Green products and corporatestrategy: an empirical

investigationClare D’Souza

School of Business, La Trobe University, Bundoora, Australia

Mehdi TaghianDeakin Business School, Malvern, Australia

Peter LambLa Trobe University Albury Wodonga, Wodonga, Australia, and

Roman PeretiatkosLa Trobe University, Bundoora, Australia

Abstract

Purpose – The purpose of the study is to examine the influence of multiple factors on the greenpurchase intention of customers in Australia.

Design/methodology/approach – A conceptual model is proposed and was subjected to empiricalverification with the use of a survey of metropolitan and regional households in Victoria, Australia. Thedata were analyzed using both descriptive measures and exploratory factor analysis to identify andvalidate the items contributing to each component in the model. AMOS structural modeling was used toestimate the measure of respondents’ overall perception of green products and their intention to purchase.

Findings – The results indicate that customers’ corporate perception with respect to companiesplacing higher priority on profitability than on reducing pollution and regulatory protection were thesignificant predictors of customers’ negative overall perception toward green products. The onlypositive contribution to customers’ perception was their past experience with the product. Otherfactors including the perception of green products, product labels, packaging, and product ingredientsdid not appear to influence customers’ perception. The results also indicate that customers are nottolerant of lower quality and higher prices of green products.

Research limitations/implications – The knowledge of the overall perception formation aboutgreen products and its predictors provides management with the facility to identify and implementstrategies that may better influence the change of attitude by customers. Corporations can also benefitfrom the identification of the types of information required to enable management to influence thisprocess of perception formation.

Originality/value – The present findings contributes to an understanding of the antecedents ofgreen purchasing and highlight that green customers rely more on personal experience with theproduct than the information provided by the marketer.

Keywords Green marketing, Product management, Labelling, Customer satisfaction

Paper type Research paper

IntroductionBy the end of 1980s it was apparent that strategies based on either low-cost leadership ordifferentiation was not sufficient to provide organizations with a sustainable competitiveadvantage (Reed, 2003) and hence one of the new strategic move that were adopted bysome businesses was the integration of environmental marketing.

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Society and Business ReviewVol. 1 No. 2, 2006pp. 144-157q Emerald Group Publishing Limited1746-5680DOI 10.1108/17465680610669825

Environmental protection is a vital management function, it is perceived as beinginstrumental in the development of a positive corporate image and an importantelement to the success of a business enterprise. Not only does environmentalresponsiveness help organizations to remain competitive and increase market share(Chan, 2001; Fitzgerald, 1993; Porter and Van der Linde, 1995a) but also there is someevidence showing increases in customer loyalty. It appears that it is good businesspractice to be green as this strategy has a tendency to promote profitability, improveemployee motivation and commitment in addition to customer loyalty (Forte andLamont, 1998).

While various writers in the area of green marketing are questioning the influenceof practicing environmentalism in business (Wasik, 1996; Drumwright, 1994),consequent to the accelerating number of green consumers globally, marketers havecontinued to grapple with the question of understanding consumer’s buying intentiontowards green products.

There are various issues that require exploration. Firstly, the implications thatgreen products may have on the formulation and implementation of appropriatecorporate strategies. Secondly, the influence of corporate reputation on consumersgreen purchase behavior. Thirdly, what can the influence of price and quality have ongreen consumer demand? Fourthly, what impact of consumer’s overall perceptionabout green products have on purchase behavior? Lastly, what is the existence of aviable potential market for green products? To answer these questions businesseswould have to have a clear understanding of customers’ perception towards greenproducts. Clearly, there is a need for more specific investigation and discussion aboutconsumer perceptions of green products from a broader view within the context ofstrategy formulation and implementation.

Research objectivesThe factors that, potentially, influence consumers’ perception may be able to providesome additional understanding of purchase intentions. These factors that aid inperception formation may not, individually, explain a comprehensive understandingof a brand’s performance and may camouflage the interaction and the cross-influencesof all factors when considered in combination (Feldwick, 1996). Thus, to achieve a morerealistic view of consumers’ intention to purchase green products it may need toconsider the key influential factors together rather than consider them individually.The following environmental factors have been identified that may contribute to theperception formation of the consumer about green products. These factors include:corporate perception, corporate regulatory compliance, product labels, packaging, andingredients, consumers’ past experience with the product and the product’s priceand quality.

Consequently, this study aims to investigate consumer perception formationtowards green products and discuss its implications on corporate strategies.

It makes an attempt to propose a model that facilitates the measurement of thecontribution of the above key environmental factors in forming consumers’ perceptionabout green products. This perception may be defined as a formative latent variablerepresenting the contribution and interaction of the key environmental factors. Theoverall measure of consumers’ perception will then be associated with the consumers’intention to purchase green products. This is undertaken to enable an understanding of

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the effectiveness of green perception, secondly, to indicate the possible ways ofinfluencing those predictors of green perception in order to facilitate the achievementof the intended outcome, i.e. the intention to buy green products. The environmentalfactors incorporated into the model will be individually discussed in the followingsection.

Corporate perceptionConsumer’s perception of the firm’s corporate strategies toward environmental issuesis expected to contribute to the formation of the overall perception about greenproducts. It reflects corporate reputation by way of being socially responsible andresponsive to environmental concerns and the extent to which this perceptioninfluences the consumer’s intention to purchase green products.

The issue of environmental protection is no longer a contentious issues and is now arecognized and accepted corporate strategy by the most competitive and successfulmultinational corporations. Continued consumer’s attitude to safeguard theenvironment has made “greening” an important issue for managers and marketers.However, the basic concern for most businesses is more an attempt to manage theirfirm’s resources towards environmental impacts effectively and efficiently, rather thanthe restructuring of the business and their market offerings around environmentalsafety issues. For many firms, the challenge is to balance their consumers’environmental concerns with their cash flow, profitability (Berry and Rondinelli, 1998),and the sustainable corporate strategic approach to the intensity of competition in theirspecific target markets.

Concern for environment protection has given rise to the notion that consumerpurchases may be somewhat influenced by their attitude toward environmentally safeproducts. Researchers have suggested that consumers increasingly make purchases onthe basis of a firm’s role in society (Forte and Lamont, 1998). If such is the case thenworking towards corporate reputation can be explored by virtue of their environmentalresponsiveness. Can perceptions about socially responsible businesses influence greenbuying behavior?

Environmental regulationEnvironmental regulations have provided a clear parameter of the legally acceptablelevel of corporate responsibility, accountability, and expectations. At the same time, inanticipation of their target markets’ expectations, businesses have formulated andimplemented the strategy of caution with respect to the environmentally safe businessconduct. Businesses have actively created and demonstrated an image ofenvironmentally oriented organizations.

The impact of environmental regulations on firm strategies has given rise to manyacademic debates (Porter and Van der Linde, 1995b; Rugman and Verbeke, 1998). Withregards to environmental regulation, it was observed that a firm’s key competenciesand capabilities might hinder the leveraging of environmental competencies (Rugmanand Verbeke, 1998). In addition, compliance towards regulatory measures is not cheap.Therefore, going beyond regulatory compliance may be inhibitive, and firms would beexpected to avoid compliance whenever possible, and governments are expected toimpose penalties severe enough to force regulatory compliance (Lyon, 2003). However,on the other hand, by over compliance firms tend to put themselves in a stronger public

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recognition of environmental efforts and higher customer value (Arora and Cason,1996). At the same time, observing and demonstrating compliance to environmentalregulation and trying to exceed the regulatory requirement to the benefit of theconsumer may be perceived as a competitive advantage (Russo and Fouts 1997).Can the firm that demonstrates sound green course of action, influence consumerpurchase intentions to buy green brands?

Price and quality perceptionSome contention has subsisted about the prices that consumers will pay for greenproducts in comparison to what consumers would pay for mainstream products.Can this market be differentiated? Some contradictory findings indicate that noniche market exists for green products and consumers will not pay higher prices forthese products and that higher prices of green products may be unavoidable due tothe additional cost of verification procedures without an anticipated gain in marketshare (Graviria, 1995). However, no evidence shows that consumers’ environmentalconcerns are manifested in their purchase behavior and that consumer claimsstating that they were willing to pay more for green products have not beenmatched by their actions (Bennett, 1992). It has been found that consumers mayover report their intentions to purchase or intensify strong attitudinal preferencestowards socially responsible behavior when responding to environmental issues(McGougall, 1993).

Marketers have also found that consumers are price-sensitive when it comes to“buying green” (Mandese, 1991) and are unwilling to pay a premium price for greenproducts (Wasik, 1992). A common mistaken notion that fails to take into account is thetrade off in attributes that consumers use when making choices. As it appears thatprice, convenience and value are the most important buying criteria (Roberts, 1996).Consumers have displayed a willingness to respond to green concerns whilst notcompromising on performance, convenience and price (Berger, 1993). Even whenresearchers have explicitly considered consumers’ actual purchase behavior, itinvolved factors beyond the ecological status of the brands examined (Henion, 1972).To examine this D’Astous et al. (1997) measured perceived purchase value andintention to buy, variables, which do not predict behavior. Their findings indicated thatenvironmental features had a significant relationship to both purchase value andbuying intentions and while environmental features enhanced the desirability of theproduct, the essential choice criterion was efficacy. Can consumer perceptions onhigher price and low quality influence green buying behavior?

Product dimensionsIf the consumer was to purchase a green product then the purchase decision here ismade not only on the green product itself, which provides the primary core benefit tothe consumer but also the other social benefits that the consumer perceives it wouldhave such as being environmentally safe. The problem here lies in addressing dualbenefits for green brands, firstly, its functional performance and secondly itsenvironmental safety aspect.

However, the perceived value of a product is different for different consumers andcan be delivered at different levels. Adcock (2000), categorized products into threelevels; the primary level is the expected value that corresponds to the expected product

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benefits; the desired level of value the consumer would like to receive; and lastly, theunanticipated value, which may exceeds customer expectations. Ideally, in a situationlike this for green consumers they would lean more towards examining the greenproducts from the point of view of their packaging as well as product ingredients.

The literature reflects consumers’ concern for products being tested on animals andthose that are potentially harmful to wildlife. This concern has been predominantin cosmetic products where claims of safety have become a major marketing strategy inboth product development and a major marketing differentiation strategycommunicated to the end-user. Although this issue may not be classified as a part ofproduct environmental safety, it is nevertheless environmentally oriented and would bea factor in customers’ purchase decision.

On the other hand, packaging of consumer products presents a specific and visibleelement of environmental concern for the customer. The disposal of the products’packaging, the material used, and the cost associated with excessive packagingmaterial offer a mix of reminders that businesses sometimes use packaging beyond itsuseful function to the detriment of environmental safety and care for the non-renewablematerials. Recyclable material can to some extent justify the use and a claim of lowerusage overall and the minimum damage to the environment.

Fundamentally, consumers estimate comparative value when they make referencesto some measures of utility that they receive from green products. Social dimensions,such as recyclables, biodegradable and energy savings that are non-utility factorsconsidered when assessing the value of green brands. Can consumer perceptions basedon these factors prompt intentions to buy green products?

Product labelsEnvironmental labeling on products is an effective way of communicating to thecustomer the specific benefits and characteristic of the product and the claim of safety.The information is provided at the crucial stage of customer’s decision making.Environmental labels are either displayed by using environmentally safe symbols ormessages. Their primary aim in addition to informing the customer of the safetycharacteristics of the product is to assist corporations to position themselves asenvironmentally concerned organizations. From a firm’s point of view it would beessential to establish how these labels function to stimulate customers’ interest andinfluence their attitudes about a company.

Labels are characterized as providing support to a firm in two ways: productsendorsed should be “environmental compatible” i.e. having minimal impact on theenvironment, thus restoring consumer confidence in green products. Secondly, the aimof environmental labeling is to project a green image, this green image also transcendsto an image of corporate environmental reputation by being “environmentallysensitive” to stakeholder groups. Especially for the first time buyers, environmentallabeling stands as a criterion to make an informed initial choice.

Accordingly, since marketing communication involves the transmission of signs,codes and symbols being constantly decoded by consumers who make purchasedecisions and reflect upon these choices within their mind set, the generally acceptedsigns, codes, and symbols need to be instigated and publicized to assist with thecommunication of environmentally safe messages on products. It is anticipated thatenvironmental labels, potentially, provoke and modify buying behavior, as consumers

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are willing to seek environmental information about products and to read productlabels for better informed decisions (Carlson et al., 1993).

Some attempts have been made to identify the usefulness of information providedon product labels and its association with changes reflected in production andconsumption levels. These studies have been successful on a general basis, rather thanon environmental ramification as can be seen in the works of Jensen and Kesavan(1993), Ippolito and Mathios (1990, 1994) and Levy and Stokes (1987).

Customers also actively seek environmental safety information on product labels,yet, interestingly, consumers also express a degree of confusion about the greenterminology used by marketers to convey a “green message” (Caswell and Mojduszka,1996). The central purpose of environmental labeling is to assist customers to makeinformed product choices. However, a review and evaluation of the green marketindicates that some customers appear to be unable to understand the exact meaning ofsome information on product labels. For instance, a recyclable label – does this implythe product and/or packaging are 100 percent recyclable? According to a study byWest (1995) it was found that the claim of environmentally safe product attributes suchas “eco-friendly” “environmentally safe” “recyclable” “biodegradable” and “ozonefriendly” did not fully apply to the product.

Similarly, Chase and Smith (1992) found that for 70 percent of the respondents,purchase decisions were at least sometimes influenced by environmental messages inadvertising and product labeling, and most respondents reported that environmentalclaims were not particularly believable. In another survey 83 percent of therespondents indicated they preferred buying environmentally safe products and only15 percent indicated that environmental claims were believable (Dagnoli, 1991).In addition, a 1990 poll showed that consumers tend to think companies are notenvironmentally responsible and that they distrust advertising and labeling claimspertaining to the environment (Schwartz and Miller, 1991).

In some cases, consumers are unaware of regulations on environmental safety or theimplications that permit businesses to place such labels on their products (Iyer, 1999).This may perhaps be a contributing factor to the customers’ general confusion ofproduct safety claims. Some researchers found that consumers had problemsunderstanding the information provided on product label. For instance, concern overmisrepresentation about products’ environmental attributes; information provided arenot being, transparent, truthful, discriminatory, or based on sound and substantiatedscientific evidence; and at times even misleading (Carlson et a., 1993; Polonsky et al.,1998). It may be argued that perhaps customer skepticism about questionable productclaims may be the result of some inadequate, inaccurate, and even difficult tocomprehend information provided on product labels. Given that consumers do look atand use product labels as a source of information, do customers’ perceptions aboutgreen labels, and the type of information that help them to make informed purchasedecisions influence purchase intentions?

Customers’ past experienceIrrespective of the claims made by the marketers on the environmental safety of theproduct and its quality, the customer may rely on their past experience in the purchaseand usage of green products. Considering that the information provided on productlabels may not always be clear and perhaps even be confusing to the customers,

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consumers’ own experience with the product may be crucial in forming theproduct-specific perception that would lead to future purchase intentions.

This research attempts to test the following hypotheses:

H1. There is a positive relationship between customers’ overall perception aboutgreen products and the their intention to purchase them even if they weresomewhat:

H1a. More expensive.

H1b. Lower in quality.

H2. Environmental factors influencing the overall perception about greenproducts have different strengths and levels of contribution.

MethodologyIn order to test and quantify the relationships hypothesized and the differentcomponents of the conceptual model of customers’ perception formation about greenproducts (Figure 1) a descriptive research was designed and implemented by theauthors. The unit of analysis was determined as the main buyers of food fromsupermarkets irrespective of gender in a household. It was considered that the personresponsible for buying from supermarkets would represent the perception of the wholefamily about green products in their purchase behavior. The sampling frame used wasthe telephone directory of Victoria (Australia) including both metropolitan and regionalareas. The data were collected using a structured questionnaire administered on thephone over a weekend using Quantum Research (CATI) data collection services. A totalof 155 questionnaires were completed and were used for data analysis. The sampleselection was based on random telephone dialing and is expected to be representative ofthe supermarket shoppers’ population. No non-response rate has been reported as theautomatic telephone dialing would select the next call to replace the unsuccessful calls.

The research instrument used in this study was structured based on prior qualitativeresearch and the literature review. It was pre-tested and modified to include variablescontributing to the customers’ information processing on seven different dimensionscontributing to the formation of the overall perception about green products as appear inFigure 1. The resulting instrument included items to measure customers’ productperception, perception of government responsibility in regulating and protecting theenvironment, functionality of product labels, perceptions of corporate responsibilities,product packaging, product ingredients not being harmful to wildlife and not tested onanimals, as well as customers’ purchase intentions if products were somewhat higher inprice and somewhat lower in quality in comparison to alternative products. Allmeasurements were subjective assessments by the respondents using a seven-pointLikert-type scale (Wrenn, 1997). The selected sample’s main characteristics were female(79 percent), 35-54 years old (49 percent), married (65 percent) with children (47 percent),secondary school educated (60 percent), and employed (50 percent).

The data were analyzed using both descriptive measures and exploratory factoranalysis to identify and validate the items contributing to each component in themodel. All factors were examined for their construct validity and internal reliability.AMOS structural modeling was used to estimate the measure of respondents’ overallperception of green products and their intention to purchase (Tables I and II).

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Figure 1.Conceptual model of

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ResultsThe results indicate that:

. The components of the model collectively account for 87 percent of the varianceof the construct of perception about green products.

. The contribution of corporate perception to the construct of perception aboutgreen products is negative (R ¼ 20.70, p , 0.05).

. The contribution of past experience to the construct of perception about greenproducts is positive (R ¼ 0.36, p , 0.05).

. The contribution of regulatory protection to the construct of perception aboutgreen products is negative (R ¼ 0.22, p , 0.05).

. The influence of perception about green products on purchase intention even ifthe product is somewhat more expensive (R ¼ 20.77, p , 0.01) is negative andstronger than its negative influence on purchase even if product is of somewhatlower quality (R ¼ 20.40, p , 0.01). Product perception (R ¼ 20.08, p . 0.05),packaging (R ¼ 0.29, p . 0.05), and ingredients (R ¼ 0.16, p . 0.05), appear tohave no significant contribution to the overall perception of green products.

. The implementation of the model indicates that our different predictors influencethe overall perception at different levels.

VariableFactorloading Eigen-value

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Total perception about green products 0.79Labels 4.27 17.81 17.81 0.89Labels are easy to read 0.91Labels are accurate 0.95Packaging and ingredients 3.29 13.71 31.52 0.78Recyclable/reusable 0.74Biodegradable 0.68Harmful to wildlife 0.82Not tested on animals 0.77Regulatory protection 2.19 8.79 40.31 0.76Government safeguards the environment 0.73Legislation adequately regulatesenvironmental protection 0.84Corporate perception 1.57 6.54 46.85 0.61Companies should give priority to reducingpollution even if jobs are at risk 0.79Companies should aim to reduce pollution thanincrease profit 0.77Product perception 1.60 5.65 52.50 0.53Green products are not as good as alternatives 0.66Green products are more expensive 0.76Past experienceRely on past experience rather thaninformation on labels 0.71 1.06

Source: AMOS Structural modeling

Table I.Exploratory factoranalysis of the overallperception about greenproducts

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Table II.Correlations between the

predictors of theperception about green

products

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DiscussionIt is evident that fundamental skepticism subsists on the part of the customer aboutgreen products. This attitude appears to be based on a general perception thatcorporate policies will not support lower profitability in implementing green productstrategies. At the same time, respondents do not appear to consider that the currentgovernment regulation is adequately protecting the environment. However, thegovernment has not been identified as having the ultimate responsibility forsafeguarding the environment. That responsibility is assumed to be more forcompanies and that customers expect corporate culture should transform toward theprotection of the environment rather than maximization of profit even if it is at theexpense of risking jobs. Additionally, the respondents’ past experience with greenproducts appears to be negative resulting in a perception that green products aregenerally more expensive and lower in quality in comparison with alternativeproducts. This, arguably, would be difficult to change, since consumers have alreadyestablished brand loyalty towards mainstream products. At the same time, althoughcustomers read product labels, they do not seem to consider the information given onlabels to be entirely accurate and/or easy to understand.

The correlation between the customers’ reliance on past experience and theirperception of the product (r ¼ 0.26, n ¼ 155, p , 0.01) and their attitude towardsthe regulatory protection (r ¼ 0.25, n ¼ 155, p , 0.01) indicates that fundamentalchanges should be implemented in product offerings and communicated to thecustomers beyond the mandatory and legal control parameters. The corporateperception with respect of priority given to profit rather than environmental safetycorrelates with packaging being recyclable/reusable and biodegradable as well asingredients not having been tested on animals and are not harmful to wildlife may,arguably indicate a need for a more clear and consistent communication of evidenceof facts to customers to reduce misunderstanding for products that have thesecharacteristics.

Evidence states that since the overall perception of green products is negativelyassociated with customer’s intention to purchase them if they are of lower quality andhigher prices in comparison to alternative products, the attractiveness of the greenproducts market would not be substantially altered unless a dramatic shift ofperception occurs. Consequently, it may be argued that there is an expectation on thepart of customers that all products offered should be environmentally safe without aneed to sacrifice quality and/or having to pay higher prices for the privilege.

Managerial implicationsCustomers appear to expect self-regulation by corporations more strongly than theimposition of control by the government. At the same time, since customers expect allproducts to be environmentally safe, it is fundamental that this expectation is satisfiedwithout compromising product quality or setting their prices at levels that may beperceived by customers as being higher than the alternative products available.The knowledge of the overall perception formation about green products and itspredictors provides management with the facility to identify and implement strategiesthat may better influence the change of attitude by customers. Raised environmentalconsciousness is a market place reality and change of attitude may indirectly lead toincreased market share options.

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Corporations can also benefit from the identification of the types of informationrequired to enable management to influence this process of perception formation.For instance, the type of information to be provided to the customer; and the crediblemethods of the presentation of the claim of environmentally safe products to assist thecustomers’ decisions process.

Product labels do not appear to be effectively communicating the information onproduct safety on which consumers rely on to make purchase decisions. The typeand format of information provided would need to be understandable by customersif it is going to benefit them in terms of product selection. This does not generallyseem to be the case at the present time. This may require avoiding the use ofchemical code names and technology based terms with respect to the environmentalsafety of the product. A recommendation may be that a part of the product labelwould be graphically identified and dedicated to the environmental safe aspects ofthe product, distinct from other mandatory information provided on product labels.

Based on the findings of this study, the likely corporate strategy is that oforganizational cultural reorientation toward the unconditional provision ofenvironmentally safe products. In summary, the understanding of the green productsperception formation, potentially, has a number of applications. The motivations formanagement to support such a corporate cultural transformation are:

. to build a strong competitive advantage for the product;

. to develop and project a positive and ethical corporate image;

. to gain and benefit from the support of the employees; and

. to meet customers’ expectations, improve market share and achieve longer termprofit potentials.

In order to minimize or eliminate profit sacrifices in this fundamental change toenvironmentally safe product corporate culture it would be useful to revisit theeffectiveness and efficiency of production and the internal work processes and toreview and search for the possibility of achieving a lower cost-based operation.

Limitation of the study and suggestions for future researchIn this study customers’ environmental concerns are manifested in their intentionsto purchase rather than in their actual purchase behavior. The sample, althoughrandomly selected and is representative of the household population, is small. Thisis a cross-sectional study and does not reflect customers’ change of perceptionovertime. Longitudinal studies could be conducted to enable investigation of theresulting variation in the relative strength and influence of individual predictors tothe construct of the overall perception about environmentally safe productsovertime. It would also be beneficial to investigate the influence of demographicand cultural influences on the perception formation of customers aboutenvironmentally safe products.

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Further reading

Garver, M. and Mentzer, J. (2000), “Logistics research methods: employing structural equationmodelling to test for construct validity”, Journal ofBusinessLogistics, Vol. 20 No. 1, pp. 33-56.

Homburg, C. and Rudolph, B. (2001), “Customer satisfaction in industrial markets: dimensionaland multiple role issues”, Journal of Business Research, Vol. 52, pp. 15-33.

Corresponding authorClare D’Souza can be contacted at: cdsouza@latrobe.edu.au

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