Over the decades, I’ve seen two main approaches to pricing products with regard to sustainability:
- Premium pricing (a “greenium”) that effectively considers sustainability attributes a luxury factor justifying higher price tags than comparable “standard” products. Sometimes this reflects customer trends/demands (e.g., clothing, organic food, electronics/appliances), but it can also higher costs of new technology/materials (e.g., EVs, sneakers). This is common in consumer products.
- Lower prices resulting from reduced operating expenses from successful energy efficiency programs (e.g., solar power, reduced electricity demand), transportation efficiencies (e.g., more products per vehicle or per mile) or lower material costs (e.g., using recyclable/secondary materials, reduced packaging). Generally, I’ve seen this more frequently in B2B situations.
Makes sense, but these aren’t rules and things don’t always fall neatly into place like this. For instance:
I went to buy new heads for my electric toothbrush last week and was flummoxed by what I found. A small package containing two heads was 50% more expensive than a larger package from the same brand containing a complete electric toothbrush and an extra head. Moreover, the heads were placed several feet from the complete toothbrushes – reducing chances that buyers would compare these prices.
How is it that the heads alone in a smaller package are so much more expensive than the larger package made up of more material overall (battery, electronics, plastic housing, and same heads)?
Companies should consider a third approach or factor: common sense pricing that encourages consumer trust in corporate sustainability claims – especially across adjacent products.
Sustainability leaders, staff and advisors – you may participate in new product development strategies, it is also important to have at least some involvement in pricing for existing products. Sure, loss leaders have a place in the market, but wildly disparate price points for adjacent products or replacement parts frustrate customers and undercut the credibility/sincerity of your company’s sustainability efforts. It is possible these situations could even be used as evidence against a company in greenwashing lawsuits.
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