How Green product strategy affects customer Willingness to Pay – Consumer Behavior Experiment

Customer surveys conducted by Yale to GoodPoll  to many others,   find that customers are willing to pay  15-17% price premium for Green products*.  For a marketer considering introducing Green products, the key question is whether their customers’ willingness to pay is different,

a)      When only the Green version is offered, discontinuing the not-so Green version

b)      When the Green version is offered alongside  the not-so Green version

If it is indeed different, how can the marketer capitalize on this to maximize their profit?

In a study reported by Klaus Wertenbroch, customers’ perceived utility  from a virtue product was higher when offered alongside a vice product than just by itself.  I decided to test whether this finding is applicable in the context of Green products – treating them as virtue products  and  the environmentally unsafe and not-so Green products as vice products.

I hypothesized,

H1: Customer WTP is higher when Green products are offered alongside not-so Green products than when offered in lieu of not-so Green products.

Experiment Design: I designed a between groups experiment with random assignment to measure customer acceptance of a fixed 15% price premium for Green products. There were two poll questions, one that offered just the Green option and the other offered both. The poll asked the respondents to rate on a 10 point scale their likelihood of purchase (attitudinal) of Green version at 15% price premium.  I conducted the experiment using LinkedIn network , twitter and MBA class of 2011 at Haas  (thanks @hrishika, Go Bears!).

Analysis: I analyzed the results by  comparing the two sample means using non-paired t-test. The hypothesis is accepted only if the difference between the two sample means is statistically different.  Otherwise it is rejected, meaning no difference in WTP.

Results: The mean ratings are 6.0 for  two versions and 6.55 for just Green version.  But, based on the statistical test, I found no statistically significant difference between the two sample means –  there is no significant difference in customer WTP  in the two scenarios.

What does this mean to you as a marketer?

  1. This study only measured attitudinal WTP like all previous studies. The fact that the mean values are near neutral (6/10) should serve as a caution. This could go much lower at the point of purchase. This is due to attitude-behavior gap.
  2. WTP for Green version is not influenced by  the decision to either offer just Green or both versions. Conversely, since there is no negative effect when a marketer offers both versions there is no compelling need to discontinue the not-so Green version when offering the Green version.
  3. Decision to offer  both versions should be a strategic one considering all  versioning costs and benefits that I have written about in my previous articles.
    1. If your versioning costs are low, it is better to offer both versions. But make sure you do not make your customers think too much in evaluating the two options.
    2. If you offer only the Green versions through certain channels, it helps to reduce choice and hence cognitive cost to customer without impacting their Willingness To Pay.
    3. If you are positioning yourself as the only Green marketer, then offering just the Green version enables you own the category.

What is your Green Strategy?

*All these polls measure attitudinal WTP.

Footnote: If you want the raw data to do your own analysis drop a note.

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