1. CRADLE-TO-CRADLE: A NEW APPROACH FOR MARKETING GREEN PRODUCTS TO THE MASS CONSUMER Geoffrey Brooks Dana Marohn Kiersten Regelin Daianna Rincones June 3, 2009

2. AGENDA Executive Summary Green Mass Marketing – Why Now? Key Questions for Mass-Consumer Marketing Case Study: Earth-Friendly Products Findings and Recommendations Some Questions to Consider

3. EXECUTIVE SUMMARY Mass-market green products are increasingly important to companies Consumer “pull”: the market for green products is growing Government “push”: greater regulatory/legal pressure to become more green To penetrate mass market, firms must address key consumer questions: What is a green product? What are the benefits of green products? Can green products be affordable? Leading firms are in a position to meet this demand Companies need to clearly articulate green benefits important to their own mass-market consumers Cradle-to-cradle can be a tool to enable mass marketing of green products

4. Green Mass Marketing – Why Now?

5. GROWTH IN GREEN CONSUMERISM Despite the global recession, the green consumer base is growing… 1/3 of Americans claim they are more likely to buy green products today than they were one year ago 1/3 of European consumers actively seek out green products (up 2%) 1/4 of global consumers claim they will pay a higher price (up 4%) Source: BCG, January 2009

6. GROWTH IN GREEN CONSUMERISM …but even mass-market consumers are increasingly demanding sustainable performance More than 33% of American consumers believe it is more important than ever for companies to be environmentally responsible 66% of consumers think companies should offer green products 69% will purchase green products if it is within their budget and 70% will pay attention even if they are not in a position to buy Source: Cone, January 2009

7. POLICY IS ALSO DRIVING CHANGE Green product producers can achieve long-term cost benefits by jumping ahead of policy and can also leverage progressiveness for marketing efforts Cap-and-trade system Representative Chicago Climate Exchange (CCX) member companies: California Cradle-to-Cradle Product Bill Would require California Integrated Waste Management Board to adopt regulations by July 1, 2011 Some forms of product stewardship legislation exist in the E.U., Japan, South Korea, and Canada Source: http:// sloanreview.mit.edu/beyond-green/2009/03/03/california-proposes-cradle-to-cradle-product-bill

8. A FAMILIAR MARKETING CHALLENGE Companies are unsure how to communicate Which green attributes to highlight How to manage tradeoffs Exposing weaknesses Most consumers lack knowledge or interest in the details Most need clear, simple messaging Too much detail causes confusion There is a thin line between providing relevant, useful information and overloading the consumer with details

9. CRADLE-TO-CRADLE Covers the entire life-cycle, and “reincarnation”, of a product Attempts to create essentially waste-free products Non-biological inputs be recycled/reused Biological inputs can be composted/consumed C2C can be used to guide the design, production, distribution and take-back of green products – it is an ideal to strive toward Source: California Product Stewardship Council

10. A JOURNEY TOWARD CRADLE-TO-CRADLE Green products should offer incremental environmental benefits using cradle-to-cradle as a guide and ultimate goal Original product Reduced packaging Sustainable sourcing Reduced toxicity Reduced carbon footprint Reduced impact of use Minimal cradle-to- cradle impact One possible journey

11. Key Question: What is a green product?

12. WHAT IS A GREEN PRODUCT? GREEN PRODUCT ATTRIBUTES Many competing and imprecise terms in marketplace “Organic,” “local,” etc. have no (or many) uniform definition(s) Many trade-offs exist between definitions – consumers cannot synthesize Unclear definitions inhibit purchase behavior Few customers willing or able to research definitions and may walk away True benefits are unclear, reducing purchases Lack of clarity limits adoption by mass-market consumers 2009 GMA/Deloitte Green Shopper Study

13. WHAT IS A GREEN PRODUCT? ATTRIBUTES AND CREDIBILITY Consumer view of question has two key sub-components What are attributes of green products – “What does it mean for a product to be sustainable?” What is credibility of my purchase – “How can I tell a green product when I go to buy it?” Green Product Consumer marketing must provide a definition of green and identify it to consumers prior to purchase Product AttributesCredibility

14. WHAT IS A GREEN PRODUCT? ATTRIBUTE FRAMEWORK A definition of green products must encompass a variety of attribute areas DevelopmentManufacture Distribution Purchase / Use End of Life Cradle-to-Cradle Product Lifecycle Material Sourcing/Consumption Energy Consumption …Externalities Social Responsibility Product… Attribute areas represent a collection of green characteristics Characteristics are relevant at various phases in the product lifecycle Difficult for consumers to conceptualize trade-offs between areas Consumers lack time to understand details and relative costs/benefits Similar to nutritional labeling on food products

15. WHAT IS A GREEN PRODUCT? CREDIBILITY OF GREEN CLAIMS Greenwashing makes it difficult to compare similar products Destroys perceived value of green products Perceived greenwashing can limit adoption by mass-market consumers Hidden trade-offs Examples of Greenwashing Lack of proof Vague claims Misleading labels Irrelevant benefits False advertising E.g., locally produced, but more carbon intensive No evidence to support claims Ambiguous language or lack of clear definitions Suggestive but unsubstantiated images or messages Emphasizing minor impacts or legally required action Erroneously claiming benefits or certification Adapted from "The Seven Sins of Greenwashing", Terra Choice, May 2009

16. WHAT IS A GREEN PRODUCT? CREDIBILITY OF GREEN CLAIMS Mistrust of corporations and lack of credible third-party certification causes confusion and limits adoption by mass-market consumers Consumers have little trust in companies’ green claims 81 certifications for consumer goods, but Many global Many unique to region/company Often unique only to one “step” in lifecycle

17. Key Question: What are the benefits of a green product?

18. WHAT ARE THE BENEFITS OF A GREEN PRODUCT? BUYER VALUE AND ENVIRONMENTAL IMPACT Consumers must obtain value and/or understand the environmental benefit from green product purchase Green Product Benefits Buyer Value Environmental Impact Consumer Benefits Health concerns Altruistic motivations Perception (status related) Efficacy (i.e., on par with/ better than competitors Reduced carbon footprint Carbon created by production/distribution of a product or service Reduced water footprint Total water volume used, recycled, or disposed of as waste water to produce a good/service

19. Carbon Footprint Challenges Costly to quantify (requires both pre- and post-studies) Multiple methods available Difficult to use data Hard for consumers to interpret and compare Illustrates (again!) the importance of education Carbon Footprint of Tropicana Pure Premium Orange Juice Quantifying/labeling environmental impact, such as carbon footprinting, is highly complex WHAT ARE THE BENEFITS OF A GREEN PRODUCT? ENVIRONMENTAL IMPACT

20. At least two methods exist to measure carbon footprint Carbon Trust Found original Tropicana estimate off by > 20% Greenhouse Gas Management Institute U.S.-based non-profit providing GHG accounting, auditing and training How do you calculate carbon metrics? And what do they mean? Companies must make metrics relevant, not just identify them WHAT ARE THE BENEFITS OF A GREEN PRODUCT? ENVIRONMENTAL IMPACT (CON’T.) 3.75 lbs. CO 2 19.4 lbs. CO 2 6.3–6.8 lbs. CO 2 9 lbs. CO 2 1 L of Tropicana 1 gal. of Gasoline 1 Cheeseburger 1 day in studio Apartment Sources: http://www.epa.gov/OMS/climate/420f05001.htm; http://openthefuture.com/cheeseburger_CF.html; http://www.epa.gov/climatechange/wycd/calculator/ind_assumptions.html

21. And we thought measuring carbon was challenging - quantifying the impact of water is less established, but feasible WHAT ARE THE BENEFITS OF A GREEN PRODUCT? ENVIRONMENTAL IMPACT (CON’T.) Sources: http://www.waterfootprint.org/?page=files/home; http://www.waterfootprint.org/?page=files/CoffeeTea Perception is that water is cheap and unlimited View distorted due to lack of global pricing mechanism 16,000 L H 2 O 1 KG Beef1 L Rice1 L Milk 1 KG Maize 1 KG Wheat 3,000 L H 2 O1,000 L H 2 O900 L H 2 O1,350 L H 2 O Case Study – water used in Netherlands coffee consumption 140 liters H 2 O/cup = 2.6 billion cubic meters H 2 O per year Dutch account for only 2.4% of world coffee consumption

22. Key Question: Can green products be affordable?

23. CAN GREEN PRODUCTS BE AFFORDABLE? VALUE AND PRICING To enable mass market adoption, companies must leverage internal and external capabilities to align pricing/value with mass market expectations Consumers 76-87% Perceived Benefits PremiumMass-Market Price premiums are acceptable only for some segments BCG study says 24% of consumers will pay more, but…. Additional studies reveal most consumers don’t follow through at register Green-focused CPG companies say 13% is more accurate estimate of “niche” market Sources: Cone Consumer Survey, Jan 2009; Capturing Green Advantage, BCG, Jan 2009; Interview, Earth Friendly Products Consumers 13-24%

24. Case Study: Earth Friendly Products

25. CASE STUDY: EARTH FRIENDLY PRODUCTS Earth Friendly Products is successfully mass-marketing green products by educating consumers and pricing in line with competitors Clearly articulates green benefits and impact Provides detailed info on packaging, but too much confuses mass consumer Detailed information available on new website with interactive blog “Key element is to prove efficacy on a consistent basis” Leveraged to drive pricing down to mass market 1 Costco/Sam’s Club SKU provides 50% of revenues Prices below P&G’s and equal to store brand in wholesale club stores Vertically integrated and efficiently produced compared to competitors Revenue ($M) $54M $35M $100M

26. Findings and Recommendations

27. FINDINGS AND RECOMMENDATIONS Every product has environmental impact, but goal is to mitigate impact as much as possible Tradeoffs exist in each stage of the product lifecycle - green needs to be an on-going ideal towards continuous improvement Companies need to clearly articulate green benefits important to their own mass-market consumers Must quantify and contextualize environmental benefits Need to distill varied aspects of green to a concise consumer message Cradle-to-cradle can be used as a tool to enable mass marketing Provides framework to consider aspects of sustainable products Aligning green products with mainstream prices opens doors for mass- market adoption and economies of scale

28. SUMMARY AND NEXT STEPS Companies will be forced to mass-market green products eventually Pulled by consumers Pushed by governments Firms can answer key marketing questions now to prepare What is a green product? Green is an on-going ideal that encompasses specific attributes and credibility issues What are the benefits of green products? Benefits must be quantified and concisely communicated Can green products be affordable? Cradle-to-cradle can be a tool to drive down costs and enable mass-market pricing

29. SOME QUESTIONS TO CONSIDER… How green should a product be before it can be marketed as such?

30. SOME QUESTIONS TO CONSIDER… What green aspects should be communicated to consumers?

31. SOME QUESTIONS TO CONSIDER… What would the perfect green label look like?

32. SOME QUESTIONS TO CONSIDER… What is the role of civil society in green product marketing?

33. SOME QUESTIONS TO CONSIDER… How can companies gain more control over their C2C impact?

34. SOME QUESTIONS TO CONSIDER… What are implications of taking green products to the mass market?

35. APPENDIX: SUPPLEMENTARY MATERIALS

36. KEY QUESTION 1: DETAILED ATTRIBUTE FRAMEWORK A definition of green products must encompass a variety of attribute areas Material Sourcing/ Consumption Energy Consumption Product Externalities Social Responsibility “Minimalist” product design Avoidance of environmentally-unfriendly materials Production process efficiency Packaging efficiency Reusable or recyclable content Responsible resource allocation Low unified carbon footprint (at all life-cycle stages) Type of energy (clean alternatives vs. traditional sources) Recyclability Product return/usage Elimination of by-products (chemicals, fertilizers, etc.) Elimination of harmful externalities (e.g., antibiotics) Treatment of employees (including health/safety) Humane treatment of animals Interaction with unsavory governments/policies Community investment and philanthropy

37. KEY QUESTION 1: DETAILED CREDIBILITY FRAMEWORK Credibility can be earned and reinforced through education, engagement, and third-party endorsements Consumer Education Clear, simple messaging Be transparent about trade-offs Help consumers change behavior as well as attitude Consumer Engagement Labeling Certification Partnerships Involve consumers in stakeholder discussions Collect consumer feedback, understand their values Leverage social media for word of mouth advertising Choose product labeling over brochures or web info Emphasize most significant environmental impacts Beware overwhelming with too much information Effectiveness depends on credibility of the partner Standardize across industry or impact area Credibility at the expense of cost and differentiation Can be transformational for a company Most credible with the most vocal activist NGOs Presents risks for both the company and the partner

38. FINDINGS AND RECOMMENDATIONS DETAIL: #1 Every product has environmental impact, but goal is to mitigate impact as much as possible Tradeoffs exist in each stage of the product lifecycle - green needs to be an on-going ideal towards continuous improvement Companies need to understand tradeoffs internally and articulate them externally to maintain credibility with consumers Environmental benefits must be significant relative to alternatives

39. FINDINGS AND RECOMMENDATIONS DETAIL: #2 Companies need to clearly articulate green benefits important to their own mass-market consumers Must quantify and contextualize environmental benefits to help consumers understand reduced product impact Need to distill varied aspects of green to a concise consumer message (e.g., labeling efforts currently underway, etc.) Ultimately, consumers must obtain value from purchase whether through environmental benefits or other product attributes

40. FINDINGS AND RECOMMENDATIONS DETAIL: #3 Cradle-to-cradle can be used as a tool to enable mass marketing of green products Provides framework to consider aspects of sustainable products Provides levers for organizations to reduce their cost structures in line with mass-market needs Aligning green products with mainstream prices opens doors for mass-market adoption and economies of scale Price point is important for mass-market appeal Green benefits and efficacy will differentiate product and lead to growth through word-of-mouth Small wins in mass-market can double revenues of niche market and is often more efficient

41. TIMBERLAND’S GREEN INDEX

42. CARBON TRUST’S CARBON FOOTPRINT