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Green products and corporate strategy: An empirical investigation

Article in Society and Business Review · May 2006

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This is the authors’ final peer reviewed (post print) version of the
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D`Souza, Clare, Taghian, Mehdi, Lamb, Peter and Peretiatkos, Roman

2006, Green products and corporate strategy: an empirical investigation,
Society and business review, vol. 1, no. 2, pp. 144-157.

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Green products and corporate strategy: an empirical
investigation
Clare D'Souza, School of Business, La Trobe University, Bundoora, Australia

Mehdi Taghian, Deakin Business School, Malvern, Australia

Peter Lamb, La Trobe University Albury Wodonga, Wodonga, Australia

Roman Peretiatkos, La Trobe University, Bundoora, Australia

Abstract

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

Design/methodology/approach – A conceptual model is proposed and was subjected to

empirical verification with the use of a survey of metropolitan and regional households in
Victoria, Australia. The data were analyzed using both descriptive measures and exploratory
factor analysis to identify and validate the items contributing to each component in the
model. AMOS structural modeling was used to estimate 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
companies placing higher priority on profitability than on reducing pollution and regulatory
protection were the significant predictors of customers' negative overall perception toward
green products. The only positive contribution to customers' perception was their past
experience with the product. Other factors including the perception of green products,
product labels, packaging, and product ingredients did not appear to influence customers'
perception. The results also indicate that customers are not tolerant of lower quality and
higher prices of green products.

Research limitations/implications – The knowledge of the overall perception formation

about green products and its predictors provides management with the facility to identify
and implement strategies that may better influence the change of attitude by customers.
Corporations can also benefit from the identification of the types of information required to
enable management to influence this process of perception formation.

Originality/value – The present findings contributes to an understanding of the antecedents

of green purchasing and highlight that green customers rely more on personal experience
with the product than the information provided by the marketer.

Introduction

By the end of 1980s it was apparent that strategies based on either low‐cost leadership or
differentiation was not sufficient to provide organizations with a sustainable competitive
advantage (Reed, 2003) and hence one of the new strategic move that were adopted by
some businesses was the integration of environmental marketing.
Environmental protection is a vital management function, it is perceived as being
instrumental in the development of a positive corporate image and an important element to
the success of a business enterprise. Not only does environmental responsiveness help
organizations to remain competitive and increase market share (Chan, 2001; Fitzgerald,
1993; Porter and Van der Linde, 1995a) but also there is some evidence showing increases
in customer loyalty. It appears that it is good business practice to be green as this strategy
has a tendency to promote profitability, improve employee motivation and commitment in
addition to customer loyalty (Forte and Lamont, 1998).

While various writers in the area of green marketing are questioning the influence of
practicing environmentalism in business (Wasik, 1996; Drumwright, 1994), consequent to
the accelerating number of green consumers globally, marketers have continued to grapple
with the question of understanding consumer's buying intention towards green products.

There are various issues that require exploration. Firstly, the implications that green
products may have on the formulation and implementation of appropriate corporate
strategies. Secondly, the influence of corporate reputation on consumers green purchase
behavior. Thirdly, what can the influence of price and quality have on green consumer
demand? Fourthly, what impact of consumer's overall perception about green products
have on purchase behavior? Lastly, what is the existence of a viable potential market for
green products? To answer these questions businesses would have to have a clear
understanding of customers' perception towards green products. Clearly, there is a need for
more specific investigation and discussion about consumer perceptions of green products
from a broader view within the context of strategy formulation and implementation.

Research objectives

The factors that, potentially, influence consumers' perception may be able to provide some
additional understanding of purchase intentions. These factors that aid in perception
formation may not, individually, explain a comprehensive understanding of a brand's
performance and may camouflage the interaction and the cross‐influences of all factors
when considered in combination (Feldwick, 1996). Thus, to achieve a more realistic view of
consumers' intention to purchase green products it may need to consider the key influential
factors together rather than consider them individually. The following environmental factors
have been identified that may contribute to the perception formation of the consumer
about green products. These factors include: corporate perception, corporate regulatory
compliance, product labels, packaging, and ingredients, consumers' past experience with
the product and the product's price and quality.

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

It makes an attempt to propose a model that facilitates the measurement of the

contribution of the above key environmental factors in forming consumers' perception
about green products. This perception may be defined as a formative latent variable
representing the contribution and interaction of the key environmental factors. The overall
measure of consumers' perception will then be associated with the consumers' intention to
purchase green products. This is undertaken to enable an understanding of the
effectiveness of green perception, secondly, to indicate the possible ways of influencing
those predictors of green perception in order to facilitate the achievement of the intended
outcome, i.e. the intention to buy green products. The environmental factors incorporated
into the model will be individually discussed in the following section.

Corporate perception

Consumer's perception of the firm's corporate strategies toward environmental issues is

expected to contribute to the formation of the overall perception about green products. It
reflects corporate reputation by way of being socially responsible and responsive to
environmental concerns and the extent to which this perception influences the consumer's
intention to purchase green products.

The issue of environmental protection is no longer a contentious issues and is now a

recognized and accepted corporate strategy by the most competitive and successful
multinational corporations. Continued consumer's attitude to safeguard the environment
has made “greening” an important issue for managers and marketers. However, the basic
concern for most businesses is more an attempt to manage their firm's resources towards
environmental impacts effectively and efficiently, rather than the restructuring of the
business and their market offerings around environmental safety 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 their specific target markets.

Concern for environment protection has given rise to the notion that consumer purchases
may be somewhat influenced by their attitude toward environmentally safe products.
Researchers have suggested that consumers increasingly make purchases on the basis of a
firm's role in society (Forte and Lamont, 1998). If such is the case then working towards
corporate reputation can be explored by virtue of their environmental responsiveness. Can
perceptions about socially responsible businesses influence green buying behavior?

Environmental regulation

Environmental regulations have provided a clear parameter of the legally acceptable level of
corporate responsibility, accountability, and expectations. At the same time, in anticipation
of their target markets' expectations, businesses have formulated and implemented the
strategy of caution with respect to the environmentally safe business conduct. Businesses
have actively created and demonstrated an image of environmentally oriented
organizations.

The impact of environmental regulations on firm strategies has given rise to many academic
debates (Porter and Van der Linde, 1995b; Rugman and Verbeke, 1998). With regards to
environmental regulation, it was observed that a firm's key competencies and capabilities
might hinder the leveraging of environmental competencies (Rugman and Verbeke, 1998).
In addition, compliance towards regulatory measures is not cheap. Therefore, going beyond
regulatory compliance may be inhibitive, and firms would be expected to avoid compliance
whenever possible, and governments are expected to impose 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 recognition of environmental efforts and
higher customer value (Arora and Cason, 1996). At the same time, observing and
demonstrating compliance to environmental regulation and trying to exceed the regulatory
requirement to the benefit of the consumer may be perceived as a competitive advantage
(Russo and Fouts 1997). Can the firm that demonstrates sound green course of action,
influence consumer purchase intentions to buy green brands?

Price and quality perception

Some contention has subsisted about the prices that consumers will pay for green products
in comparison to what consumers would pay for mainstream products. Can this market be
differentiated? Some contradictory findings indicate that no niche market exists for green
products and consumers will not pay higher prices for these products and that higher prices
of green products may be unavoidable due to the additional cost of verification procedures
without an anticipated gain in market share (Graviria, 1995). However, no evidence shows
that consumers' environmental concerns are manifested in their purchase behavior and that
consumer claims stating that they were willing to pay more for green products have not
been matched by their actions (Bennett, 1992). It has been found that consumers may over
report their intentions to purchase or intensify strong attitudinal preferences towards
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 green products
(Wasik, 1992). A common mistaken notion that fails to take into account is the trade off in
attributes that consumers use when making choices. As it appears that price, convenience
and value are the most important buying criteria (Roberts, 1996). Consumers have displayed
a willingness to respond to green concerns whilst not compromising on performance,
convenience and price (Berger, 1993). Even when researchers have explicitly considered
consumers' actual purchase behavior, it involved factors beyond the ecological status of the
brands examined (Henion, 1972). To examine this D'Astous et al. (1997) measured perceived
purchase value and intention to buy, variables, which do not predict behavior. Their findings
indicated that environmental features had a significant relationship to both purchase value
and buying intentions and while environmental features enhanced the desirability of the
product, the essential choice criterion was efficacy. Can consumer perceptions on higher
price and low quality influence green buying behavior?

Product dimensions

If the consumer was to purchase a green product then the purchase decision here is made
not only on the green product itself, which provides the primary core benefit to the
consumer but also the other social benefits that the consumer perceives it would have such
as being environmentally safe. The problem here lies in addressing dual benefits for green
brands, firstly, its functional performance and secondly its environmental safety aspect.

However, the perceived value of a product is different for different consumers and can be
delivered at different levels. Adcock (2000), categorized products into three levels; the
primary level is the expected value that corresponds to the expected product benefits; the
desired level of value the consumer would like to receive; and lastly, the unanticipated
value, which may exceeds customer expectations. Ideally, in a situation like this for green
consumers they would lean more towards examining the green products from the point of
view of their packaging as well as product ingredients.
The literature reflects consumers' concern for products being tested on animals and those
that are potentially harmful to wildlife. This concern has been predominant in cosmetic
products where claims of safety have become a major marketing strategy in both product
development and a major marketing differentiation strategy communicated to the end‐user.
Although this issue may not be classified as a part of product environmental safety, it is
nevertheless environmentally oriented and would be a factor in customers' purchase
decision.

On the other hand, packaging of consumer products presents a specific and visible element
of environmental concern for the customer. The disposal of the products' packaging, the
material used, and the cost associated with excessive packaging material offer a mix of
reminders that businesses sometimes use packaging beyond its useful function to the
detriment of environmental safety and care for the non‐renewable materials. Recyclable
material can to some extent justify the use and a claim of lower usage overall and the
minimum damage to the environment.

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

Product labels

Environmental labeling on products is an effective way of communicating to the customer

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 or messages. Their
primary aim in addition to informing the customer of the safety characteristics of the
product is to assist corporations to position themselves as environmentally concerned
organizations. From a firm's point of view it would be essential to establish how these labels
function to stimulate customers' interest and influence their attitudes about a company.

Labels are characterized as providing support to a firm in two ways: products endorsed
should be “environmental compatible” i.e. having minimal impact on the environment, thus
restoring consumer confidence in green products. Secondly, the aim of environmental
labeling is to project a green image, this green image also transcends to an image of
corporate environmental reputation by being “environmentally sensitive” to stakeholder
groups. Especially for the first time buyers, environmental labeling 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 purchase decisions and reflect
upon these choices within their mind set, the generally accepted signs, codes, and symbols
need to be instigated and publicized to assist with the communication of environmentally
safe messages on products. It is anticipated that environmental labels, potentially, provoke
and modify buying behavior, as consumers are willing to seek environmental information
about products and to read product labels for better informed decisions (Carlson et al.,
1993).
Some attempts have been made to identify the usefulness of information provided on
product labels and its association with changes reflected in production and consumption
levels. These studies have been successful on a general basis, rather than on 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 green terminology
used by marketers to convey a “green message” (Caswell and Mojduszka, 1996). The central
purpose of environmental labeling is to assist customers to make informed product choices.
However, a review and evaluation of the green market indicates that some customers
appear to be unable to understand the exact meaning of some information on product
labels. For instance, a recyclable label – does this imply the product and/or packaging are
100 percent recyclable? According to a study by West (1995) it was found that the claim of
environmentally safe product attributes such as “eco‐friendly” “environmentally safe”
“recyclable” “biodegradable” and “ozone friendly” 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 in advertising and
product labeling, and most respondents reported that environmental claims were not
particularly believable. In another survey 83 percent of the respondents indicated they
preferred buying environmentally safe products and only 15 percent indicated that
environmental claims were believable (Dagnoli, 1991). In addition, a 1990 poll showed that
consumers tend to think companies are not environmentally responsible and that they
distrust advertising and labeling claims pertaining to the environment (Schwartz and Miller,
1991).

In some cases, consumers are unaware of regulations on environmental safety or the

implications that permit businesses to place such labels on their products (Iyer, 1999). This
may perhaps be a contributing factor to the customers' general confusion of product safety
claims. Some researchers found that consumers had problems understanding the
information provided on product label. For instance, concern over misrepresentation about
products' environmental attributes; information provided are not being, transparent,
truthful, discriminatory, or based on sound and substantiated scientific evidence; and at
times even misleading (Carlson et a., 1993; Polonsky et al., 1998). It may be argued that
perhaps customer skepticism about questionable product claims may be the result of some
inadequate, inaccurate, and even difficult to comprehend information provided on product
labels. Given that consumers do look at and use product labels as a source of information,
do customers' perceptions about green labels, and the type of information that help them
to make informed purchase decisions influence purchase intentions?

Customers' past experience

Irrespective of the claims made by the marketers on the environmental safety of the
product and its quality, the customer may rely on their past experience in the purchase and
usage of green products. Considering that the information provided on product labels may
not always be clear and perhaps even be confusing to the customers, consumers' own
experience with the product may be crucial in forming the product‐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 about green products and the their intention to
purchase them even if they were somewhat: H1a. More expensive. H1b. Lower in quality.
H2. Environmental factors influencing the overall perception about green products have
different strengths and levels of contribution.

Methodology

In order to test and quantify the relationships hypothesized and the different components
of the conceptual model of customers' perception formation about green products (Figure
1) a descriptive research was designed and implemented by the authors. The unit of analysis
was determined as the main buyers of food from supermarkets irrespective of gender in a
household. It was considered that the person responsible for buying from supermarkets
would represent the perception of the whole family about green products in their purchase
behavior. The sampling frame used was the telephone directory of Victoria (Australia)
including both metropolitan and regional areas. The data were collected using a structured
questionnaire administered on the phone over a weekend using Quantum Research (CATI)
data collection services. A total of 155 questionnaires were completed and were used for
data analysis. The sample selection was based on random telephone dialing and is expected
to be representative of the supermarket shoppers' population. No non‐response rate has
been reported as the automatic telephone dialing would select the next call to replace the
unsuccessful calls.

The research instrument used in this study was structured based on prior qualitative
research and the literature review. It was pre‐tested and modified to include variables
contributing to the customers' information processing on seven different dimensions
contributing to the formation of the overall perception about green products as appear in
Figure 1. The resulting instrument included items to measure customers' product
perception, perception of government responsibility in regulating and protecting the
environment, functionality of product labels, perceptions of corporate responsibilities,
product packaging, product ingredients not being harmful to wildlife and not tested on
animals, as well as customers' purchase intentions if products were somewhat higher in
price and somewhat lower in quality in comparison to alternative products. All
measurements were subjective assessments by the respondents using a seven‐point Likert‐
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 factor analysis to
identify and validate the items contributing to each component in the model. All factors
were examined for their construct validity and internal reliability.

AMOS structural modeling was used to estimate the measure of respondents' overall
perception of green products and their intention to purchase (Tables I and II).

Results

The results indicate that:

  The components of the model collectively account for 87 percent of the variance of
the construct of perception about green products.
 The contribution of corporate perception to the construct of perception about green
products is negative (R=−0.70, p<0.05).
 The contribution of past experience to the construct of perception about green
products is positive (R=0.36, p<0.05).
 The contribution of regulatory protection to the construct of perception about green
products is negative (R=0.22, p<0.05).
 The influence of perception about green products on purchase intention even if the
product is somewhat more expensive (R=−0.77, p<0.01) is negative and stronger
than its negative influence on purchase even if product is of somewhat lower quality
(R=−0.40, p<0.01). Product perception (R=−0.08, p>0.05), packaging (R=0.29,
p>0.05), and ingredients (R=0.16, p>0.05), appear to have no significant contribution
to the overall perception of green products.
 The implementation of the model indicates that our different predictors influence
the overall perception at different levels.

Discussion

It is evident that fundamental skepticism subsists on the part of the customer about green
products. This attitude appears to be based on a general perception that corporate policies
will not support lower profitability in implementing green product strategies. At the same
time, respondents do not appear to consider that the current government regulation is
adequately protecting the environment. However, the government has not been identified
as having the ultimate responsibility for safeguarding the environment. That responsibility is
assumed to be more for companies and that customers expect corporate culture should
transform toward the protection of the environment rather than maximization of profit
even if it is at the expense of risking jobs. Additionally, the respondents' past experience
with green products appears to be negative resulting in a perception that green products
are generally more expensive and lower in quality in comparison with alternative products.
This, arguably, would be difficult to change, since consumers have already established brand
loyalty towards mainstream products. At the same time, although customers read product
labels, they do not seem to consider the information given on labels to be entirely accurate
and/or easy to understand.

The correlation between the customers' reliance on past experience and their perception of
the product (r=0.26, n=155, p<0.01) and their attitude towards the regulatory protection
(r=0.25, n=155, p<0.01) indicates that fundamental changes should be implemented in
product offerings and communicated to the customers beyond the mandatory and legal
control parameters. The corporate perception with respect of priority given to profit rather
than environmental safety correlates with packaging being recyclable/reusable and
biodegradable as well as ingredients 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
evidence of facts to customers to reduce misunderstanding for products that have these
characteristics.

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

Managerial implications

Customers appear to expect self‐regulation by corporations more strongly than the

imposition of control by the government. At the same time, since customers expect all
products to be environmentally safe, it is fundamental that this expectation is satisfied
without compromising product quality or setting their prices at levels that may be perceived
by customers as being higher than the alternative products available. The knowledge of the
overall perception formation about green products and its predictors provides management
with the facility to identify and implement strategies that may better influence the change
of attitude by customers. Raised environmental consciousness is a market place reality and
change of attitude may indirectly lead to increased market share options.

Corporations can also benefit from the identification of the types of information required to
enable management to influence this process of perception formation. For instance, the
type of information to be provided to the customer; and the credible methods of the
presentation of the claim of environmentally safe products to assist the customers'
decisions process.

Product labels do not appear to be effectively communicating the information on product

safety on which consumers rely on to make purchase decisions. The type and format of
information provided would need to be understandable by customers if it is going to benefit
them in terms of product selection. This does not generally seem to be the case at the
present time. This may require avoiding the use of chemical code names and technology
based terms with respect to the environmental safety of the product. A recommendation
may be that a part of the product label would be graphically identified and dedicated to the
environmental safe aspects of the product, distinct from other mandatory information
provided on product labels.

Based on the findings of this study, the likely corporate strategy is that of organizational
cultural reorientation toward the unconditional provision of environmentally safe products.
In summary, the understanding of the green products perception formation, potentially, has
a number of applications. The motivations for management 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 term
profit potentials.

In order to minimize or eliminate profit sacrifices in this fundamental change to

environmentally safe product corporate culture it would be useful to revisit the
effectiveness and efficiency of production and the internal work processes and to review
and search for the possibility of achieving a lower cost‐based operation.
Limitation of the study and suggestions for future research

In this study customers' environmental concerns are manifested in their intentions to

purchase rather than in their actual purchase behavior. The sample, although randomly
selected and is representative of the household population, is small. This is a cross‐sectional
study and does not reflect customers' change of perception overtime. Longitudinal studies
could be conducted to enable investigation of the resulting variation in the relative strength
and influence of individual predictors to the construct of the overall perception about
environmentally safe products overtime. It would also be beneficial to investigate the
influence of demographic and cultural influences on the perception formation of customers
about environmentally safe products.

Figure 1Conceptual model of customers' perception formation of environmentally safe

products
Table IExploratory factor analysis of the overall perception about green products

Table IICorrelations between the predictors of the perception about green products

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Further Reading
 Garver, M., Mentzer, J. (2000), "Logistics research methods: employing structural equation
modelling to test for construct validity", Journal of Business Logistics, Vol. 20 No.1, pp.33‐56.

Homburg, C., Rudolph, B. (2001), "Customer satisfaction in industrial markets: dimensional

and multiple role issues", Journal of Business Research, Vol. 52 pp.15‐33.

Corresponding author

Clare D'Souza can be contacted at: [email protected]

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