Labeling - An instrument to market Green goods

Executive Summary

The area of green marketing is on the verge of becoming a big business in India. In this regard, the objective of this project was to study one aspect of the same in detail and see how it could be used to market green goods more effectively. Labeling was this one aspect that formed the focal point.

After a review of the existing literature, the knowledge gap that followed was as that;

While several studies have been done in labeling of green products internationally, the same cannot be said in the Indian context. Partly, the reason for the same is recent emergence of green marketing.

Based on this, certain key objectives were stated to define the scope of the study. They included studying the current trends of green goods labeling in India, some of the international practices in this area and finally the importance labeling is given by the consumer while purchasing a green product. Thought the study was not category specific, focus was more on consumer electronics, buildings, home appliances and IT.

In the subsequent sections several tools and methodologies like secondary research, depth interviews, observational studies etc. were used to collect data for the above mentioned objectives.

Based on the data, certain insights and conclusions were drawn which formed the basis for the recommendations for labeling in the future. Some of the broader findings, included, the low levels of awareness and understanding with regards to labels across the value chain - from industry to consumer. In addition, a label is not a consideration for a consumer while purchasing a green good.

The study ends with looking at alternate approaches/practices towards the concept of green marketing and labeling it particular.
Introduction

“In the long term, the economy and the environment are the same thing. If it's un-environmental, it is un-economical. That is the rule of nature.”

-- Mollie Beattie, Former Director, U.WS. Fish and Wildlife Service

Despite the fact that the term ‘green marketing' has been floating around in management circles for quite some time now, it has had little impact on the industry as a whole. One of the key reasons for the same could be that we do not really understand what ‘green' stands for in the marketing parlance. Is it just about global warming, pollution control, carbon credits and eco-friendly products? Or is it something much more? Perhaps the need of the hour is look at certain aspects of green marketing in a manner never been done before and identify the reasons for the same. Eg: Ball point pens are extreme high technology however we use them in a very pedestrian fashion and consumer acceptance is total. What then is the problem with the other products /processes/technologies like light piping or solar water heaters?

More importantly, do companies who manufacture and market “green” goods really understand what they are selling? These companies often use terms like recyclable, renewable, sustainable etc. to sell their product? Can they provide a proof for the environmental benefits they promise? If yes, how are they doing it, if not, why not? How can a consumer be assisted in identifying such a product? Do the consumers derive any value from an ‘environmental seal'? Does it play a part in their purchase decision?

Though the trend of going green is much more evolved in the developed countries, it has slowly but surely started to gain ground in the developing countries as well. The outlook of India Inc. towards green goods and green marketing is continuously evolving with time. While earlier the focus of going green was solely on the basis of certain pre defined methods to manufacture goods, over time this has evolved into usage of green labels, green packaging etc. Fuelled by the media, companies today, understand the economic and the social importance of taking serious steps to become ‘green'. In addition, Indian consumers have become more quality and environment conscious. They would possibly be the ones who could drive the market for green products.

The potential for a ‘green market' is huge. To exploit it to the fullest, businesses must not only adopt certain best practices and first themselves become sensitized to this new ‘green revolution', but also, help consumers change their behavior by removing any mental blocks that might arise with regards to the purchase of green goods.

In this regard, Labeling can serve as tool for educating as well as a way of making the consumer understand and connect to a very complex analysis. It can help solve the problem of asymmetric information between the sellers and the buyers. Also, if used tactfully, it can be used by the manufacturers and marketers as an instrument to market green goods. While some studies have been carried out in the developed countries in this area, not much can be said about the same in the Indian context.

The objective of this project is to study the existing international practices with regards to labeling of green products; assess the current situation in the Indian market; understand the possibility of replication of some of the international practices in India and ultimately, suggest methods by which labeling could be used by marketers to sell green goods. While the focus of this report is purely from an industry perspective, certain elements from the consumers' perspective, which could ultimately serve as cue for the industry would also be covered.
Literature Review

There are several key words associated with this topic say ‘green', ‘marketing', ‘labeling', ‘consumer' etc. Based on these, a review of the existing literature is done primarily under the following broad heads:-

* What does ‘green' mean?

* Green marketing

* Labeling and green marketing

* Consumer and Eco labeling (Delise, 2009)

What does ‘green' mean?

Despite the mounting pressures on businesses to prove their faithfulness to the earth, managers share no common understanding of what this might mean in their own companies. Many continue to see environmentalism against the backdrop of adversarial public arena, as a struggle over stricter emissions codes and wildly varying punishments for misconduct. Industries (and nations, for that matter) cannot thrive if they sacrifice future quality of life for present economic again. In the long run, the principles of economic growth and environmental quality reinforce each other. (Kleiner, 1991)

There are multiple ways in which a green product can be defined. An all encompassing definition would be something like “A product that causes minimal damage to the environment throughout the various stages of its life cycle i.e. production, distribution and consumption.”

However, companies who claim to sell green products do not necessarily focus on the entire life cycle but only the final product, while making such claims. Thus, lately, there has been an increased focus on adopting a cradle to the grave approach with regards to anything that has the possibility of being classified as a green good. In addition, within most organizations, the level of understanding of what the firm is doing or what it wants to do is minimal. As a result, the idea of ‘going green' remains within the boardroom circles rather than cascading down to all the levels of management.

Environmental claims must not be vague or non-specific (e.g., “non-polluting” and “safe for the environment” are too vague). Claims like “environmentally friendly,” “eco” and “green” are also vague terms that should only be used for products or services whose life cycles have been assessed and verified. Vague claims that are used as slogans and that are not based on demonstrated environmental benefit could be considered false or misleading. (Saxe, 2009)

Most of the existing literature suggests that, in trying to become environmentally conscious, companies often define what is green in a linear fashion without much thought towards any alternate school of thought. Carbon credits, pollution free, renewable, recyclable, biodegradable etc. are some of the key words that companies focus on currently. But as more and more companies sign up to become ‘green' they would need to look at alternate forms of being green to differentiate themselves from the rest.

Eg: Assume an Indian company manufacturing cigarette lighters. Is a cigarette lighter a green product? In a linear line of thought, perhaps no. But think about the match stick wastage that it avoids. Does it become green then? How can the company leverage upon this attribute?

For this study, a green product would be defined as “A product that has a net positive effect on the environment.” The ‘net effect' is defined as the difference between the benefit and the harm that any product contributes towards the environment throughout its life cycle.

Green Marketing

Similar to a green product, there are multiple ways in which green marketing can be defined. According to the American Marketing Association, “Green marketing is the marketing of products that are presumed to be environmentally safe.”

Polonsky (1994) states that “This early definition has three key components, 1) It is a subset of the overall marketing activity; 2) It examines both positive and negative activities; 3) a narrow range of environmental issues are examined. While this is a useful starting point, to be comprehensive green marketing needs to be more broadly defined. My definition: Green or Environmental marketing consists of all activities designed to generate and facilitate any exchanges intended to satisfy human needs or wants, such that the satisfaction of those needs and wants occurs, with minimal detrimental impact on the natural environment.”

As green marketing has evolved over the years, there has been a need to relook at the above definition to incorporate an understanding that goes much beyond the environment. Literature also suggests that green marketing can be looked at both as a technique as well as a school of thought. While the technique part would focus on how to influence consumers' to buy a green product say a fuel efficient car, the broader school of thought would focus on changes that can be brought about throughout the entire spectrum of firm's operation to benefit the environment and thus eventually the society

Firms' orientations have centered on production, selling, costs, legislation and PR, whereas the customer has frequently been of marginal interest. Moreover, firms have compartmentalized green marketing rather than developing a holistic perspective that embraces all aspects of the company, the product, and the means of production, consumption, and disposal. Without changes, cynicism and accusations of hypocrisy will continue unabated. (Peattie & Crane, 1995)

Green marketing strategies employed by most of the firms are merely tactics to gain mileage of the commercial and social front. Some of the commonly used methods employed by firms to show their adoption of green practices are as follows:-

ü Green spinning is a kind of self certification where in the company tries to project a green image by presenting their version of environmental facts and s through PR. Such practices can lead to asymmetric information in the market and harm the credibility of genuine environmental claims made by other firms.

ü Green selling works on the basic premise that anything that is perceived to be green would sell. It refers to the projected product improvements done by the company to the same base product by introducing an additional environmental claim. However, in reality, the product does not undergo any significant change. This technique also depends on the persuasive skills of the individual at the point of sale.

ü Green harvesting refers to the practice where in a firm recognizes that they might be able to manufacture green products at a lower cost. They could then sell these at a premium over the ‘green' claims. However, when the time comes to invest more in R&D to make products sustainable, the higher costs attributed to this activity, is cited as one of the primary reasons for their non-perusal.

ü Compliance Marketing as the name suggests refers to the practice of adopting green production and marketing techniques sufficient enough to meet the regulatory guidelines imposed by certain higher authorities. In reality, these firms have no intention to become green.

ü Enviropreneur marketing is a technique wherein an individual or a company who is totally committed to the environment develops a product using state of the art engineering and technology. However, the product becomes redundant when it comes to commercial use either because of the high price or more importantly, the lack of application in daily life. As a result, we have a case of a solution being presented for a need gap that never existed.

Another activity that can be classified as a subset of green marketing is ‘green advertising'. With media explosion in the 1990's, companies find this as one of the cheapest and most effective technique to market its goods.

Green advertising varies in the extent to which it addresses environmental issues: from simple claims on the environmental friendliness of products, to corporate image campaigns stressing the environmental credential of large companies, to public campaigns promoting environmentally responsible behaviors. (Iyer, Easwar, Banerjee, & Bobby, 1993)

This technique, however, perennially suffers from the limitation that, in most cases, what is promised in the communication might not be delivered. In addition, the focus of the communication might be more on the company behind the idea rather than the idea itself.

The current literature suggests that, in the race to project a greener image, companies often use tactics which are not necessarily an output of the firm's attitude or philosophy towards a greener way of doing things but from a much narrow minded approach to gain market and mind share. The time seems right for firms to beyond some of the short term measures mentioned above and truly understand and adopt the green marketing concept. Once this happens, more thought could go into what a firm can do on a sustainable basis to contribute towards the environment.

Labeling and green marketing

While the main purpose of any label is provide requisite information to the consumers' to assist them in the buying process, for green marketing, its purpose can be further extended to serve as an tool of communicating the effect of the manufacturing and the subsequent consumption that the product has on the environment.

As interest in green products and green marketing evolved over the years, a method by which companies could validate their claims to be green was sought. In this regard, labeling or certification was an approach that started to come to the fore especially in the developed nations.

There are several approaches to labeling that can be used by a firm for its products or services.

A broad label classification would be as follows:-

1. Voluntary vs. Third party

2. Binary vs. Non binary

ü Voluntary labeling refers to the individual company validating its product standards.

ü Third party or independent labeling refers to the practice of an independent agency certifying whether a certain product meets the standards.

ü Binary labeling is the kind where in it answers a yes/no question i.e. if the product has the label; it is fit for consumption, otherwise not.

ü Non binary labeling refers to the extent to which a product meets the specification to classify as green. Eg: A ‘one star' rating vs. a ‘two star' rating

“Eco-labeling,” defined as the practice of providing information to consumers about a product which is characterized by improved environmental performance and efficiency compared with similar products, has gained increasing popularity in recent years. (Basu, Chau, & Grote, 2003)

Eco-labeling is a voluntary process of meeting certain minimum environment standards. It is awarded by a third party. While several eco labels exist today, there is no common understanding on what is credible and what is not.

Labels such as ‘Green Seal', ‘Ecologo', ‘Energy Star' etc. were introduced in the early 1990's. Today more the number of labels for green products has increased manifold.

Some of the commonly used labels internationally are mentioned below:-

Type of Product

Labeling

Variety of products

Green Seal, Ecologo, SMART

Buildings and building materials

LEED

Wood and Paper

FSC

Energy

Energy Star

Computers

EPEAT

Toys

EPA

Apart from firms/organizations/ third parties, the government also realized that there was a need to recognize and reward companies that manufacture products that cause minimal environmental damage.

The eco labels in some of the countries that have been at the fore front with regards to labeling are listed in the table on the next page:-

The eco-label

The program objective

Government role

australia.jpg

Australia

To contribute to the growth of the environmental consumer market in Australia and add commercial

value to companies and businesses which are preferable on environmental grounds.

Run by a non-profit

organization with little

government involvement

Canada

• Promote the efficient use of nonrenewable resources, including

fossil fuels;

• Facilitate the reduction, reuse and recycling of industrial, commercial and consumer waste;

• Encourage the protection of ecosystems

and species diversity

Run by the government

with the main services

outsourced to a private

sector company

European Union

Empowerment of the individual through consumer choice is a central principle of the scheme.

By setting strict ecological criteria for product groups, the scheme enables consumers to make reliable and informed decisions.

Each member state is

required to designate a

Competent Body to

administer the scheme

at a national level. The

Competent Bodies must

be independent and

neutral but with no

restriction on level

of government

involvement

Germany

The eco-label aims at not only environmental protection but also those of consumer protection. Certification is for those products and services which from a holistic point of view that are particularly environmentally friendly and at the same time up to high standards of industrial safety, health protection

Government is heavily

involved, together with

an independent decision-making body called Environmental

Label Jury representing

various interests

On similar lines, the government of India started a scheme called ‘Eco mark' in 1991 to increase consumer awareness and easy identification of environmentally friendly products. The main objectives of the program are:-

1

To provide an incentive for manufacturers and importers to reduce adverse environmental impact of products.

2

To reward genuine initiatives by companies to reduce adverse environmental impact of their products.

3

To assist consumers to become environmentally responsible in their daily lives by providing information to take account of environmental factors in their purchase decisions

4

To encourage citizens to purchase products which have less harmful environmental impacts

5

Ultimately to improve the quality of the environment and to encourage the sustainable management of resources.

Source: http://www.envfor.nic.in/cpcb/ecomark/objects.html

Though Eco mark was launched a good twenty years back, we really do not know how much of an impact it has had on the industry as a whole. Are companies really working towards this certification? Are consumers aware of this certification? If so, does it matter to them?

Another government initiative launched in 2002 called the Bureau of Energy Efficiency (BEE) aims to in developing strategies with an emphasis on self regulation within the framework of the Energy Conservation Act, 2001 with the sole focus on reducing the energy footprint of the Indian industry. BEE co-ordinates with designated consumers, designated agencies and other organizations and recognize, identify and utilize the existing resources and infrastructure, in performing the functions assigned to it under the Energy Conservation Act. The Energy Conservation Act provides for regulatory and promotional functions.

In his paper on the future of green labels, (Case, 2009) mentions that there are three critical components of any labeling program - the validity of the standard on which the label is based, the process used to set the standard and the verification processes used to determine if a product meets the standard.

The process for setting the standard as well as subsequent validation rarely takes into consideration the interest of all the stakeholders i.e. manufactures, end users, suppliers etc. and is focused on only one aspect of the entire certification process. As the number of labels in the market keeps on increasing, it becomes more and more difficult to assess the credibility of each individual label. The lack of a single labeling program gives rise to false claims, false labels and a lot of information asymmetry which leads to market flooded with “lemons” or sub-standard goods.

Another aspect that is often neglected is that of continuous verification and renewal. The shelf life of any certification awarded to a product is limited. Thus, for a green good, such certification should be renewed from time to time. But this is hardly practiced. As a result, may certified goods, though may start out as environment friendly, do not remain so, over their entire life cycle.

The current literature thus suggests that, due to the lack of any single and encompassing standard, the necessity and effectiveness of labeling a green product has been marginalized. Due to the presence of a large number of labels across products categories, it becomes even more difficult to communicate genuine environmental claims that an individual or an organization might have with regards to their product or service.

Consumer and Eco labeling

Too many environmental labels are actually making it more challenging for both government purchasers and the average consumer. Not all labels are created equal. In fact, some of the labels are essentially meaningless. A few creative entrepreneurs have even set up websites to sell environmental certifications online without establishing an environmental standard, requiring any product testing or even reviewing the product. (Case, 2009)

In such a situation, it becomes even more important to understand how a consumer reacts to a product label citing environmental claims. Is the consumer aware of the various labels? Does he understand what each label signifies? Even if he does, how much importance is given to the labeling in the overall purchase decision process?

In their research on consumer perceptions towards labeling, (Tang, Fryxell, & Greald, 2004) try to establish the relationship between the design of the eco-labels and its impact on purchase behavior. Their study concludes that a combination of visual and verbal communication is the much better than the visual only approach followed in most parts of the word.

In her study, to establish whether the urban Indian population would show interest in eco-labeled apparel, (Goswami, 2008) concludes that there exists a segment of consumers who would be positively influenced by eco-labels.

From the literature, it is evident that labeling could play an important part in the decision making process of a consumer. These consumers may be willing to pay a premium for green products that meet the standards and whose labels clearly explain the benefits of the product. However, more research needs to be carried out regarding the same to strengthen this argument. In addition, more efforts need to go into breaking any barriers that consumers' might have in purchasing green products.

Knowledge Gap

While the international market for green goods is relatively developed, the Indian counterpart is still finding its feet. As the number of Indian companies trying to shift to ‘greener' methods of operation increases, the market would also see a steady increase of products which claim to be green. While traditional forms of communication like television or print might be cheap and effective to communicate this claim, it would have to be based on some concrete proof. In this regard, labeling or certification could play an important role.

In India, the use of labeling to market green products is still a relatively unknown area. To differentiate in a cluttered ‘green' market, labeling if used tactfully could serve as a tool not only to sell but also to educate the consumer. It is this knowledge gap that this project tries to bridge.

Research Objectives

Carrying forward from the conclusions as drawn from the literature review and the knowledge gap the following research objectives have been identified:

ü To analyze the current state of labeling & certification in India with regards to green products

ü To study the existing practices followed by the Indian firms'

ü To identify international best practices in the field of eco-labeling and analyze if some of them can be replicated in India

ü To understand the impact labeling has on the purchase decision of the consumer

Initial Hypothesis

Labeling for green products is like a black box - we all know it is important but do not really understand why, so far have not made any significant attempt to uncover this and thus never realized its true potential.

This project would attempt to unravel and uncover various aspects linked with the above statement in the Indian context.

Rationale

This project would primarily look at labeling for green goods from an industry perspective. Some of the sectors that would be looked at are electronic goods - refrigerators, AC's; building and building materials and toys. This list is only indicative. The reason for including different product categories is to develop a labeling framework/strategy that could be applied across verticals with minor customizations based on the product category. Any research done from the consumers' viewpoint would be thus to help the industry understand of any alternate methods that could be employed to aid consumers' purchase decision.

Research Areas/Questions

The two main areas that would be looked at from the company's view point would be:

ü Labeling for the functional product characteristics

ü Labeling as a tool of for differentiating between competing products

ü How is a company using labeling to communicate any environmental claims that the product might have?

From the consumers' view point some of the questions that would looked at would be:

ü Does labeling play a part in the purchase decision for a consumer?

ü How can a consumer be assisted in identifying a green product?

ü Do the consumers derive any value from an ‘environmental seal'?

Research Methodology
Research Design

The research would be divided into two parts i.e. Primary and Secondary.

The secondary data would be reviewed to build a base for the subsequent primary research. The literature review would provide an all round view on the current status of the labeling industry for green goods in India and internationally. In addition, some of the existing works with regards to consumers'; labeling and purchase decision would help identify possible untapped areas.

The primary research would look at the consumer as well as the industry perspective. The main objective of this research would be to uncover aspects of green labeling relevant to the Indian context that have limited literature support.

Consumer

The research would involve secondary research and quantitative methods.

To establish the key areas that a consumer looks for in a green product label, existing literature would be reviewed. In addition, certain elements would be referenced from a parallel research on ‘consumers and green marketing' would be borrowed. This could help establish certain parameters that a consumer looks at while purchasing a green product and thus be further used in the quantitative study.

Quantitative

This would be done primarily to understand the current level of awareness and understanding of the consumer with respect to green labels. Consumers would be asked to rate the importance of certain parameters on the scale of 1-10.

Industry

The objective here would be to understand the industry perspective on labeling of green goods i.e. the current practices followed, implementation strategies, way for the future etc. It will help answer questions like ‘why', ‘how' and ‘when' for the labeling industry in India with regards to green goods.

The method used would be in-depth interviews with working professionals or industry experts. This technique would give a holistic view of the current situation.

However, since a key part of this project is to look at the words ‘green' and ‘labeling' in a manner never done before, the above proposed research design might not serve any purpose in this regard. It would thus be important, to also include, certain newer methods/indicators which give a better understanding of an emerging or upcoming area like green labeling. Eg: Look at blogs, discussion forums etc. for key words that might indicate consumer preferences towards green products. Study company policies on environment to gauge their current level of understanding in this area and what they think the future holds for them.

Sampling Plan

Following are the sampling details for both the consumer and the industry.

Consumer

The sampling universe would be consumers in any one of the eight metros. The judgmental sampling technique would be used since it is convenient and less time consuming. In addition, the idea is here to study an emerging area. Thus, selecting consumers who could be potential beneficiaries of the changes that might come in the future would be one of the major criteria.

Quantitative

The aim would be conduct a survey for 80-100 people. A questionnaire would be administered either in person or online.

Industry

The sampling universe would be the experts from the industry based primarily in the cities of Ahmedabad and Mumbai.

The purposive sampling technique would be used. This technique would take into account constraints availability and time when it comes to industry professionals.

Data Collection & Analysis

The data collected from the industry in-depth interviews would firstly establish the current level of awareness and understanding with regards to labeling of green products. The data, once organized, could then be used to draw further insights and conclusions. These could help establish the possible solutions on how labeling could be used more effectively in the future.

The technique used to analyze the data from the questionnaire would be multivariate regression analysis. This would help rank the key factors that a consumer looks for while purchasing a green product and thus establish where a label fits into the hierarchy.

From an industry viewpoint, this study would aim to:-

1. List the potential advantages of using labeling as a tool to market green products

2. Recommend alternate methods to use labeling more effectively in terms of communicating product attributes and benefits

3. Suggest ways which could help companies differentiate their products on the basis of labeling

From a theory viewpoint, this study would:-

1. Determine the position of labeling within a ‘hierarchy of factors' framework - what are various factors that a consumer considers while buying a green product and where does labeling come into the picture.

International Practices - Indian Context

This section focuses on some of the international practices in labeling and looks at how the same could be replicated or adopted in the Indian context. This section analyzes certain company initiatives, case studies etc. to illustrate ways in which labeling can be used differently and more effectively to reduce the carbon footprint.

Wal-Mart sustainability index

Wal-Mart is about to redefine the shopping experience.

In order to determine social and environmental impact of each product present in its portfolio, Wal-Mart has launched a new project to develop a “sustainability index”. Soon, suppliers of Wal-Mart would need to submit an assessment form with the details of their carbon footprint, production techniques, energy and materials used etc. This data would then be used to create and index that would rate the product on various attributes. The goal is to create a universal rating system on the lines of an eco-label that certifies products on their environmental and social sustainability.

Rand Waddoups, senior director of business strategy and sustainability at Wal-Mart said and I quote, "Imagine one day when every product on the shelf has behind it enough information from a life-cycle-thinking perspective that allows us to be much, much more intelligent about how we're buying," he said. "And really, in the end, eventually, what consumers should be."

The index is developed to serve as a tool to combat false or misleading claims. The details of how exactly the indexing system would work are not public yet.

Wal-Mart is forming a consortium of sorts consisting of suppliers, other retailers, academicians, and environmentalists etc. to help them with the project. Consumer-goods companies Unilever, Procter & Gamble and General Mills among others are partners in the consortium. And competing retailers including Costco and Target have been invited to join.

The objective of forming the consortium is two-fold. One, it ensures that the index being developed is not a “Wal-Mart” index. Two, once the index is developed and accepted, it could then be used by the other retailers. As quoted by Mike Duke, CEO Wal-Mart "This is not a Wal-Mart effort, our desire is for this to be a global standard."

This Wal-Mart initiative offers both a huge business opportunity and could act as a catalyst to growth o of the environmental business. The suppliers of Wal-Mart may not be necessarily equipped to audit their entire supply chain for the carbon footprint. This has already and could potentially lead to several carbon accounting and auditing firms being formed for the same.

Eg: Clear Carbon Consulting, is one of the many consulting firms stepping forward address the knowledge gap and act as a guide to thousands of Wal-Mart's suppliers in their journey towards becoming more environment conscious. Clear Carbon's method involves using multiple resources like an e-portal, webinars; white papers etc. which could give suppliers strategic insights into becoming environmentally sustainable.

Wal-Mart's massive reach and cash reserves form the backbone of such an initiative. Though some question Wal-Mart's role and credentials to start such an initiative, the possible outcomes could be fruitful if everything goes to plan. Firstly, this initiative, being done by the world's largest retailer would garner industry as well consumer attention. It could potentially make manufacturers by force and consumers by choice more sensitive towards the environment. As with any category, once one player and in this case the market leader starts an initiative, other in the same business are bound to follow.

This Wal-Mart project has the potential to become a game changer in retailing by forcing manufactures do revisit their supply chains and analyze and if required modify certain aspects to meet certain environmental and social standards. While some suppliers might have been keeping a tab of the same for many years, they would now need to report is as per Wal-Mart's requirements. Others would need to soon follow so as not to disappear from the retail shelf. There could be a day when the competition for shelf space in a Wal-Mart store is based on the sustainability index too rather than just the price a supplier is willing to pay.

The move could start a new era christened "Supply Chain Environmentalism."

Businesses in this newly minted era of Supply Chain Environmentalism would have an additional tool at their disposal to garner market share and reduce market risks. At present, the differentiation occurs mainly on the basis of price, brand and other traditional techniques. This could change with factors like sustainability and carbon footprint adding to the list of competing factors.
Can an Indian retailer do a Wal-Mart?

As seen above, an initiative by a strong player in any business does not pass without notice and usually has long lasting effect. The question to be asked is if something similar can be done in the Indian market.

Following are some of the Pros and Cons towards such an initiative to be start and eventually work in the Indian Market:-

The pros are as below:-

Ø Organized is headed towards massive growth due to a booming economy, increasing per capita income and favorable demographic patterns. Government initiatives like relaxation in the FDI norms also are contributing to the retail growth.

Ø The Indian market is also characterized by the presence of the big names in the retail business like Reliance, Bharti and the Future Group. If these groups come together and develop a consensus on any issue then they could too use strong arm tactics with the other stakeholders like manufacturers, suppliers etc.

Ø More and more Indian companies want to go green. Though currently, it seems to be a fad and a sort of a CSR activity, going forward, these companies would want to incorporate practices that reduce the impact if their operations on the environment and eventually cut cost

Ø Entry of global giants like Wal-Mart, Tesco and thus their best ‘green' practices may force the local retailers to follow suit.

Ø If the trend for green consumerism catches on, the first player to launch such an initiative will attain maximum attention and thus eventually mind and market share.

The cons are as below:-

Ø The organized retail market forms only 5 percent of the entire retail market. It is a value based model and not a volume one. Thus, introduction of such a label might not be sustainable at this point in time.

Ø If the next big wave in the retail market lies in the rural areas, then launching such an initiative in these areas would need massive investment in infrastructure, education, training and other such activities.

Ø Due to the presence of a large number of intermediaries in the retail supply chain, the very reason for a launch of such a label might be difficult to explain all the involved players.

Case in Point: HP Eco highlights label

Green computing or green IT refers to the practice of responsible and environmentally sustainable computing. It involves reducing the impact on the environment through the entire gamut of activities like design, manufacturing, packaging, disposal etc.

Hewlett Packard (HP) has been in the forefront of green computing, In August 2008, HP launched a series of initiatives to help consumers reduce their environmental impact when using HP's documentation solutions i.e. copiers, printers etc. One of such initiatives was the launch of the HP Eco Highlights label. As with any label, it was launched to assist consumers in measuring the impact of the HP product on the environment. But there was something different. The label not just highlighted one or two aspects of the environmental impact that the product had but sort of certified it throughout its life cycle from manufacturing to purchase and even had instruction for post purchase usage.

Some key highlights of the label included:-

Ø Recycled cartridges

Ø Recyclable packaging

Ø Auto-on/auto-off with deep-sleep modes

HP Eco Highlights

This case thus shows that a combination of text as well as imagery can be very effective in communicating environmental benefits. In addition, the label highlighted the attributes of the entire process rather than of just the final product. The fact of the matter is that HP adopted the green philosophy across its operations which it could put on this label.

Labeling in India

This section of the report looks at labeling/certification in the Indian scenario and the practices followed by certain firms in this area. Secondary research and depth interviews were the primary tools used for analysis.

The research conducted was restricted to the following categories:-

Ø Consumer electronics/ Home Appliances

Ø Industrial energy solutions

Ø Information Technology

Ø Infrastructure and Buildings

Ø Organic Food

The guidelines for the depth interview with industry experts and the excerpts from all the interviews are detailed in appendices A and B respectively.
Case in Point: Indian Green Building Council (IGBC)

The leadership in Energy and Environmental Design (LEED) is a building rating system. It was developed by the U.S. Green building council. The system certifies building based on their impact on the environment through the design, construction and maintenance phase.

Based on LEED, the Indian Green Building Council (IGBC) was established by the confederation of Indian Industry (CII) to rate buildings in India. The rating system followed by IGBC tries to maintain a balance between the established practices and the emerging concepts.

The IGBC certification is much sought after by builders of newer projects. The IGBC certification brings with added benefits like the power to charge a premium for the property besides contributing to the environment.

The real growth driver for the IGBC certification has been the spurt in the new constructions for the Indian corporate sector. Many corporate buildings today strive for IGBC certification. This not only gives them brownie points and PR but also acts as a step in their effort to become environmentally conscious.

Some of the certified corporate buildings are:-

Project

Location

Rating

Wipro Technologies

Gurgaon

Platinum

Microsoft Building 3

Hyderabad

Gold

Rajiv Gandhi International Airport

Hyderabad

Silver

TCS Techno park

Chennai

Gold

Cognizant green campus

Coimbatore

Gold

Kohinoor Hospital

Mumbai

Platinum

Cisco

Bangalore

Platinum

The IGBC certification is poised for further growth as the real estate sector grows, builders look towards alternate methods to differentiate their properties and corporate India keeps expanding.

But there rating system cannot be looked upon in isolation. IGBC rates IT parks and factories based on buildings and immediate premises alone. If such an IT park or a factory employs thousands of people who use one or modes of transportation to reach the place, then is it reducing the carbon footprint or increasing it?

May be solution lies in revisiting urban planning and real estate development.

Case in Point: Fab India

Fab India has been a success story beyond measure. Fab India strives to act as a channel of marketing for diverse craft traditions in India.

Its product portfolio includes:-

Ø Garments

Ø Accessories

Ø Home Products

Ø Organic food

Ø Personal care products

Fabindia Organics carries several types of pulses, spices, sugar, tea, coffee, honey, fruit preserves and herbs.

In India, Organic certification standards are set by the National Programme for Organic Production (NPOP). The basis for these standards is the International Federation of Organic Agriculture. Farmers need to tie-up with one of NPOP's accredited agencies to certify their farm. Full certification takes a process of around three years.

Fab India classifies its organic food products on the basis of the following color codes:-

Color

Meaning

GREEN

Fully certified Organic farm. No chemicals used for a long time. The product is fully certified by an external accredited organic certifying agency

BLUE

In conversion. No chemicals used. The produce is from farms in conversion for organic certification

YELLOW

Natural. Farmed naturally without a history of chemical use. Certification process not yet started.

Fab India thus has made an attempt to certify products based on their environmental impact an thereby help the user make an informed choice.
Insights/Conclusions

Ø In India, labeling of green goods is still an under developed phenomenon. Consumer ignorance is cited as a main reason by the industry for the current state of labeling.

Ø Labeling of products is done mainly to comply with certain standards rather than look at it as a tool to communicate information to the consumer.

Ø Some companies consider certifications as added cost rather than an investment in building the brand.

Ø Infrastructure and IT are the two sectors which have started and could potentially use labeling to not just communicate impact of products on the environment but also a tool to differentiate their proposition.

Ø The major source of revenue for the IT industry comes from clients located in U.S. and Europe. Since in these parts of the world, the philosophy of green is much more evolved, the Indian companies are bound to investing heavily in the green initiative and get certification for their products and services to meet quality standards of the west.

Ø The green philosophy is not necessarily percolating down to all levels of management. If at the point of sale, there is a knowledge gap with regards to the certification/labeling, such an incident can send the entire green policy for a toss.

Labeling & the buying process

One of the study areas of this project was to identify the role labeling plays in the purchase decision for a consumer.

A questionnaire/score sheet was administered to 102 people wherein they were asked to give scores out of ten to the following five parameters:-

Ø Brand

Ø Packaging

Ø Label

Ø Price

Ø Communication

The above 5 parameters were arrived at after exhaustive secondary research, assistance from colleague doing a study in the area of green consumerism and keeping the Indian context in mind with regards to green marketing.

In addition, respondents were asked to give an overall rating out of fifty with regards to their intention to purchase a green product given that

This primary research was subject to the following assumptions:-

Assumptions

Ø A green product here is limited to the following product categories:-

o Electronic goods - computers, AC's, mobiles etc.

o Alternate Energy devices - Solar water heaters

o Automobiles - Hybrid Cars like the Toyota Prius

Ø The above five parameters are the only ones that a consumer considers while purchasing a green product.

Ø The factor ‘communication' is all inclusive of advertising, sales promotion, point of sale activities etc.

Ø The impact(positive) that a product has on the environment is constant for all the products

Analysis

After data cleansing, the data set was reduced to ninety two. A multivariate regression analysis was run on this data with the following results:-

Model

Variables Entered

Variables Removed

Method

1

Communication, Packaging, Brand, Label, Price(a)

.

Enter

a All requested variables entered.

b Dependent Variable: Overall

Model Summary(b)

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

Durbin-Watson

1

.996(a)

.992

.991

.590

1.950

a Predictors: (Constant), Communication, Packaging, Brand, Label, Price

b Dependent Variable: Overall

Coefficients(a)

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

Collinearity Statistics

B

Std. Error

Beta

Tolerance

VIF

B

Std. Error

1

(Constant)

.364

.561

.649

.519

Brand

1.036

.037

.325

27.754

.000

.938

1.066

Packaging

.981

.036

.321

27.421

.000

.937

1.067

Label

.904

.061

.175

14.745

.000

.917

1.091

Price

1.044

.029

.462

36.014

.000

.781

1.280

Communication

1.009

.028

.461

35.624

.000

.768

1.302

a Dependent Variable: Overall

The detailed regression output is attached in Appendix A.

Based on the regression analysis, the following framework arises:-

Hierarchy of Factors

The above framework shows the relative importance of all the factors that a consumer considers while purchasing a green product.

Though, through analysis done on the data, it is possible to associate a numerical value to the importance in terms of percentage, the same has not been done, due to limited sample available.
Insights/Conclusion

Ø Price, communication and brand are the primary factors a consumer looks at while purchasing a green product. This is primarily because the market for green products is still in the developing stage and thus it is much easier for a consumer base his or her judgment on the popular parameters.

Ø Since green products are still bound by a limited audience, there is a perception that anything green is expensive. Thus, price becomes of primary importance while making a purchase. Once consumer acceptance for green products increases and such products achieve mass appeal, price will reduce further and thus may not remain of prime importance while making a buying decision.

Ø The reason why labeling comes at the bottom of the hierarchy is primarily because of the low awareness and understanding at this point in time. In addition, the focus of most of the brands is on the other communication tools like traditional advertising - TV and print to which the audience is most exposed to.

Conclusion

The initial hypothesis of Labeling for green products being like a black box holds true for the Indian context.

Most of the current certifications focus only on one attribute or the final product. As a result, the impact on the environment through the course of the product life cycle from manufacturing to consumption to disposal is lost and never addressed.

A majority of the consumer product companies view certifications has a necessary evil. Certifications in most cases are done for the sake of it without any thought towards how they could be utilized to market the product. However, there are exceptions like Fab India.

Some companies even consider it as cost that could affect their margins.

Even those that invest in and want its products to meet certain quality standards do not have policies and procedures in place to ensure participation throughout the value chain. As a result, a green initiative that starts from the corporate head quarters does not have a cascading effect.

Eg: Videocon has undergone a rebranding exercise to project a greener image and show their concern for the environment. However, no information is available easily on how exactly it plans to adopt this green thinking throughout its value chain.

A major part of the communication spends for any green initiative is towards traditional advertising like print and television. This is primarily high reach of the medium and the low cost incurred per person. Not much thought is put into using this money at the point of sale by investing into activities like labeling.

In addition, most of the current communication is campaign focused thus propagating the brand only. Eg: IDEA's latest campaign of propagating usage of mobile VAS services and thus saving paper. While usage of mobile phones would save paper, what about the carbon footprint its production, consumption (of electricity) and disposal imprint?

The institutional market is much more aware and developed with regards to certification. Companies need to follow certain guidelines for which they need certification. IT and infrastructure companies are driving the growth here. IT companies look upon certifications as a source the boost their image. With more and more projects like Amby Valley, Sahara City etc. coming up, such projects vie for the latest green house certification.

Consumer segmentation is nonexistent when it comes to marketing of green goods. This is because of the view of most companies that anything that is harmful to the environment is shared problem of the entire population. The only segmentation that is done as of now is based on geography i.e. urban and rural areas.

There is a lack of awareness and understanding amongst the consumers with regards to green labels. Thus, it does not carry much weight in their selection of one product over the other.

The government certification agencies like Eco Mark, BEE, MNRE, SEC etc. have been successful only to a point and for select product categories.

Recommendations

Labeling of green products need not become the primary factor while the purchasing process. In fact, it will always continue to act as a support function. However, it has the potential to shift higher in the hierarchy of effects framework described earlier to become the second or third criteria while buying a product. In India, for this to happen, following are some thoughts that could help achieve the same and drive the green movement forward:-

Since the market for green goods is still in the introduction phase, no consumer database is available. As a result, companies do not follow any segmentation approach while talking to the consumers. A one size fits all approach is adopted. This needs to change with companies identifying how each consumer consumption habits can be mapped to the environment. A starting point for the same could be to look at proxy factors like Fab India sales data, companies promoting video conferencing etc.

Green labels need to become much more visible in the retail landscape. In this regard, a Wal-Mart kind of sustainability index solution in the Indian market could help achieve this. A big player like Reliance can take the lead in such a case.

To gain credibility, the labels should ideally communicate the impact on the environment through the life cycle of the product. The labels must carry visual as well as verbal communication to communicate this. The HP Eco-Highlights label is an example for the same. This not only educates the customer but also increases the effectiveness of the label.

Increasing consumer participation can help spread awareness about labeling and certifications. Eg: A URL on the label inviting customers (and prospective customers) to learn and participate in any discussion on certifications will not only spread awareness but also give impetus to the green movement.

To build consumer awareness, more initiatives like the NDTV-Toyota Greenathon can be launched.

A single third party certification agency or body with all industries covered would be the ideal solution to solve the issue of credibility.

Limitations

The idea of a green good and green marketing is still very new in the Indian context.

In addition, it is an area where in any company would always want to project its' concern for the environment. An issue where all the correct things are said in the public domain, without any concrete proof for the same.

In this regard, some of the research conducted as part of this study, especially the in-depth interviews might not show the complete picture.

There are multiple factors that can either assist or deter the growth of green marketing and labeling in India. For this study, some assumptions have been made regarding the same. Eg: This study mainly focuses on the industry point of view. It does detail any factor from the consumer side that could act as a potential deterrent to the acceptance of green marketing and labeling.

Future Scope

The study conducted was primarily done with an urban focus. Rural India presents a huge opportunity for usage of alternate forms of energy and other green products. Currently, the largest market for solar panels is in the rural areas. As more and more companies shift their focus to rural India and start developing products for the same with a green mindset, someone other than the government would need to help them asses and certify the quality of the products. In such a scenario, especially in the media dark areas, labeling could help rural consumers identify eco-friendly products. This area presents tremendous opportunity and raises issues like - what aspects should be labeled? Should it be done in the local language? Will only visual communication work?

The Indian economy is a service economy. In the service industry, processes need to be certified. Right from restaurants, hospitals, airports etc. vie for the highest level of certification. Is this only for building an image or a well thought out plan to reduce the carbon footprint? What does ISO 9000 or 14000 mean to the consumer? Does he even bother about such certifications? Another potential area for this kind of study in the area of labeling/certifications.

Out of the Box - Redefining Green

Since the study started with looking at green, green marketing and labeling in a manner never done before, I feel it should also end with something different. The following is not necessarily based on any kind of research but is an output of the work done during the course of this study.

My analysis as described in the sections above uses a top-down approach to show the current state of labeling in India, what could be done to help it grow in the future etc. Now, in the section below, I suggest some thoughts that could be looked upon while approaching the topic of labeling and green marketing.

A cigarette lighter could be potentially marketed as green product. Over the life cycle of a cigarette lighter, imagine the number of match sticks that could be done without and thus the wood and so on. If some study can be conducted in this area and this can be proved, then the lighter can carry a label communicating the same.

A video conferencing is a green product. This is because it is possible to communicate with people at different locations without the need to be physically present at those locations thus reducing possible Co2 emissions from cars, planes and avoiding the usage of other allied places like hotels etc. Most of the current certifications on any video conferencing device are related to the four aspects - audio, video, networks and standards. Perhaps, there can be an additional label stating the reduction in carbon footprint the device can cause.

A popular beverage in India is coconut water. An unadulterated beverage, it can be considered as an effort to become green. Can there be a company that puts a label on this highlighting this fact?

Appendix A - Depth Interview Guideline

Since, the interviews were done in conjunction with another research in the similar area of green marketing, only the questions pertinent to this study are mentioned below:-

Some of the key issues/questions that the guideline addressed were:-

Ø What are the various certifications that the products you manufacture carry?

Ø Could you please describe the importance of each of the certification carried by your product?

Ø Do such certifications/ labeling programs help in the communicating what the company is doing for the environment?

Ø What role can labeling/certification play in promotion of green goods?

Ø Do you think labeling can serve as a tool to differentiate amongst competing products?
If so, why and how?

Ø Rural areas and certification/labeling - can we bridge the education gap?

Appendix B - Industry Interview Excerpts

The excerpts of the interviews from the various industry experts are documented below.

Interview 1

Name

Mr Bhaskar

Company

XYZ (Name changed on request)

A leading IT company

Designation

GM, Product Marketing

Mr. Bhaskar said that since he was in the IT products business, labeling was extensively used. Labels like Energy Star were used to convey the energy saving for a computer and associated peripherals. He said that IT companies in particular were at the forefront of the green movement and thus use of labeling followed. Eg: Every leading manufacturer has a ‘Please shut your laptop' sticker. The reason why labeling is not given much importance is the additional cost involved in getting the certification or putting up a sticker and also due to consumer ignorance. He felt that there is a serious need for a single regulatory body to certify all products and thus eliminate any bias.

Works Cited

Babyak, R. (2008). The Meaning of Greening. Appliance Design , 4-4.

Basu, K., Chau, N., & Grote, U. (2003). Eco-Labeling and Stages of Development. Review of Development Economics , 228-247.

Case, S. (2009). The Future of Green Labels. Government Procurement , 22-23.

Delise, J. (2009). The Meaning of Green. DMI News & Views , 6-15.

Goswami, P. (2008). Is the urban Indian consumer ready for clothing with eco-labels? International Journal of Consumer Studies , 438-446.

Iyer, Easwar, Banerjee, & Bobby. (1993). Anatomy of green advertising. Advances in Consumer Research , 494-501.

Jain, S., & Gurmeet, K. (2004). Green Marketing: An Indian Perspective. Decision , 168-209.

Kleiner, A. (1991). What does it mean to be Green? Harward Business Review , 38-47.

Payne, H. (2006). Standardised description, A form os specification labeling. Journal of Marketing , 234-241.

Saxe, D. (2009). What does Green mean? Pollution Engineering , 18-19.

Tang, E., Fryxell, & Greald, E. (2004). Visual and Verbal Communication in the design of Eco-Lable for Green Consumer products. Journal of International Consumer Marketing , 85-105.

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