Feature

Does sustainability matter to consumers?

Ravi Dhar & Beth Comstock & Yvon Chouinard — May 2010

From laundry detergent to automobiles, more and more businesses are presenting their products — and themselves — as green. How effective is green marketing? Will it have a meaningful impact on the planet?

Ravi Dhar: There are two aspects of sustainability which are particularly interesting to me as a researcher. One is the future idea: when the costs are far in the future, which is the case with climate change, they are less salient to people. The second aspect is that the costs are often not directed at individual consumers or companies, but they are borne by the society. These two aspects of sustainability create challenges for both consumers and businesses. So I guess the broad question is, how do your organizations deal with these challenges?

Yvon Chouinard: Sustainability is the reason we're in business. Our mission is to produce the best product, cause the least amount of harm, and use business to inspire and implement solutions to the environmental crisis. We've been thinking about sustainability for at least 20 years, so way before we were forced to do it by any laws or consumer interest.

We have very environmentally aware customers, but I would guess that maybe 10% care that our cotton is grown organically in Turkey. Organic farming is growing around 30% a year, but that's mostly because you can taste the difference, and there’s an obvious health value. There's a selfish motive for eating organic foods. But when we're telling customers to care about how cotton is grown in Turkey, that's still a stretch for them.

Beth Comstock: Sustainability was written into GE's DNA when Thomas Edison [who founded one of the companies that merged to become GE] said, "I always invent to obtain money to go on inventing." That ability to keep doing what we do is a core principle of sustainability, but we have refined our definition over time. For instance, we decided to devote resources and innovation toward clean technology for a couple of reasons. Customers in various markets and various industries were asking for technology that would help them meet emissions or other efficiency requirements. To be sustainable we have to have clean technology, but it has to be affordable for our customers and their customers; it can't put them out of business. So our mantra became "green is green." That's the approach we've taken.

Dhar: You're selling to many different customers. We often consider B2B buyers to be more sophisticated. Even if the initial costs of a new technology might be higher, they will figure out how much of that is offset by subsidies or lower operating costs. They do their calculations and look at the bottom line. On the consumer side, do people do that? Do they prefer the less expensive washing machine even though it uses more power because they are more sensitive to the up-front money? And on the other hand, how important is social signaling — I'm a person who drives a Prius or wears organic cotton?

Comstock: It's important to understand the consumer perspective and the different segments. There is a very dark green segment that will do everything it needs to to be green, and cost is no issue. There is a larger segment next to that, a lighter green, that feels they need to do something, but they aren't sure what to do. They are attracted to greener products, but the products have to pass a cost-benefit equation. With the economy as it's been over the past 18 months, there was a fear people would back off from wanting to buy green. Does it cost too much to be green? I think that sustainability has remained important to people, but people are also saying it has to be practical. I'm not going to spend silly money. It has to work with the way I work. We feel it's reaching more of an equilibrium.

Also, we've been in our Ecomagination effort for over six years now, and in that time we've seen a lot more of our retail investors start to think about investing in sustainable companies. Dow Jones has their sustainability index. It’s still not at critical mass, but it certainly has increased. It's important from that perspective as well.

Chouinard: There was a poll taken recently that asked people if they're more willing to buy from responsible companies that are doing what they can to cause the least amount of harm in making their products. In 2008, 56% of people said that they were more willing to buy from those companies. Now, it has jumped up to 68%. That's a 12 point difference in just two years.

My own company is having the two best years it's ever had — in the recession. And why is that? In a recession, people become very conservative. They consume less, but they consume better. They'll buy a jacket that is perfectly applicable for skiing, but can also be worn on top of a suit in Paris in a rainstorm. They'll buy multi-functional products. They'll buy higher quality products. They'll just buy less of them.

I think we all understand that endlessly consuming and discarding is destroying the planet. My company tries to make products that last a long, long time. That's why our business is just booming right now. We leave off the fashion, even though a lot of our products become fashionable. We're stealing business from the competition, who are not doing all the green things that we are.

Dhar: Let me ask you about something that I found in some of my research. We described a variety of products to people, and then we told them that one product is environmentally better than the competitor's. People would often rate the performance of these green products lower. For a lot of people there is a suspicion barrier around environmentally friendly products. How do you deal with that?

Chouinard: I think that perception was around a few years ago, but I don't think it's there anymore, because the quality of the products has increased a lot. For instance, early products that tried to substitute for chlorine bleach didn’t work very well. But now they do.

When we switched over to organically grown cotton, the same thing happened. When you buy a pair of pants and they say 100% cotton, on average they are 73% cotton. The rest is chemicals put on the pants to control shrinkage and wrinkling. They're often very toxic chemicals like formaldehyde.

Here we were growing organic cotton, so we didn't want to use these toxic chemicals. The first year or two after we came out with our products, they weren't very good quality. They were shrinking and wrinkling. We had to learn how to make clothing in a different way. It's no different than the organic farmer who decides to not use chemicals anymore and has to replace those chemicals with knowledge and hard work. We had to figure out how to use longer staple cotton, twist it tighter, and pre-shrink it, so that finally we ended up with a product that's equally good to one that's treated with chemicals.

That's been the way with a lot of green products. But now you've got a company like Method that is making cleaning products that are as good as anything and they are totally nontoxic. So I think that's changed now.

Comstock: On the business side, because some of this is regulation-driven, it has, in some ways, been politicized. There is a perception that if something is green, it has to be more liberal. Hopefully that trend is not going to continue, but I think that's something that we've had to be mindful of.

On the consumer side, in the early days for us, green was high-end and only reached a certain segment. Now it has reached a much broader, more practical, common-sense segment.

We've found the messages have to be about the benefits. We just launched a hybrid water heater. And the message that we found that resonated best is: Twice the performance — meaning it heats twice as much water — at half the cost. That ability to say you're not trading off — I'm getting performance and I'm getting cost — that's the perfect equation. If it's just green, well, that's good, but I also have to be practical about other kinds of benefits.

Chouinard: I completely agree. Nobody is going to buy your product because it's green and it is inferior. It has to be a win-win deal. It has to be better, and it has to be green.

Dhar: Let me be contrarian here. We like to talk about win-win, but if there are so many win-win options why aren't others doing it?

Chouinard: A lot of the companies are waiting for the consumer to tell them what to do. If you're waiting for that, you're going to be way too late. It's the American car companies waiting for their customers to tell them to stop making gas guzzlers. Even though it was Henry Ford who said if you wait for the customer, you're too late. In fact, he said that the customer didn't want Model Ts. They wanted a faster horse. So you have to be way ahead of the curve on this.

Comstock: We went out and lived with a bunch of consumers, looking at their kitchens and how they used their appliances, figuring out what they were thinking. This was at the bottom of the market where no one's quite sure what's going to happen next. We were very heartened by people saying getting greener is just the right thing to do — taking simple steps and slowly changing the way they do things. We found it was most effective to explain how their actions have an impact in a way that's meaningful to them. Saying that this is the equivalent to taking 500 cars off the road may not be meaningful to them. Saying what it means to their individual footprint or to their community lets them respond passionately.

Chouinard: Whenever we're stuck with a business decision of almost any kind, the answer is almost always to increase the quality. It hasn't been always like that in American business. Companies that want to make a profit usually decrease the quality or kick out the environmental considerations. But for us, increasing quality has been a really good philosophy over the years.

Dhar: Environmental impact occurs throughout the value chain. How do you think about the overall footprint? Does one aspect, like how it's manufactured or where the raw material comes from, matter more to customers than another?

Chouinard: The way I look at it, a company has a responsibility for the product and for how it makes the product. But it is also responsible for the type of product it makes. You could have one of the best companies to work for in America, giving employees good benefits and making the best quality product of its kind in the world, but if you're making landmines, I don't care how environmentally sensitive you are in making them; they kill more civilians than soldiers and have been outlawed by many countries. Regardless of sourcing, the product has to have some real value in itself. I take a hard line on this.

Comstock: As we've gone forward with our environmental initiatives throughout the production process, partners — customers and suppliers — have come to us saying they would like to know how to manufacture in a more efficient way. They want to know how we cut our emissions and how to develop a similar blueprint for themselves. We haven't mandated it for our suppliers, but more and more suppliers want to be doing the right thing. They want to know how to make a greener process. It's often a relationship where we learn from each other.

Dhar: Green marketing messages have increased lately. It's a more prevalent message from more companies, and more people are hearing it. Do you think that's accelerating changes in attitudes among consumers and causing them to look more for green? What effects does that have?

Comstock: There is no doubt that more and more companies are finding green is an important message point. I think where it's gotten to, from a consumer perspective, is that it's expected. It's not differentiating. And if you think that you are going to talk a good game about being green but you don't match the performance, there is enough transparency and information to allow people to out a company that’s not acting in a sustainable way.

Chouinard: You have to be really careful with green marketing. If you look at corporate sustainability reports, they talk about all the good things that they're doing. They don't talk about the negatives. We have a thing that we call our Footprint Chronicles, where we take about 30 of our products and show how they're made. It's super important that we put down all the negative things that we're doing as a company. We admit we’re polluters. We admit we’re doing some bad practices. But you have to be up front, otherwise these people see through it.

Comstock: Smart consumers realize that they have to continue to upgrade their expectation of companies. And it has really affected us. When we started with Ecomagination, one of the things that really had worked for us was a scorecarding process that explained that we hold all of our Ecomagination-certified products to a much higher standard than anything that's in the market. It's not enough just to say we have green technology. What's the impact?
Now green is so ubiquitous that it's not necessarily a differentiator for consumers. So how do we move forward? One of the goals we've set for ourselves in the next five years is literally doubling our commitments, finding new ways to talk to customers and make impact with new kinds of measurement. The competition forces you as a company, as a group of employees, to be better. And hopefully that will help all of us.

Dhar: What are the next products and services that you have coming into the market in the future that will have a positive impact environmentally?

Comstock: Appliances are becoming smarter, with embedded data control centers that can support management of household energy use. Those will be in the marketplace in the next 16 to 18 months. That will mean more consumer control over something that we had no control over in the past.

The race is on to consumerize renewable energy products like solar panels. They've been very expensive. They are cumbersome. They don't always work. There are great tax incentives, but the consumer doesn't quite know how to get them. The production and the capability is almost there to let consumers install renewable energy themselves. There are even smaller wind turbines that are being developed that you can install in parking lots that power individual lights or rows of lights. So I think you're going to see a downsizing of the renewable technology that has been driven by big infrastructure until now.

Chouinard: Patagonia has been working with Walmart and 20 other large clothing companies to create a sustainability index. Within two years, you will be able to take your iPhone and zap the bar code on a pair of jeans to get a sustainability index that will let you choose the most sustainably made jeans.

Right now, the customer is very confused. They see a shirt made out of bamboo fibers. That sounds sustainable. Well, in reality it's rayon. It's been around for a long time, and it uses very toxic chemicals. But nobody knows that. We're going to answer all those questions and make it easy for the consumer to be able to pick and choose.

The other thing that's happening in our company is we're going to take responsibility for our product from birth to birth. We're actually going to come out with ads that say: Don't buy a jacket from us unless you really need it. If you do buy it, and it breaks, we'll fix it. If and when you want to get rid of it, we'll help you find another home for it. When it is finally no longer usable by anybody, give it back to us. And if it's made out of polyester, nylon 6, cotton, wool, or hemp, we'll be able to make more clothing from it. We're going to close the loop on consuming and discarding. That's the most exciting thing that's happening with my company.

Dhar: What does sustainability mean to consumers globally?

Chouinard: It's very important in Europe. Your average European consumes only 25% of what an American consumes. I don't think your average Chinese could care less about how a product gets made. They're on the same consuming trip that we've been on for a long time. We're not interested in going into the Chinese or Indian markets to push them to consume more.

Comstock: I have one anecdotal point. We tied our brand to the Olympics in Beijing in 2008, and our messaging was around the Olympics being cleaner, greener games and that GE was there. And it was incredibly valuable and resonated, really made a very relevant connection. That said to us that consumers all over the world care. They want to know that companies are performing that way.

From a pure products perspective, in emerging markets, the real trend that everybody is having to react to is that consumers don't just want the cheapest product, they want the best quality that they can afford. And their notion of quality includes sustainability concerns. I think that's permeating all types of consumer touch points.

Another trend is certainly the renewable space. There is an incredible global gold rush, if you will, for solar, wind, and geothermal energy. Just look at the number of patents and inventions coming out of China and India; the race is on. It's yet to be seen how that's all going to end up, but it's certainly something to note. It's supplying jobs to people. It's having an impact.

Dhar: Is this relationship between the customer and the company enough of a lever to create whatever level of systemic change we need to meet our environmental challenges?

Chouinard: I would say no. It's not enough at all. Saving the planet is number 19 on people's priorities. You'd think it would be number one. But no, number one is personal security. The world is scared to death of everything, right now. So it's not going to come from the consumer. It has to come from businesses who understand that the consumer is going to be demanding these kinds of products in the future. You have to start reacting right now, before the customer tells you so.

However, within a very short period of time, the consumers will change. The younger customers, Generation Y — they are absolutely going to be voting with their dollars. They're going to be really critical consumers. Fifteen-year-olds are not watching television. They're not listening to advertising. They're communicating among themselves. They've all had some background in school learning about the world's problems, and they are a completely different consumer than previous generations.

Discussion edited by Ted O'Callahan