Thursday, 25 February 2010

Life Cycle Pricing: Solar Hot Water Heaters

Guest post by Prof. Michael Polonsky, Deakin University (Australia)

Life cycle pricing involves the inclusion of all costs across the purchase, use and disposable of goods. In many ways it is not new in the marketing of goods and for some products consumers do think about other costs associated with ownership. This includes white goods reporting on energy usage or cars reporting on fuel efficiency and lower maintenance costs, i.e. costs of using the goods. While marketers may be able to communicate the full life cycle of costs, the question is how do we get consumers to change their thinking from the out of pocket expense to include the life time costs? It may be that this will be easier for more expensive goods or durable goods that are consumed over longer periods, but do consumers want to consider purchase over their life, even if we can communicate this information effectively? Given the role price plays in shaping consumer decision making, having a redefined approach to pricing may be one way to allow consumers to make better decisions and change behavior. This is not to suggest there are not a number of innovative ways to try and make consumers better consider the real pricing of less harmful goods, or to get them to adopt lifecycle pricing issues. Take, for example, marketing solar hot water heaters in Australia which are actively being marketed using a range of cost based strategies.

Solar hot water heaters generally have higher initial prices than traditional gas or electric hot water heaters, even though they are cheaper over their lifecycle. Thus the question is how have firms (with governmental support) have been able to motivate consumers to purchase these more expensive goods. A number of approaches have been undertaken to integrate a various pricing issues.

1. The Australian Federal government has offered a $1600 rebate for people installing Solar Hot Water heaters, when these replace electric hot water heaters (Department of the Environment, Water, Heritage and the Arts 2009). Marketers have taken two approaches to deal with this. In some cases they simply promote the rebate as a savings to the customer (i.e. it costs 4000, but after the rebate you only pay $2400). Others have been more innovative and in fact marketed Solar Hot Water heaters at $2400, where they advertise the out of pocket price as $2400 and they then apply for the rebate on behalf of the customers (where the money goes directly to the firm).

2. A number of suppliers of hot water heaters actively promote the savings that consumers can receive. This communicates the lifecycle costs, at least the savings in terms of energy usage. What they do not do, is discuss this in terms of a payback period (i.e. how long does it take to recoup the extra savings. Although there are some independent organizations’ suggesting that the payback period is around 5 years. While this may seem a long time, there is no “payback” in regards to existing systems. Although, if people are making a decision on which type of system to apply, there would need to also be a ‘break even’ in regards to their existing system. In fact converting from an electric to a solar how water system in Australia is a money making activity, although I have not seen anyone promoting it this way.

3. A third approach is that some providers offer interest free loans to allow people to pay for solar water heaters and in fact the Federal government has instated a scheme where it backs such loans. These do allow the costs to be spread over time and thus potentially reduce the burden of out of pocket expenses. From a financial evaluation this reduces the cost of the good using a net present value perspective, as future payment (i.e. paying off the loans) are using ‘less expensive’ money than current expenditures (because of the discounting by the interest rate).

Of course firms can choose to a combination of all three strategies. The question therefore is ensuring that we can make the costs today as comparable as possible. While lifecycle pricing looks at costs over the life of the good consumers traditionally will be less willing to consider such costs, unless we can somehow make these more 'real'. Thus while lifecycle pricing is one option, it will possibly not solve the issue alone and certainly will fail if government intervention does not integrate the costs of pollution into the price of goods and their usage.

Wednesday, 17 February 2010

Car Advertising: Can Eco-Fascism be Funny ?

The Audi 'Green Police' advert, screened during the half-time interval of the Superbowl is one ad that seems to have generated strong reactions – always part of the agenda of the marketer. Some people thought it was funny, some thought it was offensive, some thought it was just cynical "Greenwash", some thought it was counter-productive – and in Ken's case it mainly provoked an outburst of singing along, but that’s only because he is old enough to own an original vinyl copy of Cheap Trick's Dream Police, for those of you who can still remember that technology (and those hairstyles).

So, what to make of it? Well, in its defence, you could say it taps into the ideas that Stuart Rose and colleagues put forward (covered in Chapter 4 of our text book), that if you want to engage the 'outer directed' consumers (ie not the usual suspects in the green consumption world, but the people more worried about fashion, style and keeping up with the trend), then you need to make your communications cool, knowing and 'playful'. On a straightforward comedy level, a line like 'Hold it right there plastic boy, you picked the wrong day to mess with the ecosystem' is playful and funny, the production values are slick, and there are some nice touches (the ant-eater as sniffer-dog being a nicely surreal touch). You could also argue that any kind of advert suggesting that big cars, incandescent bulbs and wasteful energy use are a bad idea, and puts that message across to a global audience in the middle of one of the biggest consumer fests on the planet, has got to be a good thing. As one of the posters on YouTube called TheTrueHolyDarkness put it – "Hmm. This Green Police is a very smart and slick advertising campaign. Whether you are left or right, environmentalist or humanitarian, you can't help but like this commercial. To the right, it's a parody. To the left, it's a Public Service Announcement. To Audi, it's pure win either way."

The other side of the coin is that the ad portrays all the aspects of progressing towards more sustainable consumption that sustainability marketers have been trying to move away from (or at least mostly try not to lead with!). The reduction of choice (no plastic bags), new rules, more rules and persecution if you don’t follow them (compost infractions), the outlawing of convenience (batteries) and luxury (Jacuzzis) mean that the picture of the world the advert paints is of a consumer nightmare, not an ecologist's dream. The environmentalist as killjoy has been a recurring theme in the debate about sustainability as is something of a fall-back position for Fox News in the US or the Today Programme in the UK. We don't really want to save the environment for future generations, our real agenda is to spoil everybody's fun. Environmentalism as the new Puritanism is easy to make fun of, and easy to ignore, and if you complain that the advert works that way – well, you must just have no sense of humour.

Of course some of the comments posted on YouTube are as funny as the ad, if not more so – "Cool, Audi is celebrating eco-fascism. Idealizing oppression has never been so mainstream" from Zhokar seemed to sum up a lot of posters' feelings . Neuvie's comment of "Less than a 1oz plastic bag is not green, but 3,000 lbs of car is. What kind of thinking process can I have to accept this?” was also rather pithy. What was perhaps surprising was that, aside from the inevitable 'climate change is a myth contrived to oppress us' responses, a key theme was 'This isn't a joke, it's the future and we need to fight against it'. This is perhaps the most worrying aspect of the campaign. Audi's tongue may be planted firmly in its cheek, but if the response to the ad amongst mainstream consumers is to view it as a call to arms to man the barricades in defence of the consumer lifestyle, then the joke could fall very flat.

Wednesday, 10 February 2010

Car Advertising: Volkswagen and Greenpeace get Smart

The Brits often assume that the Germans have no sense of humour. Similarly, sustainability advertising is supposed to be rather stern emphasising some kind of benefit, which is "good for you and the environment". The following series of television and print advertising seem to prove both clichés wrong. It is a play in four acts with three main actors: The automobile companies Smart and Volkswagen, and the environmental organization Greenpeace.
The first act took place in 2008, when Smart threw down the gauntlet to Greenpeace and Volkswagen: Have you ever thought about the fuel-efficiency of Greenpeace zodiacs, when the activists protest against whale fishing boats? Did you notice the gas-guzzling trucks, when Greenpeace marches against nuclear energy? Or did you know that 'hippie' vans by Volkswagen guzzle 13 litres of gasoline per 100 km? No? Neither did we. But Smart did, as you can see in the following television commercial:

In the second act Volkswagen takes up the gauntlet: It launches print ads in German newspapers and magazines comparing the fuel efficiency of the Volkswagen van versus the smart (in litres per person). On the left bottom of the print it says: "And Sex is better in there as well. The transporter thanks you for the nice commercial"

Touché! That hit home. But Smart accepts the challenge. The 'Smart' advertisers are quick to reply in the third act of the play. This Smart ad uses the original Volkswagen ad but adds: "Size does not matter, but technique! The Smart ForTwo thanks you for the nice print ad"

In the fourth and last act Greenpeace comes into play and strikes back! In the anti-advertising video the environmentalists remind the subsidiary Smart that its multinational automotive parent company Mercedes sells 31 sport utility vehicles (using 11.2 litres per 100 km and emitting 279 g CO2 per km) for every Smart ForTwo diesel:

So, do the Germans really have no sense of humour? And does sustainability advertising always have to be boring? We think not!

Thursday, 4 February 2010

Encouraging Signs

Why do people do what they do? This is the question at the heart of marketing, and in relation to sustainability, businesses, governments and academics have put huge amounts of effort into trying to understand exactly why consumers either will or won't engage in more sustainable forms of consumption.
What makes the question difficult to answer is that consumer behaviour is multi-faceted, complex and frequently inconsistent, and much of the research into sustainable consumer behaviour has produced sets of results that are equally inconsistent and in some cases contradictory. Much of this research involves taking existing theories and models of consumer behaviour and adding some form of ethical, environmental or sustainable component. The logic behind this is that if we improve peoples' knowledge about sustainability issues, or if we instill sustainability values into people and influence their attitudes, then they will reflect this knowledge and these values/attitudes in their consumption intentions and behaviours. Models based on the Theory of Reasoned Action and the Theory of Planned Behaviour are particularly popular for applying or adapting to explain sustainable consumption behaviour (and sometimes the lack of it). Although if you are one of those people who feel that life mostly happens to you, the explanatory power of a model based around planned behaviour might seem rather shaky.
Much of the research into sustainable consumption behaviour is looking for a single simple explanation for when, why and how consumers consider and respond to sustainability issues in their behaviour. What emerges instead is a jigsaw puzzle picture of different influences which come into play for different consumers, in relation to different types of product or service at different times.
One interesting piece of this puzzle is highlighted in a recent Journal of Consumer Research article by Noah Goldstein, Robert Cialdini and Vladas Griskevicius, based on a simple experiment they performed. This concerned finding ways to persuade hotel guests to reuse towels and the types of message that they would respond to (Although this is slightly ironic given that 'green' hotel towel laundering policies are the origins of the phrase 'greenwashing', as we noted in our text book). The experiment tested the responses to different in-room signs. They found that customers responded more strongly to a sign that said 'the majority of guests reuse their towels' than to the normal messages which just highlight the environmental benefits of reusing towels and ask guests to do so.
This, they argue, demonstrates the power of social norms on consumer behaviour. What was really interesting was that guests responded even more positively when the wording was tweaked to say 'the majority of guests in this room reuse their towels'. The researchers felt their data didn’t provide an explanation for this effect, but they speculate that it may also be a social norm effect because guests identify more strongly with an imagined social group of users of that room.
A subtly different explanation is that this second message seemed more personal and relevant to people because it allowed them to more easily picture themselves engaging in the behaviour. This links into ideas about personal identity (how we see ourselves) as an influence on consumer behaviour, which is under-researched compared to social identity (how we think others will see us). There has been relatively little research about the role of self-identity on sustainable consumer behaviour, but what there is suggests strongly that whether or not we can readily imagine ourselves doing something strongly influences whether or not we ultimately will. This is an effect that Ken came across in doing some research in the glamorous field of home composting. It was curious that many householders who were enthusiastic recyclers were entirely unwilling to get involved in composting (despite the superficial similarities in the behaviours). Some faced practical barriers from a lack of garden space and some had concerns about hygiene, flies or rats. What focus group research probing their reasons revealed, was that many householders didn’t get involved in composting because they felt ‘it wasn’t the sort of thing that people like me do’. When asked what sort of people they thought did compost, the typical response was to envisage a middle-aged man (often wearing a cap) who gardened as a hobby.
These insights into how we relate sustainable consumption behaviours to our sense of personal identity are very revealing. They highlight the importance of positioning sustainable consumption as normal, part of the mainstream and something that all sorts of people can get involved with. This makes it important to leave the ‘alternative’ label far behind, and moving both sustainability marketing and more sustainable consumption further into the mainstream is very much what we hope to achieve with the book "Sustainability Marketing: A Global Perspective".