Green business? Not without self-interest
Professor Magali Delmas knows you probably don't care about electric utility regulation. But does organic wine or fair-trade coffee tickle your taste buds?
"When there's an eco-label or other environmental claim, people need to recognize the meaning and trust the source before they're willing to pay," Magali Delmas said.
That could help Delmas, a management professor with the Institute of the Environment (IOE), choose the direction of her next research project.
"I've been researching electric utilities for years and looking into why they invest in renewable energy, and realized that the same issues apply to other sectors, such as wine and coffee. Also, when you talk about wine or coffee, people light up. So now I can talk about my research at dinner parties," Delmas said half-jokingly.
"What could I do next?" she teased. "I could do olives. Or organic beer."
Delmas, director of UCLA's new research center, the Center for Corporate Environmental Performance, studies how green products are marketed and what works. She's fascinated by what convinces consumers to buy eco-friendly products, why businesses decide to go green, and how both sides can get on the go-green bandwagon. One of the things she's learned is that environmentalism isn't enough to drive purchases.
"People don't buy things to help the environment. They buy it for themselves," she said. People don't buy organic tomatoes for their lack of pesticides and Earth-friendly rep, but because the tomatoes taste better and are healthier, she said. Similarly, the hybrid Prius automobile isn't about responsibility, but about gas bills and trendiness.
"The Prius is a status symbol. It's become a way of showing off your greenness," she said. "If you drive by a parking lot in Brentwood, you see Mercedes, BMWs and Priuses, like they're part of the same club. Some people are buying for the environment, and we all have our altruistic side, but it doesn't affect more than a small percentage of the market."
Her conclusions aren't based on idle observation, but on serious research. She loves to find out why and how people respond to the opportunity to buy green. She does applied research about, and sometimes with, companies, such as her recent foray into the world of "green" wine. She found people actually pay less for wine with eco-labels.
"It reduced the price 20 percent," Delmas said. "Buyers assumed it would be a lower-quality wine. They associate it with hippie wine."
But wine-makers still slap eco-labels on bottles of their better wine. The confusion lies in the misunderstanding between fully organic wine and wine made from organic grapes. Organic wine-makers skip additives that are normally used during the fermenting process, affecting the taste. Wine from organic grapes simply comes from "better grapes," and follows tried-and-true fermenting methods, Delmas explained.
Her clients tried to escape organic's negative connotations, but missed the mark entirely when they chose to describe their wine as "biodynamic," because people didn't understand or trust it, Delmas said.
"In our study, 77 percent of the people who hadn't heard of 'biodynamic' products assumed it was bio-engineered or sci-fi," Delmas said.
One of her overarching ideas in all of the industries she studies is that companies need better ways of showing consumers useful information. She and her students are working with a company building a website called zumer that will help provide details about how green companies and their products really are.
"When there's an eco-label or other environmental claim, people need to recognize the meaning and trust the source before they're willing to pay," she said. But that, combined with self-interest, are ongoing barriers to green purchasing, she added.
There are four main reasons why most people buy green: to show off (think the Prius), to improve their health (organic produce), for a superior product or to save money.
"All of these are pretty independent from the environment. It's depressing, but true," she said. "People won't pay more for a worse product. They've been there with recycled toilet paper and paper towels. You have to appeal to their self-interest."
A company needs three things, she added: a reliable measurement that it or its product is better, a way to communicate that measurement and incentives for people to buy the green product.
In her studies of electric utilities, she found that people were rarely willing to pay more for wind- or sun-generated power. "Regular power works just as well, and you can't show off how green your power is," she said. In the auto-parts industry, when the Big Three automakers asked that their parts suppliers get a special environmental certification by 2003, Delmas and fellow management Professor Ivan Montiel found that only a quarter of the suppliers complied.
The story is the same with organic coffee – few people buy it because they don't understand or trust the profusion of "fair-trade," "bird-friendly" and "Rainforest Alliance Certified" labels – but she's interested in seeing whether that can change.
With her IOE colleague Professor Matthew Kahn, economics doctoral student Neil Lessem and her Center for Corporate Environmental Performance, she intends to find out how to boost buying of eco-joe through an experiment she's developing for a coffee vendor.
If you buy fair-trade coffee, maybe you could show that off with a distinctive-looking coffee cup with a nice logo. "Will that be a status thing, like the Prius?" she asked. "Or will we have to charge less?"
© 2009 UC Regents
Published: Monday, March 30, 2009