Marketing challenges of going green in the domestic automobile industry

Marketing Challenges of Going Green in the Domestic Automobile Industry

The domestic automobile industry

The automotive industry is one of the most competitive in the world and the U.S. automotive industry is leading the way in terms of sales. In terms of manufacturing, the production activities are shifting from high income regions to the low income ones, such as China as a response to the globalization phenomenon that continuously dragged costs and implicitly selling prices down to historical figures.

Original equipment manufacturers (OEMs) also chose to relocate their production facilities to low cost regions to be able to compensate the increase of oil prices with lower prices. The AAA (formerly known as the American Automobile Association, 2007) recently announced that the average prices for gasoline is $3.07/gallon, compared to $2.32/gallon last year and is estimating this price to vary between $3.40 and $3.70 during 2008. In parallel with these changes on the crude oil market, the automotive consumption trends slightly changed from last year towards hybrid cars. Thus, Toyota, the market leader in terms of hybrid technology, reported 44% increase in hybrid car sales compared to last year (2006), reporting 227,750 units sold. Toyota also managed to outrun Ford Motor, n"2 OEM in the market and is heading straight to the leader position.

Currently, GM is the leader on the American automotive market. However, this position is difficult to maintain given both globalization and crude oil price challenges. Thus, GM has prepared an aggressive plan as a reaction to Toyota's success and this involves both plant relocation to China and a $250 million research and development center in Shanghai meant to redesign the current products to be more environment-friendly and more efficient (e.g. hybrid models, alternative fuels, etc.).

Reasons to green the marketing strategy

Firms may choose to adopt a green marketing strategy for various reasons, such as: consumer attitudes and behaviors, stakeholder and institutional pressures or collective action dilemmas.

Consumer attitudes and behaviors

Although U.S. was one of the few nations not to adhere to the Kyoto protocol, the American consumers seem to be quite concerned with environmental issues. Thus, 50% pretend to look for environmental labels when buying products and switch between products based on their environmental friendliness, 87% of the U.S. adult population claims to be concerned about natural environment condition (Phillips, 1999), 75% of the same sample considers itself to be an environmentalist (Osterhus, 1997) and 80% of them think that designing measures to protect the environment will require major changes it the current lifestyle (Ottman, 1996).

The above statistics represent consumer attitudes. However, many of them may not translate into behaviors (McGuire, 1985). Ritchie & McDougall, (1985) suggested that social pressures for a greener world could be one of the reasons to explain these behavior-attitudes differences.

Prakash (2002) used Maslow (1943) and Herzberg's (1966) work motivation and influence factors to try to explain greening consumer behaviors. The old theories explain motivators as factors that motivate employees and hygiene factors as those preventing employee dissatisfaction. Applied on the greening-related issues, the following can be translated as follows: the presence of motivating factors determines consumers to buy certain factors and purchase is an increasing function of the firm/product's green level; the absence of hygiene factors may create some discomfort to the customer, but after a small greening improvement, the preferences are no longer an increasing function of the certain firm/product.

Green products/organizational policies are motivating factors when customers favor firms with green products or policies and in this case the organizations would have a competitive advantage to adopt green strategies. The same policies act as hygiene factors when customers chose to penalize firms that violate environmental laws and in this case organizations should be compliant with these laws just maintain their current position in the consumer's preferences.

In the automobile industry, consumer attitudes and behaviors are not at all congruent. Although many consumers acknowledge that traditional automobiles are responsible for a large part of pollution, the vast majority is not willing to change their lifestyle to reduce the negative impact on the environment. This happens for reasons, such as: comfort (e.g. The hybrid's need for constant recharging and the reduced number of recharging locations vs. The traditional gas bomb high density), perceived lower performance (e.g. diesel engines are perceived as being able to deliver a better automobile performance in terms of speed) and costs (the vast majority of used cars in U.S. are based on gas, which leaves little choice for second-hand buyers in terms of hybrid products).

Stakeholder and institutional pressures

The corporate social responsibility/responsiveness theory indicates that firms have a social responsibility towards the community that shouldn't necessarily reinforce its profit objectives. Thus, firms choose to green their strategy to show an increased social responsibility as greening is the ethical thing. The stakeholder theory comes to support this former theory and the stakeholder notion refers to "any group or individual who can affect or is affected by the achievement of the organization's objectives" (Freeman, 1984, p. 46). The latter theory suggests that firms green their products when key stakeholders demand it.

One other reason for a firm to chose a green strategy would be to later be able to influence environment-related policies that could potentially affect their profits in a negative way (Fri, 1992).

The pressures in the automobile industry are high. On one hand, the social pressure of consuming environment-friendly products is converting more and more customers to the green philosophy and on the other hand manufacturers are trying to fill in this new trend by developing greener products, putting pressure on their competitors to do the same. This is the case of Toyota that recently stepped up to being the second largest OEM in U.S. In front of Ford. As mentioned before in this paper, GM's reaction was fast and it included a large R&D investment meant to redesign some of its product to be more environment-friendly.

In terms of institutional pressure, California's Low-Emission Vehicle (LEV) regulations stand as a good example. In 1990, California Air Resources Board established that zero-emission vehicles should be 2% of all vehicles produced for sale in California. In 2003, the percentage threshold was increased to 10%.

Collective action dilemmas

Institutional environmental policies are still in their infancy and many organizational green policies are not made as a consequence of laws or regulations, but as a consequence of internal decisions. However, when facing a greening policy decision, companies have to take under consideration of such action on itself. On one hand, the organization can reap the benefits of environmental stewardship and exploit the first-mover advantage (Porter & Van der Linde, 1995). On the other hand, being among the first to adopt such a change can have a negative impact on the company, as consumers are faced with the dilemma of choosing between a clean environment, which entails premium costs and continuing with their consumption habits and contributing to the environment's worsening.

One way to deal with collective dilemmas would be for firms to help develop formal regulations that are imposed to all their competitors. That way, firms that want to adopt green policies wouldn't be penalized by charging premium prices for their products. The downside of this step would be that the measure would provide a competitive advantage to the initiators.

The automobile industry is definitely facing collective dilemmas. Firms have to decide whether they should adopt similar non-environment-friendly strategies as the vast majority of the players and try to exploit the current regulation situation or be among the first to switch to a green strategy and charge consumers with premium prices for their green products, while waiting to be rewarded by those for doing the ethical thing.

The dilemma is worsen by the fact that even when companies desire to green their strategy that are faced with the possibility of the consumer's lack of trust. "A lot of companies are afraid because they don't have a tremendous track record," says Paul West, communications director at the Rainforest Action Network. "But they know the public wants them to be [pursuing environmental programs]. it's a Catch-22: How to put out news about your environmental efforts in a way [the public] can trust." The credibility issue will be discussed more extensively in the green marketing mistakes section.

Green marketing myopia

Green marketing must satisfy two objectives: improved environmental quality and customer satisfaction" (Ottman et.al., 2006). Green marketing myopia refers to the misjudging or overemphasizing of the former at the expense of the later (Ottman et.al., 2006). The marketing myopia was initially defined by Theodore Levitt (1960), who said that corporations that are more preoccupied about products than consumer needs may fail, because customers choose only those products or innovations that satisfy their needs.

GM and Ford's electric vehicles launched in the late 1990s - early 2000s could be categorized as marketing myopia. The two vehicles were the result of California's zero emission vehicle mentioned before in this paper. Both automakers expected these products to be successful and the first one offered its vehicles through a leasing program, whereas the second one made it available as rental via Hertz. The products were soon withdrawn from the market as they were a complete failure as customers found it inconvenient to have to constantly recharge the electric vehicles given the existence of such a few recharging locations. Also, the consumers were not ready to change their driving habits so drastically and in such a short period of time.

Green marketing myopia can also appear when green products are not able to reflect credible environmental benefits. One such example is Mobil's Hefty photodegradable plastic trash bag. These products claimed to be degradable, however, not in every circumstance, but only when exposed to sun, wind and rain and because most of the times garbage bags are not exposed to such elements, the degradation was virtually impossible. Mobil was sued by seven state attorneys for deceptive advertising and consumer fraud and had to remove the photodegradable note from its products.

According to Ottman et.al. (2006), companies have avoided green marketing myopia by following "The Three Cs" principles - consumer value positioning, calibration of consumer knowledge and credibility of product claims.

Consumer value positioning

Successful green products display non-green consumer value, with benefits, such as: efficiency and cost effectiveness; health and safety; performance; symbolism and status and convenience (Ottman et.al., 2006).

The efficiency and cost effectiveness refer to cost/resource effectiveness. One example of such a benefit is Procter&Gamble's Tide Coldwater. The product is supposed to clean clothes efficiently with cold water. Considering that water heating during washing represents roughly 80% of the energy necessary in the washing process, the detergent saves energy.

The health and safety benefit refers to the reduced exposure to toxic agents, especially for sensitive consumers such as children and pregnant women. Organic food enters this category.

Symbolism and status stands for the socially related benefits as perceived by the consumers. Toyota Prius is a good example that stands for "chic green." Many celebrities, such as Cameron Diaz and Harrison Ford are driving this model because it is green and it corresponds to their values.

Green products are sometimes more convenient than other products. For instance Phillips' compact fluorescent bulb has to be changed with less frequency than a normal bulb. The product is also energy-efficient, which makes it both environmental-friendly and convenient. One such example from the automobile world is the free parking and solo-occupant access to HOV lanes given to hybrid vehicles in some states. Consequently, many customers were motivated to buy hybrid cars to beneficiate from it.

Calibration of consumer knowledge

Successful green product strategies involve a calibration of consumer knowledge for this latter to recognize the benefits incorporated in these products. In a way, such marketing campaigns are both increasing awareness of green products benefits and educating the consumer.

For instance, the Energy Star initially adopted the "EPA Pollution Preventer" slogan, which was joined by a simple logo that wasn't much focused on the ecological symbolism. Later on, the company changed both the slogan and logo. The slogan was more explicit regarding the product's ecological benefit and sounded as "Saving the Earth. Saving your Money." The logo had a similar "upgrade" as below:

Credibility of product claims

Credibility is one of the fundaments of green marketing. Green marketing have to deliver the promised benefits, both environment and non-environment-related. In some instances, consumers have no way to check whether green promises are kept or not by companies, but these latter ones can be penalized by entities with a higher power. Thus, in the case of Splends's "made from sugar, so it tastes like sugar," the company's products were questioned by the Sugar Association and Generation Green, despite being approved by U.S. Food and Drug Administration. The sugar association claimed that the product was "unrecognizable as sugar" (Generation Green, 2005).

Third party endorsement and eco-certificates are solutions to deal with circumspect customers. However, a company has to make sure that the third party enjoys a good reputation. One other way to deal with high customer skepticism is via word-of-mouth solutions and/or internet. It is said that a satisfied customer tells about its experience to one more person, whereas a dissatisfied one to five more. Thus, firms have to start taking under consideration the informal publicity, which is nowadays in the shape of internet blogs or discussion forums.

Green marketing mistakes

It's not easy being green," by Kermit the frog is a famous line that describes with accuracy the green marketing attempts in any industry. Automobile industry is one of the most challenging of all industries because the fuel that powers the vast majority of the current car park is one of the major sources of carbon dioxide emissions. Basically, cars are perceived as one of the biggest source of pollution. Greening a company's products and policies can turn into a marketing fiasco for those that are trying to use the green label to deceive the customer.

Ford Motor has been the target of many environmentalists for advertising a greener image, which wasn't necessarily supported by its actions. The company built the largest living roofs on top of one of its factories. The roof was basically made of plants and was said to improve energy consumption efficiency. So Ford tried to advertise the roof to green its image, but the environmentalists' reaction was acid, as the company is still generating, either directly or indirectly a lot of pollution.

Companies such as Nike - one of the world's largest buyers of organic cotton or MacDonald's - one of the world's largest buyers of recycled materials, chose not to advertise their green actions. One of the explanations came from Joel Makower, founder of GreenBiz.com: "How do you talk about the [environmental] things you're doing when you're not a perfect company?." Farah (2005) suggested the following to avoid green marketing mistakes:

Keep it real

By keeping it real, it is suggested that greening should address the company's central environment responsibility. Ford failed to convince the consumers and environmentalists of its greening attempt because this one wasn't dealing with its central products (vehicles) as the quantity of hybrids was insignificant. Wal-Mart commitment to preserve wild life was also a failure, because the giant retailer is one of the primary sources of unplanned growth.

A successful example of realistic greening was Toyota's hybrid synergy drive campaign: "Less gas in. Less gasses out." This slogan was chosen in favor of "Drive green, breathe blue" as the latter would have been connected to the company's image, rather than a specific product-related claim.

Clean up from top down

Large companies with unstable and not necessarily positive green experiences can also commit to a long-term green strategy. GE is one such large company that engaged in a greening campaign. Ecomagination, the campaign, currently includes 17 products from water treatment technologies to aircraft and it had top managerial support even though many voices called it a risky attempt.

Be transparent

Transparency doesn't imply only what you communicate, but also how you communicate it. Thus, before labeling a product or an action as green, a firm has to think what exactly green means and what are the implications of such a labeling on its image.

Some companies, such as MacDonald's prefer to keep a low profile regarding its environmental actions by publishing a report with its greening progress. Other companies, such as GE resort to the services of third parties to measure the green extent of their products/activities and only those that are certified by the latter as green as considered as such by the company.