Green, Greener or Brown: Choosing the Right Color of the Product

Document Type

Article

Publication Date

1-14-2015

Publication Title

Annals of Operations Research

DOI

10.1007/s10479-014-1781-5

ISSN

1572-9338

Abstract

There does not exist a one-size-fits-all green product strategy in green market, and formulating a strategy that aligns a company’s economic and environmental goals is no small feat. In this paper we provide insights into a firm’s green product strategy choice with a focus on two alternative strategies: Greening-Up and Greening-Out. In doing so, we incorporate two important characteristics of the customer market where there are substantial numbers of customers who are potentially receptive to a green appeal: (1) Customer market is divided into three distinct and mutually exclusive segments based on large-scale surveys and interviews conducted to measure both customers’ willingness-to-pay for products with environmental attribute(s) and their propensity to buy these products; and (2) We factor in the findings of the most recent market behavior studies that even the customers that demonstrate the least environmental responsibility of all the segments can buy green products for non-environmental reasons. The contributions and findings of our work are as follows. First, we characterize the market- and product-related factors a firm should act on for a successful execution of green product strategies. Second, on the basis of customer choice data available, we assess the strategic fit of distinct pricing options under each strategy choice with the objective(s) of a firm. Third, we explore the extent to which a green product strategy creates higher environmental benefits while providing economic payoffs to a firm. In contrast to prevailing view, we show that greening up an existing brown product is not necessarily better at reducing the environmental impact of a firm than designing a new green product. We observe that responsiveness of the least environmentally conscious customers to environmental attributes added into a brown product sets one of the two major constraints on the environmental performance of Greening-Up strategy. We also observe that there does not exist a strict dichotomy between having a better economic performance and achieving a higher environmental performance, and a firm can achieve both goals simultaneously, even if it means leaving out serving some of the customers targeted by the firm’s existing brown product.

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