Commentary: Green Building and a Loaf of Bread - Differences

Lead Author: Dr. Jeff Howe

Publish date: 04.19.2011

 

Earlier this year, we published a report on green marketing that discussed some of the various market segments and their interests and involvement in green products as well as some strategies for getting involved in the green marketplace.  In this commentary we want to address one of the most frequently asked questions in green marketing: “will people pay more for green products?”

 

Like all great marketing questions of our times, the answer to this question depends completely on the specific market segment involved and the specific product.  From significant personal experience we can state unequivocally that some people will pay more for green attributes, and some won’t.  The amount of that premium is intimately linked to the nature of the benefits perceived and the characteristics of the market segment involved.  Also, the reality is that this answer is true for all products – green or otherwise.

 

In general, people will pay for what they, as an individual, perceive as real value in any product. The perceived value of a product is based on the sum of a series of both rational and analytical processes and personal opinions.  Individuals can have extremely different, even diametrically opposed perspectives about the value of certain products.  For example, one person’s really cool Fetchstix* is another person’s…well…stick.

 

The marketplace has clearly demonstrated that an increasing number of people are willing to pay more, and sometimes significantly more for some green products – such as local, organic food.  In these situations the individuals perceive clear, valuable benefit from local organic food such as greater health and nutrition, safety from possible chemical contamination, and increased income and jobs for the region.  Some of these individuals who are considered market leaders in the green movement today are the same “crazy radicals” of the past that sought out wheat bread when white was the industry standard. Their “radical” concerns about the nutritional value of the “Wonder Bread” of the 1970s have been vindicated by nutritionists of the twenty-first century.  Considerations such as, “what is the relative value of a loaf of processed white bread today as compared to one made from whole wheat” are at the heart of the “will people pay more for green attributes” question.  Surely the former is lower in price today, but anyone that has looked at the bread aisle lately can tell where consumer’s choice, and willingness to pay, has moved in this regard.

 

To a certain extent housing is facing the “Wonder Bread” dilemma.  That is, there is a significant push by a small, and rapidly growing, segment of the population for more energy efficient, healthy, and homeowner-friendly housing.  Housing is such a major purchase that individuals may be looking for all these benefits or only some of them depending greatly on the specific market segment. In broad general terms, baby boomers are interested in whatever additional benefits they can get without paying for them, generation “X-ers” are willing to pay for energy-efficient enhancements, and Millennials (who are barely into the age for buying starter homes) tend to value the whole list.  Obviously these are broad generalizations, but surveys suggest there is an element of truth to this approach.

 

The challenging part in developing an active and broad green housing market today is that there are few Millennials either buying or building houses at this point, so those builders trying to sell homes to the new and growing green housing market tend to be the “boomers” who don’t really care or the “X-ers” who care primarily about energy efficiency.  The good news is that these builders match up well with a majority of people looking for homes today and the bad news is they don’t match up well with the upcoming generation or with current market leaders in the green building movement.  As a result, so-called “green” houses are often standard design houses that have been “greened up” by the substitution of more environmentally friendly products and more energy efficient construction.  Both of these are improvements, but this is also the most expensive way to “Green” a home.  To market leaders – which are dominantly the ones actively seeking green homes today – it is a bit like putting lipstick on a pig and trying to charge more for the pig.  From their perspective the design characteristics that are so important to a comfortable, well-functioning green home are missing.  The whole concept of designing and building a home which functions specifically the way an individual homeowner lives is clearly and inherently missing in any speculative green model home.

 

With houses it is critical to begin to differentiate between paying more for a specific attribute versus the overall cost of the total product.  For example, does an 1,800 square foot extremely well-functioning home made with green materials, highly energy and water efficient construction and priced at $200,000 cost the home buyer more than a 2,000 square foot traditionally constructed house offered at the same total list price? On a per foot basis it does…on a total cost basis it doesn’t! And, IF the green home has significantly better indoor air quality (healthier), uses significantly less energy to operate (more energy efficient), and is easier to clean and maintain – does it cost more, the same, or perhaps less overall?  If you believe the smaller, greener home actually costs less, then where is the balance between the square footage involved, the total other benefits received, and the cost?  Obviously the answer is that it depends… on the homebuyer!

 

So the answer to the question of whether or not people are willing to pay more for a green building may really lie in the answer to the question, is the house really whole wheat, or just Wonder Bread with a dab of jelly?

 

Dr. Jeff Howe

April 2011

 

*  www.fetchstixvt.com : Fetchstix are described as bundles of three 11” Vermont hardwood sapling sticks, tied together and sold with a fully illustrated owner’s manual. (Yes, you throw them for your dog).