Brian McCabe writes…
Organizations face a number of challenges when attempting to communicate the value of their products to customers. For those with social missions, this task only becomes exponentially more complex. At Interface, the world’s leading producer of carpet tile, this realization manifested itself when the organization pursued the strategy of licensing products as services under the initiative known as The Evergreen Services Agreement (ESA). The new business model that ESA proposed would help to fulfill Interface’s social mission by creating a closed loop product lifecycle that transformed the business from a flooring product supplier to a floor covering services provider.
The new model involved leasing out the flooring solutions that Interface manufactured and then eventually reclaiming carpet tiles as raw material inputs for new products. In doing so, the model provides for a cyclical life cycle that eliminates waste, and fulfills one of the seven goals the organization laid out in its plan for sustainability. While the business plan was set and the organization primed to roll out the initiative, the challenge was to gain acceptance in the marketplace and make customers realize the value of sustainable business. In order to better understand these challenges, it is important to consider the potential barriers that the organization faced in gaining widespread support for the service. To do this, let’s consider four of the five barriers discussed in Bonini & Oppenheim’s article, Cultivating the Green Consumer(Bonini & Oppenheim, 2008).
Lack of Awareness
One of the largest hurdles for green organizations is their ability to make their product offerings well known among customers and the general public. Despite a growing demand for green products among consumers, as Bonini & Oppenheim point out, fully two-thirds of American and British consumers cannot name a green brand. Much of this is due not to the ignorance of the consumer, but rather to the failure of businesses to educate the market. Easier said than done, this requires leading organizations to step up and set the example for the industry in which they operate. Nowhere is this behavior more prevalent than in the bold global action taken by Walmart in 2005.
As the largest retailer in the world, Walmart is uniquely positioned to make sustainability a shared value with its customers and a key priority for its suppliers and manufacturers. Trying to recover from a lingering poor image related to unfair labor practices and discriminatory pay among other issues, Walmart needed a brand-bolstering campaign that would help transform the business while also creating value for the organization. With some key guidance from environmental consultant Jib Ellison, then CEO of Walmart Lee Scott undertook a massive campaign to position the company as a leader of global social responsibility in the 21st century.
This move was critical not only for Walmart to recreate its corporate image in the eyes of customers, but also in creating a major breakthrough toward greater awareness of sustainable products and practices. Walmart began by reengineering product packaging to eliminate wasteful use of excess cardboard and plastic. Their fleet of tractors was modified to reduce engine idle and fresh foods were beginning to be sourced locally to ensure quality and reduce transportation costs. These breakthroughs, on behalf of the world’s largest retailer, are paramount to advancing the adoption of consumer sustainability practices. The global reach of Walmart’s stores facilitates both the education and fulfillment of consumer demands for creating positive change in the environment.
Much like Walmart, Interface is strategically positioned as the leader in its industry to help raise awareness and facilitate the adoption of sustainable business. The success of ESA will be largely dependent on creating a ‘big picture’ understanding of what it is their services will offer. Intermec seems heavily focused on selling the financial benefits of a floor covering services contract rather than the environmental benefits that reclaiming used carpet tile would provide. As a result, potential customers perceive the service as more of a premium based product than one that promises environmental impact reduction as well as a cost savings opportunity. Much like the EnergyStar program did for appliances, a simplified framework to help illustrate the benefits to consumers would serve as a valuable tool in promoting the success of ESA. This approach to raising awareness is ultimately what will help ESA and services like it in other industries get off the ground.
One common perception surrounding green products is that they underperform their traditional predecessors. Consumers become uninterested when they learn that they will experience a loss in utility by switching to the newer, greener product. In the case of ESA, the fundamental product remains exactly the same, however the means by which the value is delivered is completely different. Normally this would not be an immediate deterrent, however for ESA there are a number of unnecessary, complex layers being added to the service that confuse consumers and generate a negative perception of the service.
Interface seems have exceeded customer’s needs by bundling services into ESA that clouded the perception of the real underlying value. For example, the cost of the lease included both periodic tile replacement and regular vacuuming. Was vacuuming really required within the scope of what Interface was offering? Probably not, and the choice to bundle that service simply added cost into the pricing equation and effectively devalued perception of the service since customers are not considering vacuuming costs when valuing carpeting options. Instead, Interface should structure the service to compete directly with the features of the existing product, adding in only those features (such as worn tile replacement) that provide additional value over alternatives.
In some cases, higher prices are inevitable for green products. While this isn’t always the case, organizations looking to promote these products must ensure that customers understand the value they are receiving. ESA provides customers with the same carpet tile solutions that they could purchase traditionally, however carries the added benefits of a long-term maintenance service that will selectively replace worn tiles to keep the floor covering always looking brand new. While this added service relative to the traditional purchasing model would undoubtedly add cost, the value far exceeds the alternative when considering the price to prematurely replace an entire floor covering or outsource the repair work to independent contractors.
To help customers understand these benefits and to promote a more rapid adoption of ESA, Interface needs to reevaluate the organization’s sales incentive structure. At the time of case, the existing sales force within Interface has no incentive to promote sales of the ESA ahead of any other traditional product, and in fact feels the service is too difficult to sell. To leverage these sales resources and to help customers see the value in the ESA, there must be adequate training resources dedicated to building knowledge among the sales force and sales incentives developed that translate that knowledge into sales momentum.
The final barrier impeding Interface’s ability to gain traction in the market for ESA is failing to make the service widely available. Although Interface pitched the service to a variety of organizations, it set a minimum threshold for its floor covering services to businesses with orders of at least 5,000 square yards. While there may be financial implications to taking orders below this threshold, it creates undue restrictions on the ability for smaller, but perhaps more engaged businesses to purchase the service. After all, there are only so many organizations interested in purchasing new floor coverings for facilities larger than the size of a football field, and those that do exist are likely unwilling to try a relatively untested business model.
To make the service attractive and widely visible, ESA should be available to any client interested in Interface’s traditional products. Along with the increased knowledge and incentives within the sales force, ESA would quickly be viewed as a viable option for many businesses interested in reducing capital expenditures, increase cash flow, and provide quality floor coverings all while contributing toward their own social responsibility.
For organizations trying to push their socially responsible products and services into the mainstream, one of the key issues to attack is the existence of several common barriers preventing widespread adoption of green practices. For Interface, the four most prevalent barriers are a lack of product awareness, negative perceptions about the products, a fear of higher prices, and low product availability. As Bonini & Oppenheim state in their article, “Consumers want to act green, but they expect businesses to lead the way.” Just as Walmart had started to do in the retail sector, Interface must use its position as the industry’s sustainability leader to promote adoption throughout the entire industry and breakdown the barriers to a sustainable future.
Bonini, S., & Oppenheim, J. (2008). Cultivating the Green Consumer. Stanford Social Innovation Review .
Schell, O. (2012). How Walmart is Changing China. The Atlantic .
Oliva, Rogelio & Quinn, James, 2003. Interface’s Evergreen Services Agreement. HBS Case 9-603-112