Friday, April 22, 2011

Eco-nomics: Green Products are Luxury Goods

From The New York Times today, a fascinating article on the rise and recession-driven fall of green products:

When Clorox introduced Green Works, its environment-friendly cleaning line, in 2008, it secured an endorsement from the Sierra Club, a nationwide introduction at Wal-Mart, and it vowed that the products would “move natural cleaning into the mainstream.”

But America’s eco-consciousness, it turns out, is fickle. As recession gripped the country, the consumer’s love affair with green products, from recycled toilet paper to organic foods to hybrid cars, faded like a bad infatuation. While farmers’ markets and Prius sales are humming along now, household product makers like Clorox just can’t seem to persuade mainstream customers to buy green again.

Sales of Green Works have fallen to about $60 million a year, and those of other similar products from major brands like Arm & Hammer, Windex, Palmolive, Hefty and Scrubbing Bubbles are sputtering. “Every consumer says, ‘I want to help the environment, I’m looking for eco-friendly products,’ ” said David Donnan, a partner in the consumer products practice at the consulting firm A. T. Kearney. “But if it’s one or two pennies higher in price, they’re not going to buy it. There is a discrepancy between what people say and what they do.”

In economics a luxury good is an item that you buy in greater proportions to you income as your income increases - and vice-versa - you forego in greater proportion when your income declines. This is distinct from a normal good which is what we call any good that you buy more of when your income increases.

It sure sounds like, based on these anecdotes, that 'green' products are classic luxury items. And it makes sense, the Whole Foods business model has always been about mixing gourmet and natural foods and green products into one - very expensive - market. It is perhaps not surprising, then, that such products have the characteristics of luxury goods.

But it is a bit disappointing, I am a big fan of the Green Works line of products because I thought that these had the potential of being category busters, the first to really appeal to mainstream buyers.  But it seems like there is still a big distinction.

[Reader note: I now subscribe to the NY Times - their pay wall did its job on me by turning me into a paying reader.  I know that linking to NY Times articles now creates the potential for the pay wall to interfere.  But I also believe in the public good that is investigative reporting and I am happy to support it and encourage you to do so as well.]

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