Monetizing green products

By Yvonne Ruf

Investing in climate action and monetizing sustainability are two important tasks for companies – in fact, they are two sides of the same coin. But in practice many companies focus on the former and neglect the latter. We encourage businesses to boost their top line by offering green products sold at a premium. This gives them the chance to recover at least part of the costs they incur implementing sustainability and at the same protect their margins. We discuss successful strategies for companies and key factors for executing them.

The cost of sustainability

Meeting regulatory decarbonization targets such as those in force in the European Union can be expensive, especially in hard-to-abate sectors. For SBTi (Science Based Targets Initiative) targets, the cost can add up to as much as 30 percent of a company's annual revenues, depending on where the company is located and what infrastructure it relies on. All the more important, then, that companies should make every effort to claw back in whatever way they can some of the money they have to spend implementing sustainability.

One effective way for businesses to recoup their losses and boost their profitability is to offer green products to customers at a premium price. In the case of one company that we supported, customers initially said they were willing to pay a premium of between five and 15 percent on top of the regular price. This was not enough to cover the extra costs that the company incurred, but it ultimately turned out that customers were willing to purchase the green product at a premium of 12 to 25 percent above the standard rate.

Convincing business customers

To convince B2B (business-to-business) customers to buy a green product, vendors first need to understand their potential motivation for doing so. This can involve researching the customer’s current levels of sustainability and decarbonization, for example, and understanding the sustainability ambitions they have set themselves or the regulatory requirements they are subject to. The vendor should then develop a convincing sales narrative based on these insights, a key element of which will be informing B2B customers to what extent they can pass the premium along the value chain to end customers. This is especially important in the case of goods that come with a high price tag, where business customers will require strong arguments that the extra premium is justified and has the potential to be recovered in full or in part.

The green product offering must also be well designed. Companies should design a flexible suite of products that caters to all customers, meeting differing customer needs, ambition levels and limitations. Thus, some customers will want to experiment with green products in a limited fashion at first, while others will be willing to sign up for larger volumes straight away. To appeal to the experimenters, the product range must be affordable and easy to implement; for customers who are already convinced, the products can come with a higher price tag.

How can we help?

Roland Berger supports companies along the entire go-to-market process – assessing customer interest and willingness to pay, helping build a strong green product team, sharing insights into customers, offering support on the use of standardized tools such as CO2e emission avoidance calculation and supporting all the processes in between. Developing green products requires the involvement of multiple departments in the company, most of which have little or no expertise in sustainability. We provide the expertise you need and ensure that all your departments work hand-in-hand to recover costs, protect your margins and make the company a green pioneer.

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