An Economic Evaluation of Green Marketing
In the 1960s hotel rooms began asking guests to reuse their towels to save water and the environment. Though guests believed this would cause less waste, the hotels formed this tactic strictly to benefit from lower laundry costs (Hayes). Although most considered this a short-term trend, years later, in the 1990’s the idea of being ‘green’ was formed, in which companies began advertising their products as environmentally friendly (Furlow). Today, this tactic is still prevalent as 72% of millennials are willing to pay an additional cost for an eco-friendly product (Watson). This strategy spread by firms known as green marketing is when companies share information about their products or acts being environmentally friendly (Forsyth). In some circumstances, companies distribute false information about their acts to look more environmentally committed, which is known as greenwashing.
With increasing green marketing tactics throughout everyday products, a wide range of perspectives has emerged regarding whether green marketing benefits companies’ engagement with the public and their overall revenue. Although some view the relationship as positive, others believe that the risks of greenwashing outweigh the benefits. Given that product consumption is increasing alongside green marketing, it is crucial to understand the long-term and short-term economic effects of green marketing. This paper will explore a variety of perspectives regarding the extent to which green marketing benefits a company’s income and its relationship with investors and consumers.
Company Transparency and Investor Engagement
An argument formed by many is that transparency on environmental acts will benefit the perceptions of investors. For instance, Magali A. Delmas, a professor of management at the UCLA Institute of the Environment, and her team state that “transparency about environmental performance can be beneficial to firms by enhancing stakeholders perceptions,” “even when liabilities are disclosed” (Delmas). Essentially, Delmas concludes that green marketing is a beneficial strategy even if certain aspects of their acts are not mentioned. This improves investors’ perceptions of the firm, overall helping the company’s earnings.
Supporting Delmas in the sense that environmental commitment is always beneficial, Alfred A. Marcus, a professor of Strategy and Technology at the Carlson School of Management at the University of Minnesota, claims that “when a firm’s legitimacy is low, investors may not judge the firm as harshly if it expresses environmental commitment” (Marcus). This would then lead investors to “continue to have confidence in the entire organization” (Marcus). In other words, Marcus claims that green marketing is a beneficial strategy to garner investors, even if the information presented is not entirely accurate.
However, Iain Clelland, a professor and administrator at the department of management at Radford university, believes that green marketing does not make a significant impact on investors’ perceptions of firm legitimacy. He claims that “if the firm does not express commitment to the environment, investors will act on their perceptions of the firm’s legitimacy, which are based on data from external sources” (Clelland). Fundamentally, Clelland suggests that green marketing does not make a significant impact on investors’ confidence in the company, therefore making it a futile marketing strategy.
Along the same lines, Yue Wu, an associate professor of Business Administration at the University of Pittsburgh, and his team, state that firms applying socially responsible practices such as green marketing to their company strategy overinvest in the marketing strategy. These companies’ goal is to gain the investors’ perceptions in attempts to draw a line between their profit-driven competitors (Wu). However, they add that green marketing comes along with the risk of greenwashing, which increases the likelihood of overinvestment backfiring and a loss of income (Wu). Fundamentally, Wu and his team state that green marketing focuses too firmly on how investors view the company, making it an illogical plan. The investment has a high-risk value as if it can backfire, while those who do not practice green marketing will have no chance of losing money.
To summarize, Delmas and Marcus believe green marketing is always a profitable strategy which improves the relationship between an investor and a company, leading to higher economic growth. However, Clelland and Wu disagree in stating that green marketing is a risky strategy as it could form into greenwashing, which comes along with the possibility of overinvesting and losing investors’ trust.
Consumer Engagement
In addition to investor perceptions, consumers form a majority of company revenue. That being said, several arguments regarding consumers’ opinions on green marketing have been formed. For instance, Ulun Akturan, a professor at the department of business administration at Galatasaray University in Istanbul Turkey, believes that consumers are not informed enough about green marketing and greenwashing, therefore value an ‘eco-conscious’ product more (Akturan). Akturan sums up the argument by stating that “green brand equity is an important indicator of purchase intention even for low-involved green product categories” (Akturan). Essentially, he believes that even if the consumer is uninterested in environmental practices, they are more likely to buy a green-marketed product, increasing the company’s revenue and products sold.
Additionally, Lu Zhang — a PhD candidate in a collaborative innovation center of resource conservation — and her team state that firms must focus on their “green WOM” (word of mouth) to “encourage consumers’ purchasing intentions and reduce the negative impacts of greenwashing perceptions” (Zhang et al). In other words, Zhang claims that positive WOM is what companies need to gain consumers’ trust to develop an overall larger wealth income for the firm.
On the other hand, Thi Thu Huong Nguyen, a professor of business administration at Hanoi University of industry, and her team believe that consumers are becoming more involved and knowledgeable of the environmental benefits of green products, and are therefore “more skeptical about companies’ motives, leading to negative product judgments and lower purchase intentions” (Nguyen). Nguyen holds that consumers have more knowledge of environmental practices than firms think, and firms must begin to acknowledge this and conform it to their practices to avoid losing consumers and weakening their company revenue.
In summary, Akturan and Zhang claim that consumers are uneducated on the true benefits of the ‘green products’ they buy, making them easily influenced and more attracted to them. Overall claiming that green marketing is a reasonable strategy to increase company income. However, others such as Nguyen believe that consumers are becoming more aware of the impact of their purchases, making green marketing an overall risky strategy for company revenue.
Conclusion
Green marketing practices have become more relevant in today’s conversations. Some claim that green marketing is a beneficial strategy to maintain or attract investors’ trust, yet others believe that green marketing is illogical as it may turn into greenwashing, causing most investors to lose trust in the firm. Additionally, the consumer’s perspective must be valued as it is a large factor in company revenue. One part argues that consumers are not educated on green marketing, making it a profitable strategy. Meanwhile, others state that consumers know more than companies think, making green marketing a dull strategy with high-risk value to profit. The opinions regarding the economic logic of green marketing vary, however, companies today must rethink if green marketing is truly the best marketing strategy to attract more wealth.
Works Cited
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