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.
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?
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.