more, are more ticket- and accident-prone, and may hit pedestrians more. Buying green without a correspondingly-colored total value system can backfire.
Making green the new normal
If green is to prevail in the mass market, it must abandon its niche, sideline game and beat its competitors in their game, in the mainstream middle. A home’s green features must offer better performance and savings over lifetime at a cost that’s spread out through that lifetime, not front-loaded. Green-feature homes must be more ubiquitous, more desirably located, and come with better curb appeal.
In all, depending on the product category and the nature of competition there, green must shift away from differentiating itself as green. It must offer more functionality and superior performance; it must be more reliable; it must offer more convenience; or it must come at a more competitive price.
And for crying out loud, drop the color green already!
What do you think? Why is green a luxury? How to make it normal?
* I use the term green here as a shortcut for all products and services that tout positive (or at least lower negative) environmental impact.
This commentary can be found originally at: Sustainable Marketing Blog by Peter Korchnak. Better triple bottom line.