THE GREEN CHALLENGE
~ THE MARKET FOR ECO-FRIENDLY
PRODUCTS ~
SUMMARY OF KEY
FINDINGS
Green products have
failed to achieve a market
share commensurate with
the high level of pro-green
attitudes, with demand
slowing or even
decreasing.
Improvements to
performance are essential
if eco-friendly brands are
to overcome consumer
scepticism and gain a
better foothold.
Customers are not
prepared to trade off
performance or price to
buy green - they want
products which are green,
good value and which
work too.
Legislation is usually
needed to kick-start the
launch of new green
products and generate
consumer demand. Free
market forces tend to fuel
momentum subsequently.
by Professor Paul Stoneman, Dr Veronica Wong and William Turner,
Warwick Business School
Volume 1, Number 1
November 1995
It seems a curious paradox that so many 'green' products have not
achieved the level of market success in the UK which might be
expected in a society which is as sympathetic to the environment as
any in Europe. Although consumers may express an overwhelming
preference for eco-friendly consumption, the producers of green goods
often fail to achieve the rewards they might have expected for their
innovations to meet this demand; some to the extent that their brand has
disappeared altogether. So what, and where is the barrier in the market
chain?
Investigation of the issues reveals that there is a substantial consumer
challenge to be met. It emerges that there is considerable resistance and
scepticism about green goods from a public which demands products
which are not only green, but which also work as well as conventional
brands. Not only this, but apart from a small minority of exceptionally
committed green consumers, the mass of the market does not want
green products if it means paying more. Either they are ‘free-riders’
who like the idea of benefiting from a greener environment provided it
doesn’t hit their own pockets, or consumers have become disenchanted
and confused through trying to discern what the green attributes of
various products really are.
There are some complex issues on both the supply and the demand side
which suggest that the greening of consumer spending is a challenge
which may only be met effectively by providing a legislative push in
the right direction. Without legislation, the take up of green goods is
unlikely to gather momemtum. Indeed, many companies are already
reporting a slowing down or even a decline in public demand for green
As greening is most goods.
successful where
Government incentives or An initial clue to the apparent paradox between stated preferences and
regulation are involved, actual spending patterns is to be found in the contrast between two
this may suggest a way
forward to combat the products, one which has been the subject of Government regulation and
stalled growth in green one which has not: unleaded petrol, where sales rose from zero in 1986
markets. to reach 55% of total sales just eight years later, and green detergents
which have been around since the late 1980s but whose market share is
Retailer preference for
the favourable returns of still only 2%. Just how important the role of legislation can be, not only
high margin or high as a spur to launch green products but also to stimulate demand and
volume lines can create generate the momentum for further improvements, has emerged from a
distribution problems for detailed study of four different markets affected by varying degrees of
green newcomers.
regulation - household detergents, recycled paper products, unleaded
Environmental benefits petrol and catalytic converters. Answers have begun to emerge to the
need to be made clearer vexing questions of why the mass of consumers are unwilling to pay the
to avoid customer price for green products, why they are sceptical about their
confusion.
performance, why market share is often so low, and why producers are
slow to make the further improvements which customers expect.
Legislative pressure was cited as the main incentive to launch green
lines by as many as 65% of firms. Although competition or customer
pressures may generate further product improvement, regulation may
also play a key role in this. For example, VW and Audi may have taken
the lead in catalytic converters in the early 1980s, but most companies
introduced such technology only later (to coincide with the legislation
which made it a compulsory fitting for all new cars from 1993). When
Esso pioneered unleaded petrol in the UK in 1986 it may have sparked
an immediate competitive rush, but market share only escalated
significantly with the addition of a price advantage (with the
introduction of cuts in duty) followed by the requirement for new cars
to be capable of running on unleaded fuel from October 1989. This is
quite a contrast to the detergent or recycled paper product market where
green products have struggled for visibility or have disappeared from
the shelves altogether.

The ability to make further improvements in product performance

is a critical factor in market success, especially as many of the early
green products were accompanied by concerns about performance
which, if unaddressed, lead to customer resistance and scepticism. For
most consumers, a product’s greenness is seldom the main determinant
of brand choice. Most consumers demand products which are not only
green, but which work as well as conventional brands. Again, there are
interesting contrasts between markets subject to intervention where
greening has been most marked, and unregulated ones where issues
such as performance and quality are still perceived as problematic and
which can lead to a consumer backlash.
Catalytic converters in the early days were associated with reduced
performance, yet the momentum to improve has been sufficient to close
this gap to an imperceptable level. There were similar concerns over
unleaded petrol, but again the market was buoyant enough to prompt
 improvements as well as subsequent developments, such as super
unleaded. The message here is that once given a regulatory push, firms
tend to have the momentum to achieve further developments without
additional legislation.
Yet problems clearly remain in other markets. Managers report a big
'. . THE PRODUCERS gap between consumer expectations and actual performance of
OF GREEN GOODS green products, only 35% believing that current green technologies
OFTEN FAIL TO matched their customers’ expectations. This is critical when the
ACHIEVE THE overwhelming majority of firms - 95% - saw product performance as
REWARDS THEY the key factor in converting consumers.
MIGHT HAVE
EXPECTED FOR Although firms acknowledge the need for improved product
THEIR performance, this is not reflected in their research and development
INNOVATIONS.' priorities, where greenness was given top status by only a quarter. As a
relatively small niche market with limited returns, green products often
lack the investment needed to overcome performance barriers. Without
R & D, however, their chances of acquiring a mass market are slim, and
instead they are destined to offer weak performance and generate a
small and static market share. Furthermore, they cannot achieve the
economies of scale which would bring down prices to a level
comparable with conventional brands.
In this situation, it can be difficult for green products to cross the
first hurdle of retailer acceptance. Supermarket shelves are more
likely to be stocked with goods which bring a better return, which in the
case of detergents or paper products is likely to be assessed on returns
on volume of shelf space. The retailers’ choice is for high margin or
high volume lines. This situation can be compounded by issues of
access to distribution, which in the UK detergent market for example is
greatly influenced by how established the firm is. There were fewer
problems for the companies which dominate the mass market and for
Ecover in the green sector, than for one newcomer which was unable to
secure distribution outside its own mail order network. Another more
recent entrant only had access to one supermarket chain initially, with
most retailers reluctant to stock an innovative, radically new and
therefore riskier green brand. Meanwhile, leading brands have relied
upon other approaches such as packaging innovations, refill packs and
micro powders.
 Although car manufacturers tend to have tighter control over their
distribution network, dealers have some autonomy over which
particular models to make available. At least one well-known firm
experienced a problem with a new eco-friendly car which not many of
its dealers wished to stock. Car dealers have their own ROI targets to
meet, which makes mass market models more appealing and may leave
niche models with green attributes absent from the showroom.
Any retailer or intermediary must be convinced that consumer demand
for green products really exists, but the general lack of a consumer pull
for new green brands was highlighted in our research for paper
products, detergents and cars. Some paper product manufacturers noted
that retailers were dropping green products such as recycled paper
diaries as a result of the slowing down of consumer demand. Ironically,
many managers stressed that consumer interest has in fact decreased
since the launch of their green products.
Given consumer resistance to high-priced green products, few firms
in the sample felt there was any prospect for niche marketing
tactics with premium pricing. Furthermore, parity pricing is
uneconomic when competing with market leaders who benefit from
economies of scale. Citing a case in point, one firm pointed out that an
'. . THERE IS innovative green car, designed to switch off automatically during the
CONSIDERABLE estimated 60% of time spent at a standstill in city traffic, would offer a
RESISTANCE AND major social savings in reduced emissions. However, motorists were
SCEPTICISM ABOUT concerned only with the savings for their own pocket, and at £1,300
GREEN GOODS FROM more than the standard car, they would have to cover a great many
A PUBLIC WHICH miles to see any personal benefit.
DEMANDS In some markets, the confusion consumers face in understanding the
PRODUCTS WHICH relative environmental benefits of a range of products labelled ‘green’
ARE NOT ONLY may also be an issue in generating consumer disinterest. As some
GREEN, BUT WHICH conventional mass market players have begun from the opposite end of
ALSO WORK AS the spectrum to ‘green’ their existing high performance brands, it may
WELL AS be hard to assess the respective environmental impact of these
CONVENTIONAL compared to the more radical green products. If consumers can’t clearly
BRANDS.' see what the green benefits are, they will leave that aside and select a
product largely on the basis of its performance or other benefits instead.
It may be that industry lacks the guiding influence of legislation or
radical green standards that would ensure green product attributes and
environmental benefits were stated clearly.
Although there is a need for effective brand positioning strategies,
promotional budgets for green products are small and there is an
under-use of mass advertising. Unleaded petrol was certainly given an
advertising boost which helped it on its way, and oil companies are
exceptional now in spending more on promoting the green aspects of
their products than they do other factors. In general, though, the firms
with the funds for large-scale promotion are the conventional product
market leaders, who have chosen to ‘green’ existing well-known brands
rather than take a more radical ‘fresh start’ approach.
 All in all, it is hardly surprising that there is so much pessimism
about the green revolution gaining a really strong foothold. Unless
there is some change, the mass market of conventional products is
likely to continue to dwarf the tiny niche green brands. The key
which could change this situation would be the technological
break-through which would enable products not only to be good for the
environment, but also good on performance too. Is there a way to
challenge the present inverse relationship between the two?

Our study suggests that in many cases, a legislative push is needed

initially to kick-start innovation, new product launch and generate
customer demand. For customers, it can remove uncertainty and make
environmental benefits clear. For producers, it provides a real incentive
to get on board or to risk missing the boat altogether. All being well,
free market forces might be expected to come to fore subsequently to
fuel further product refinements and improve price-performance ratios.
However, for many struggling green products, dwarfed by the
conventional brands of the market leaders, free market forces alone may
be inadequate to redress the balance. Producers must be the key to the
further innovation which is needed to improve performance, but this
presupposes that they must be capable of innovating. It seems that
further Governmental financial incentives are necessary if the market
for green products is to improve and grow, or for future really radical
innovations (such as the recovery of petrol vapour) to come to fruition.

About This Study

'. . ONCE GIVEN A This research project was funded under the ESRC Global
REGULATORY PUSH, Environmental Change Programme, and involved a sample of twenty
FIRMS TEND TO firms, five in each of four product categories - household detergents,
HAVE THE recycled paper products, unleaded petrol and catalytic converters. Data
MOMENTUM TO was collected through personal interviews, based on a structured
ACHIEVE FURTHER questionnaire, with senior managers responsible for marketing
DEVELOPMENTS decisions.
WITHOUT
ADDITIONAL Further Information About This Topic
LEGISLATION.'
Detailed technical papers on this research project, listed below, are
available at a cost of £10 each, by writing to the Hot Topics Office,
Warwick Business School, University of Warwick, Coventry CV4 7AL.
Please enclose a cheque made payable to the University of Warwick
and specify the title(s) required.
● Marketing Strategies and Market Prospects for
Environmentally-Friendly Consumer Products, Veronica
Wong, William Turner and Paul Stoneman, Warwick Business
School Research Paper no. 165, 1995.
● Regulation, Fiscal Incentives, Changes in Taste and the
Diffusion of Environmentally Friendly Consumer Goods,
Paul Stoneman, William Turner and Veronica Wong, Conference
 on the Economics and Policy of Innovation, Piacenza, 1995.
William Turner, a Research Fellow at Warwick Business School who
undertook much of the initial work, died in February 1995.
© 1997 Warwick Business School