From the Earth Friendly Initiative to a Corporate Social Responsibility Strategy Haas School of Business 4/25/07 Emily Poague Matt Evans Haas School of Business Pareen Shah – CSR Liaison, Manager, Business Strategy Warren Mazer - Director, Business - PowerPoint PPT Presentation

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Title: From the Earth Friendly Initiative to a Corporate Social Responsibility Strategy Haas School of Business 4/25/07 Emily Poague Matt Evans Haas School of Business Pareen Shah – CSR Liaison, Manager, Business Strategy Warren Mazer - Director, Business


1
From the Earth Friendly Initiative to a
Corporate Social Responsibility StrategyHaas
School of Business4/25/07Emily Poague Matt
EvansHaas School of Business Pareen Shah CSR
Liaison, Manager, Business StrategyWarren Mazer
- Director, Business StrategyOrchard Supply
Hardware

2
Agenda
  • Project Scope
  • The Green Marketplace
  • Competitive Landscape
  • OSH Strategy Increasing Share in a Growing
    Market
  • Green Product Category Recommendations
  • Long-Term Recommendations
  • Appendix

3
Project Scope
  • Evaluate how OSH competitors are engaging in
    green merchandising
  • Pros and Cons of each approach
  • Benefits being realized by competitors
  • Key home improvement categories each plays in
  • Evaluate which product categories it makes most
    sense for OSH to play in
  • Recommendations for product categories to
    showcase/carry
  • Approximate size of key products within those
    categories and 5 year forecast
  • Assess opportunities for green product labeling
  • Understand best practices to provide clarity and
    authenticity

Also included recommendations on how OSH can
realize full potential of green product
merchandising and its existing Earth Friendly
Initiative through alignment with a broader CSR
strategy.
4
Agenda
  • Project Scope
  • The Green Marketplace
  • Competitive Landscape
  • OSH Strategy Increasing Share in a Growing
    Market
  • Green Product Category Recommendations
  • Long-Term Recommendations
  • Appendix

5
Size of Green Marketplace
There are still no agreed upon standards for
defining the scope or size of the green
marketplace, but the nonprofit organization LOHAS
Journal and Forum made the first attempt to do so
in 2001
  • LOHAS stands for Lifestyles of Health and
    Sustainability
  • Includes 5 key categories of products and
    services
  • Ecological lifestyles
  • Sustainable economy
  • Alternative healthcare
  • Healthy lifestyles
  • Personal development.
  • Most recent survey (2000) estimated LOHAS to be a
    229 billion market 2007 estimates to be
    published soon expected to be much larger

See Appendix for an alternative 2006 market
sizing around 500 billion
6
Types of Green Consumers
A 2005 survey segmented U.S. consumers by their
frequency of green purchases.
35 M
?? M
Source Mintel Green Living Report, 2006
7
LOHAS Consumers
While the frequency of consumers green product
purchases is crucial information for
understanding market potential, the LOHAS
consumer segmentation provides important insight
into consumer attitudes about healthy living and
the environment.
  • LOHAS consumers have a profound sense of
    environmental and social responsibility
  • However, only 7-15 of LOHAS consumers are
    dedicated to ensuring their purchases reflect
    their values, roughly matching Mintels 12 True
    Greens
  • Other LOHAS consumers sometimes align their
    purchases with their values, but are influenced
    by other factors such as cost and convenience
  • Nomadics, Centrists, and Indifferents may by
    green products, but not typically based on LOHAS
    values

?? M
Information on this slide from www.lohas.com and
the Natural Marketing Institute Green Business
Conference, 2005
8
Drivers of Green Purchase Decisions
Even consumers who value healthy living do not
always make purchases in-line with their values.
  • The majority of the population beyond the LOHAS
    Leaders and Frequent Greens prioritizes
    tangible consumer benefits such as cost
    savings, convenience, or their own health over
    protecting the environment or the community
  • Many green products do have these tangible
    benefits but are not often realized by the
    consumer

Growth of the Green Marketplace will be driven by
increased visibility of the direct consumer
benefits of green products especially, cost
savings and improved health.
Source http//www.coopamerica.org/cabn/resources/
greenmarketplace/
9
Agenda
  • Project Scope
  • The Green Marketplace
  • Competitive Landscape
  • OSH Strategy Increasing Share in a Growing
    Market
  • Green Product Category Recommendations
  • Long-Term Recommendations
  • Appendix

10
Key Competitors
Defined competitive set as including both major
OSH competitors, as well as key players in the
green hardware/home improvement space.
  • Home Depot
  • Lowes
  • True Value
  • Ace Hardware

Direct OSH Competitors
  • Walmart
  • Independent Green Hardware Stores
  • Environmental Home Center
  • Environmental Building Supplies
  • Green Fusion Design Center
  • Real Goods

Major Green Players
11
Key Green Focus Areas
  • Home improvement retailers have focused their
    green efforts in 3 key areas 1) offering
    green products, 2) providing consumer education,
    and 3) greening their own stores and supply
    chain.

12
The Home Depot EcoOptions Initiative
The (EcoOptions) product line - expected to
reach 6,000 products by 2009, or 12 percent of
the chain's total - would become the largest
"green" labeling program in American retailing
and could persuade competitors to speed up
similar plans. - International Herald
Tribune, April 16th, 2007
13
Home Depot Green Merchandising
Eco Options products that make it easy for you
to make a difference, one choice at a time.
  • Merchandise grouped into 5 categories based on
    benefit to the environment
  • 2500 Eco-Options products identified, with
    projected growth to 6,000 by 2009
  • Key products include
  • Compact Fluorescent Bulbs (CFLs)
  • Insulation
  • Energy Efficient Appliances
  • Organic Fertilizer
  • Low Volatile Organic Compound (VOC) Paints
  • Merchandise grouped into 5 categories based on
    benefits

14
Agenda
  • Project Scope
  • The Green Marketplace
  • Competitive Landscape
  • OSH Strategy Increasing Share in a Growing
    Market
  • Green Product Category Recommendations
  • Long-Term Recommendations
  • Appendix

15
OSH s Commitment to the Environment
OSH can build on its existing efforts in the
green space.
  • OSH has already made significant contributions
    through its environmental efforts, most notably
    via its partnership with Our Water, Our World
  • OSH was also quick to market with its promotion
    of green products and Earth Friendly labeling
    and greener distribution center practices
  • OSH has the opportunity to tie these efforts to a
    larger Corporate Social Responsibility strategy
    that focuses first and foremost on promoting
    green merchandise and consumer education

16
LOHAS vs. OSH Consumers
OSHs current customers are more green than the
overall population
How to read this chart People with a graduate
education are 52 more likely to shop at OSH than
the average consumer. Those same people are 28
more likely to be Green consumers
  • Based on similar demographics, it is likely that
    more than 23 of OSH consumers are LOHAS
  • Moreover, customers on the West Coast are 9 more
    likely to buy recycled paper (standard proxy for
    LOHAS)
  • This positions OSH well for expanding further
    into the green market

Source OSH Demographic Data, Qualitap Data from
Scarborough, 2005 and Conscientious Consumerism
and Corporate Responsibility, Packaged Facts and
MarketResearch.com, January 2007
17
Recommended Short-Term Strategy
While OSH should certainly focus on key green
product categories with high expected growth, it
is imperative to support these products with
extensive consumer education and clarity in order
to realize meaningful returns.

3. Enhance Education on Consumer Benefits

2. Investigate Product Expansion Opportunities
1. Align Products by Environmental Benefit
  • 40 of consumers do not buy green products due to
    lack of availability
  • Products across merchandising categories allow
    consumers to fully address needs (e.g. save
    energy)
  • General perception that OSH has small product
    selection
  • Helps consumer understand why
  • Unifies green initiative
  • Standard approach being taken by competitors
  • Allow for cross-sell opportunities
  • Immediate benefits such as cost savings and
    health benefits encourage purchases
  • Bridge gap between values and purchasing habits
    of OSH/LOHAS consumers

18
Agenda
  • Project Scope
  • The Green Marketplace
  • Competitive Landscape
  • OSH Strategy Increasing Share in a Growing
    Market
  • Green Product Category Recommendations
  • Long-Term Recommendations
  • Appendix

19
Product Category Recommendations
Experts believe that any green product category
has the potential to grow 10-15 in the next 5
years, but positioning to consumers will
determine whether they are successful1.
  • Category Prioritization
  • (High to Low)
  • Degree of existing consumer awareness
  • Ease in communicating direct consumer benefits
  • Number of potential SKUs
  • Category Criteria
  • Provides direct benefit to consumer themselves
  • Product Criteria
  • Caters to DIY consumers
  • Aligns with existing OSH merchandising categories
  • Currently sold at 1 Key OSH competitor

1GE Ecoimagination Department Prioritization
based on Mintel, Green Living 2006 Reports data
on consumer awareness of green product types
20
Energy Efficiency Market Growth
  • Market Trends
  • Demand for EnergyStar products is rapidly
    increasing
  • 68 of consumers state that the EnergyStar label
    is important
  • Most traction has occurred in the light bulb
    category, due to efforts by GE and Walmart
  • In 2006, U.S. consumers spent about 1 billion to
    buy approximately 2 billion light bulbs (5.5
    million per day)
  • 5 (100 million) were CFLs
  • The state of California is seeking to ban sales
    of incandescent bulbs
  • From 2004-2005, usage rates for EE Windows and
    Solar Panels increased 17 and 18 respectively

Sources Mintel, Green Living 2006
www.fastcompany.com Packaged Foods report
21
Indoor Air Quality Market Growth
  • Market Trends
  • Household cleaners are expected to grow at a rate
    of 15-20 YOY
  • Currently only 1 of sales at mass merchandisers
    are green despite significant health benefits.
    Consumers are not yet educated on the health
    benefits of these products.
  • Regulation is driving use of low-VOC in home
    building, raising consumer awareness about its
    benefits
  • 26 new environmentally-friendly laundry products
    have been introduced in the past 5 years

Sources Mintel, Green Living 2006
www.coatingsworld.com
22
Water Conservation Market Growth
  • Market Trends
  • Toilets require more water than any other in-home
    source, and constitutate approximately 30 of
    total houeshold water use
  • Low flow toilets reduce water consumption by 20
  • 56 of consumers are aware of low flow toilets
  • Home Depot customers can on-staff sustainable
    gardening experts to do everything from landscape
    design to installing drip irrigation systems that
    allow water to seep slowly into the soil --
    eliminating the need for wasteful sprinklers.

Sources Mintel Report, Green Living 2006 Wall
Street Journal, First Prize for Rainwater
Harvesting Goes To, April 20, 2007
23
Green Garden Market Growth
  • Market Trends
  • Scotts Miracle Grow is currently vowing to
    convert half of its fertilizers into
    Natural/Organic products by 2010
  • Currently 10 of American households use natural
    or organic fertilizers

Sources Packaged Facts
24
Projections Contingent on Consumer Education
  • To capture growth in green market, OSH must be
    able convey the direct benefits (as well as
    environmental benefits) to the consumer. Growth
    projections assume benefits are effectively
    communicated.
  • Shelf talkers and literature that emphasize
    consumer benefits, and environmental benefits
  • Product displays (shelf ends and front of store)
    potentially organized by key category (e.g. Water
    Conservation)
  • Use of web and circulars to highlight consumer
    benefits such as cost savings and improved health
  • Clear product labeling
  • Labels should indicate not only that a product is
    environmentally friendly, but why
  • Labeling on many products still fails to
    highlight key product benefits. OSH needs to
    supplement with their own labeling that clarifies
    benefit to the consumer

25
Agenda
  • Project Scope
  • The Green Marketplace
  • Competitive Landscape
  • OSH Strategy Increasing Share in a Growing
    Market
  • Green Product Category Recommendations
  • Long-Term Recommendations
  • Appendix

26
Long-Term Recommendations
  • Conduct further research to understand the
    attitudes of OSH consumer towards green products,
    especially given the limited data available
    within the industry
  • Use surveys, focus groups, and in-store dialogues
    to understand the values and level of green
    education of OSH consumers, as well as their key
    barriers to purchase, preferred brands, and
    shopping cycles
  • Promote the most relevant products and speak to
    products in a way that resonates with consumers
  • Understand the level of LOHAS-ness of OSH
    consumers to determine amount of consumer
    education required
  • Work with suppliers to address key barriers to
    purchase, such as cost or quality
  • Obtain update 2007 LOHAS report to understand
    overall consumer perceptions of green
  • To realize the greatest financial gain for OSH
    and obtain buy-in from consumers, Green
    Merchandising should be tied to a larger CSR
    strategy aligned with the companys business
    objectives
  • Further environmental in-store practices, such as
    solar panel installation, use of recycled
    materials, and programs such as Terracycle
    Recylcing
  • Align charitable giving and voulnteer programs
    with key environmental organizations, such as Our
    Water Our World
  • Pressure main product suppliers to develop more
    effective products and better labeling
  • Support Employee Development programs that
    provide green education and allow for volunteer
    opportunities with environmental organizations
  • Enhance consumer education on environmental
    issues through all communications channels
  • Develop a CSR report which illustrates the
    cohesion and dedication of OSHs efforts

27
Question and Answer
Thank You Questions?
28
Agenda
  • The Green Marketplace
  • Meet the Green Consumer
  • Green Home Improvement Sector
  • Competitive Landscape
  • OSH Strategy Increasing Share in a Growing
    Market
  • Green Product Category Recommendations
  • Long-Term Recommendations
  • Appendix

29
Green Is No Longer a Niche Phenomenon
30
Healthy Products, Healthy Planet (HP2)
Marketplace Sizing
  • Defined in 2004 by Environmental Business Journal
    and Nutrition Business Journal
  • Incorporates both consumer and industrial
    segments
  • HP2 broadly defines green products includes
    organic food, green hardware, etc.
  • More inclusive of both waste management and
    homebuilding products
  • HP2 2006 market estimate 500 billion
  • HP2 has grown at steady rate over the past 4 years

Source Mintel Report, Green Living 2006
31
No Standard Definition of Green
OSH Earth Friendly
Industry Experts
  • A green business is one that considers profit as
    merely one part of a triple bottom lineone that
    emphasizes people, the planet and profits.
  • -Mintel Report, Green Living 06
  • Goods and services that minimize the impact to
    the environment through
  • Use of recycled materials
  • Absence/reduction of harmful chemicals and
    solvents
  • Use of organic/pesticide-free methods
  • Use of reduced energy/water
  • Use of forestry products from sustainable woods
  • Products that create less waste/pollution
  • -Twin Cities Green Guide
  • Environmental responsibility is not only the
    right thing to do, but it also makes financial
    sense in todays marketplace
  • Recyclable
  • Less/Non Toxic
  • Organic
  • Energy and Resource Conservation
  • Biodegradable

-Spring Seasonal Meeting Presentation, January
2007
32
Education Is Required for Growth
  • Three consumer areas offer a key to
    understanding future trendsnatural and organic
    products, green cleaning supplies, and green
    homebuilding. Though varied in their success,
    these three segments exemplify the challenges and
    opportunities in the green marketplace. For
    example, many natural and organic products have
    succeeded in capturing mainstream consumers and
    distribution. Yet, green homebuilding and home
    supplies, driven by the benefits of energy
    efficiency as well as improved health and
    comfort, are only just beginning to capture
    consumers attention.
  • -Mintel Report Green Living, 2006

Key home improvement players are shaping their
green strategies accordingly.
33
Actual vs. Perceived Benefits of Green Products
All these products benefit the environment, but
most consumers do not realize the products
direct benefits to themselves
Actual Benefit to Consumer
  • Natural/Organic Foods
  • Clear health benefits
  • Grew 26 from 2003-20052
  • Health benefits
  • Lack of consumer awareness
  • Immediate Cost Savings
  • Lack of consumer awareness
  • Fuel Efficient Cars
  • Significant long-term cost savings
  • Greater consumer education lead 28 growth in
    20061

Consumer education and strategic positioning are
needed to increase the perceived benefit of these
key OSH categories
  • Organic Clothing
  • May have health benefit
  • Insignificant growth

Perceived Benefit to Consumer
1http//www.msnbc.msn.com/id/17346041 2Mintel
Report, Green Living 2006
34
Green Home Improvement Sector
Trends in the building and Do-It-Yourself
segments suggest that purchases of green
hardware, building, and home improvement products
are growing.
  • 20 increase in the number of green homes in 2005
    and an estimated 30 in 20061
  • 10 of all new home construction is forecasted to
    be built according to green standards by 2010
  • Both LOHAS and non-LOHAS consumer spend in key
    home improvement categories grew substantially
    from 2004 to 2005

1Nation Builidng News, Green Building Barrels
into the Mainstream Market, March 20,
2006 2Nation Building News, Green Building to
Skyrocket, April 2, 2007
35
Home Depot Education
Extensive in and out of store communications
consistently focus on the benefit to the consumer
as well as to environment
TV Ads
In Store Placeholder
Web
Online Tools, Clinics, and Calculators
36
The Home Depot Pros and Cons
37
Lowes Green Program
Lowes lags behind Home Depot in most aspect of
its green program.
  • Green Merchandising
  • Lowes list green merchandise in its 2005 CSR
    report but does not feature them anywhere
  • Rubber mulch
  • Cellulose insulation
  • Sustainably grown lumber and ChoiceDek,
  • Organic gardening products
  • Drip and mist irrigation systems
  • Native plants (low water, drought resistant)
  • ENERGYSTAR Appliances and Lightbulbs
  • Consumer Education
  • Limited information on Energy Efficiency online
    (see Appendix B)
  • Store/Supply Chain Greening
  • Lowes procurement policy ensures wood products
    are harvested responsibly and come from companies
    that use sustainable forestry practices.
  • Solar rooftop panels in 4 stores in California
  • High-efficiency heating, air conditioning, and
    lighting systems

38
Lowes Website Snapshot
39
Lowes Pros and Cons
40
Ace and True Value Hardware
  • Green Merchandising
  • High variability from store to store, but
    majority of locations carry nothing green but
    CFLs
  • Stores in high-LOHAS traffic areas carry a
    greater green product selection
  • Green products are provided primarily via the
    supplier Plan-It Hardware
  • Key Plan-It Hardware products include
  • Irrigation kits
  • Fertilizers
  • Tankless Water Heaters
  • Low VOC Paints
  • Energy Star Appliances
  • Non-toxic Household Cleaners
  • Green Laundry Products
  • Consumer Education
  • Plan-It Hardware provides consumer education
    materials (in-store signage, product brochures,
    and end-cap displays) to Ace and True Value
    stores
  • Also provides Greener-Choice stickers that can
    be applied directly to products
  • Store/Supply Chain Greening
  • All independently owned, so varies by store
  • No evidence of any store green to date

41
Walmarts Green Efforts
Walmart has positioned itself as an environmental
leader, focused on ensuring its up and downstream
supplier follow suit.
  • Green Merchandising
  • Walmart, in conjunction with GE, plans to sell
    CFL to all 10 million of its consumers by end of
    year 2007
  • Focused more on Food and Consumer Durables than
    Hardware.
  • Organic Foods
  • Marine Stewardship Council certified Seafood
  • Potential to significantly alter American
    consumption in products it already sells,
    especially cleaning products
  • Consumer Education
  • Website
  • Prominent display of CFLs and education materials
    (picture below)
  • Store/Supply Chain Greening
  • Switched to ultra-efficient LED lighting on
    storefronts
  • Goal Double the efficiency of vehicle fleet by
    2015
  • Encouraging other retailers to follow suit to
    further drive down the cost of green products

42
Specialty Green Hardware and Home Design
  • Specialty Green Hardware stores are a growing
    niche, with currently less than 1 of the market.
    They are focused primarily on Home Design and
    cater to LOHAS Leaders.
  • Consumer Education
  • Education closely tied to merchandise
  • Knowledgeable sales people, excellent service
  • Green Merchandising
  • Stores feature products that are environmentally
    friendly or reduce resource use
  • Bamboo Housewares
  • Sustainably grown lumber and ChoiceDek,
  • ENERGYSTAR Appliances and Lightbulbs
  • Store/Supply Chain Greening
  • Stores are models of green construction practices
  • Passive heating/cooling, solar panels
  • Give priority to suppliers with green supply
    chains

Green Fusion Design Center
43
Ace and True Value Pros and Cons
44
Walmart Pros and Cons
45
Green Specialty Stores Pros and Cons
46
Strategy Aligned with OSH Value Proposition
  • Aligns with OSH goal of deepening consumer
    relationships and guiding consumer through store
  • Employees could be equipped to covey how
    consumers can improve an aspect of their lives,
    similar to how they help them complete a project

Service
  • Offering a range of green products across
    departments in each benefit category will
    improve perception of availability
  • Provides buyers with distinct criteria for
    selecting SKUs in order to stock those most
    relevant to consumers

Selection
Selection
  • Displays by product benefit will enable consumers
    to shop for a variety of products which may
    address their needs
  • Clearer labeling by benefit will drive purchases

Convenience
47
Slide of Forecasting Methodology
  • Growth Rates
  • Industry predictions existed for a small of
    product types
  • Used growth rates that were readily available
    (e.g. for CFLs) to predict growth rates of other
    products, adjusting for qualitative trends,
    price, frequency of purchase
  • Base Line Sales/Starting Point
  • Used 2006 OSH data for Earth-Friendly SKUs as a
    baseline where possible
  • For green products that OSH does not currently
    sell, used 2006 sales data for non green products
    in the same category (e.g. toilets, instead of
    low flow toilets) and predicted baseline sales
    using 12

48
Best Practices in Green Labelling
  • EcoOptions
  • Products follow accepted standards (Forestry
    Stewardship Council)
  • Products have environmental claims confirmed by
    independent certifier
  • Home Depot ultimately decides what receives the
    EcoOptions label
  • Where does label go?
  • Plan-It Hardware Greener Choice label
  • Plan-It Hardware carefully reviews products
  • Recommends the Greenest alternatives, claiming
    only that the products are greener than others
  • Independent 3rd Party Certifiers (e.g. Green
    Seal)
  • Provide the most credibility
  • Set standards based on environmental and public
    health criteria
  • Certifies products that meet standards
  • Seal goes directly on packaging
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