Shouldn't firms price their sustainability products cheaper than ordinary ones? Since the production of them involves less resources (such as water, energy, and so on). Or we still have to pay more because of innovation costs?
I agree very much the Bottom of Pyramid (BoP) perspective helps us to analyze pricing to the broad socioeconomic market. The chapter by Stuart Hart (below) explains very well how innovations will support low pricing and green products from the base of the pyramid to the ToP.
Hart, S.L. (2011). Taking the Green Leap to the Base of the Pyramid. In: London, T. & Hart, S. Next generation business strategies for the base of the pyramid: new approaches for building mutual value (pp.79-102). New Jersey: FT Press.
Best regards, Farley
This is a good question and in fact it would be true to have higher prices for "pollution-products". But not the sustainability products had to be priced cheaper (their price is "all right" including the external costs) but the ordinary products must be a gap more expensive if external costs were included. Then of course sustainability products are cheaper compared to them.
Why is it not possible? The actual economic system doesn't allow to do it because too many producers were able to externalise their pollution/waste/slavery/noise and whatever costs to nature and the public....
I know of an organic cotton story published in in Uganda's New Vision in late 2008 where less inputs were used in production, but also yield was very low and farmers' profitability was very low compared to that from conventional production methods. So, sustainability production costs involve tradeoffs and are not necessarily lower.
Hi Farley,
Yours is a very good question.
In this regard, Gauthier (2004) investigates the topics of pricing and sustainable development. Her paper presents an application of the Contingent Valuation Method to a public sector case on environmental preservation. I hope you find it useful.
Here you can also find a contribution of United Nations on sustainable transport pricing and charges: http://www.unescap.org/sites/default/files/pricing_fulltext.pdf
Best,
Francesco
Article Pricing sustainable development
Hi Farley.
Very interesting question indeed.
Although not very optimistic and probably somewhat outdated I think the “The Other CSR” By Timothy Devinney, Patrice Auger, Giana Eckhardt, & Thomas Birtchnell, Stanford Social Innovation Review Fall 2006, is worth checking.
Their main point is that although there are a lot of with international surveys showing that average consumers do care about ethical issues are willing to pay a premium price for sustainable products, the results at the checkout are not always so encouraging.
According to the authors, when measured by opinions, results show a more positive picture of consumer involvement in ethical issues that when measuring actual consumer behavior (much less optimistic), suggesting “consumers are not willing to put their money where their mouths are”.
Trying to be more positive, I would suggest looking into articles on the developments on Social Entrepreneurships where there are good number of examples of companies and products that succeed in maximizing social and/or environmental impacts, while making money.
Best
Luis
These products have a differential characteristic and have to compete in a culture of market. To continue a company its economic activity need adjust its management to the local economic culture, and it supposes that company need adjust its costs of management for sales and for purchases too. This effect can be studied by attached reference.
Article Analysis of the Motor Vehicles Manufacturing Sector in Catal...
Thank you all for your support / answers. I would complement my question by asking you on: - whether or not BRICS (Brazil, Russia, India, China and South Africa) consumers would pay more for sustainable products (since they have a large BoP market)? - or the success of sustainability products depends of the "better design/functionality and same/lower prices" than ordinary products? Regards, Farley
Sorry to contradict many of above answers:
The success of sustainable products is to raise sustainability first (less energy, less waste, more care to the earth) and market success and business second! Otherwise it is by definition not sustainable.... Therefore the intelligent people of BRICS countries buy such products EVEN if they have a higher price. It is about a raise in cultural-profits not a raise in money-profits!
The acquisition of sustainability products supposes a change to customer and too a commitment with a culture of sustainability. But the main problem is the culture of economic environment. for example, companies located on north of Johannesburg have a different management of companies located on east of Johannesburg. These differences are due to different cultures of comerical and financial transactions where company is located. A company need adjust its management to this culture which affects too all areas of management of company, not only the marketing o comerial area. So that the high or different prices not is only for this kind of product, also the prices have to endure the culture of location of companies.
Maybe I'm not correct but maybe using customer pricing will lead to a best police.
This is just an experiment, noun also by democratic pricing.
Hi.
To add up a little to this interesting discussion, let´s state that if we want to address this relevant issue with as scientific lens we need to assure that our arguments should be linked to theory and previous research and data available for review and criticism.
Since Prahalad introduced the term BoP (see Prahalad, C.K. 2005. Fortune at the Bottom of Pyramid. Wharton School Publishing ) that researchers have been focused on these major markets. This large segment of People represents a simultaneously a major challenge and opportunity for multinational corporations, to provide affordable solutions that help mitigate poverty and its consequences. Unfortunately these populations are not wealthy, so higher prices can be indeed a barrier for high priced sustainable products in BoP markets.
This is where innovation that reduces the complexity of goods by removing all nonessential features might make the difference, bring prices down. Another approach might be to maximize the social (e.g., local employment ) and/or environmental ( e.g., less water and energy consumption) impacts, making sustainable products competitive on large those markets.
Best to all.
Luis Fonseca
I agree very much the Bottom of Pyramid (BoP) perspective helps us to analyze pricing to the broad socioeconomic market. The chapter by Stuart Hart (below) explains very well how innovations will support low pricing and green products from the base of the pyramid to the ToP.
Hart, S.L. (2011). Taking the Green Leap to the Base of the Pyramid. In: London, T. & Hart, S. Next generation business strategies for the base of the pyramid: new approaches for building mutual value (pp.79-102). New Jersey: FT Press.
Best regards, Farley
One of the aspects that determine the difference in prices is also that in the "business as usual" the prices doesn't take into account all the environmental costs. In the current economy all the aspects environmental related are not accounted. If this happened, e.g., fuels will be much more expansive like all the other products: in their current price there isn't the voice for the climate change, natural disasters caused from cc that is caused itself (very probably) from the massive use of not-renewable energy (GHG)....and so on...
In the current "business as usual"... the environmental costs are not accounted: use of the land, the biodiverisity loss, the not sustainable use of resources in agriculture, the health costs of pollution, and so on....are simply not accounted: if accounted....the prices will be very different....
On the contrary, producing in a green way....the prices are higher (e.g. in my field, agriculture) also because the much higher quantity of time and work /product.
If I decide to produce greener....normally...at least the time is a key factor because the greener way it isn't industrial.....with all this entails....
You are partially right.
Sustainability products should have lower prices but only if we analyze them as isolated product(s).
But if we see and analyze whole company and all products and services that the company puts into the market, we have to know tthat excellent and profitable products and services "cover" less profits of other products and services that the company developed and placed into the market.
Why companies put such products place into the market? It can be several reasons - image, future activities, taking parts of the markets of competitors, preparing company to enter on new market(s), etc.
I hope this explanation is usefull to you.
Best regards,
Igor
Dear Farley, traditional products/traditional market pricing, green products/green marking pricing, and sustainability products/sustainability market pricing to respect the theory-practice consistency principle....
You can find some food for thoughts on this in the following articles:
Complex and Man-made Markets: Are We Currently Approaching Sustainability in a Backward and More Chaotic Way in Terms of Economic Thinking?
https://www.researchgate.net/publication/281277199_Complex_and_Man-made_Markets_Are_We_Currently_Approaching_Sustainability_in_a_Backward_and_More_Chaotic_Way_in_Terms_of_Economic_Thinking
Understanding the Death and Paradigm Shift of Adam Smith’s model: Was Going Green the Only Option? If not, Is This Option the Most Sustainable One?
https://www.researchgate.net/publication/299882613_Understanding_the_Death_and_Paradigm_Shift_of_Adam_Smith%27s_model_Was_Going_Green_the_Only_Option_If_not_Is_This_Option_the_Most_Sustainable_One
Beyond Traditional Market Thinking: What is the Structure of the Perfect Green market?
https://www.researchgate.net/publication/302025169_Beyond_Traditional_Market_Thinking_What_is_the_Structure_of_the_Perfect_Green_market
Beyond Green Market Thinking: What would be the Structure of the Perfect Sustainability Market?
https://www.researchgate.net/publication/303014272_Beyond_Green_Market_Thinking_What_would_be_the_Structure_of_the_Perfect_Sustainability_Market
Article Complex and Man-made Markets: Are We Currently Approaching S...
Article Understanding the Death and Paradigm Shift of Adam Smith’s m...
Article Beyond Traditional Market Thinking: What is the Structure of...
Article Beyond Green Market Thinking: What would be the Structure of...
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