Economics And Empathy In The Face Of Rising Gas Prices

Between the effects of the Japan tragedy and the Arab revolts, there's no shortage of topics for a green guy to discuss. But for now I'd like to focus on the revolts because they hit everyone where it's most immediately felt -- the pocket book.

While gas prices were inching up before the revolts got under way in earnest, the Libyan civil war has helped propel gas prices to over $3.55 nationally, up 38 cents since one month ago.

It's no secret that rising gas prices have the potential to dampen the entire economy. The fear is that higher prices will restrain consumer spending and put the brakes on the already slow economic recovery. Plenty of research confirms the danger. Generally, for every sustained $10 per barrel increase in oil prices, U.S. gross domestic product declines by 0.2%, according to IHS Global Insight.

Market research indicates that when consumers pay more at the pump, they spend less elsewhere. New research published in The Journal of Marketing shows that for every dollar increase in gas price per gallon, the average consumer reduces shopping frequency by approximately 10% and total expenditures by 3%. Gas prices are nearing that $1 increase threshold, having risen by approximately 73 cents since one year ago. Three percent of an approximate $14 trillion GDP is a whopping $420 billion lost.

This ripple effect has President Obama so worried that he has already said he would release oil from the U.S. Strategic Petroleum Reserve (which would be a huge, futile, mistake) in order to keep the economy on track.

With green products, from cleaning supplies to hybrid vehicles, costing more than traditional products, green will face strong price pressures.

Survival in this environment will require green companies to have a marketing and pricing plan in place to respond to consumers with less disposable income. The study in the Journal of Marketing finds that when times get tight, consumers tend to buy fewer full-price name brands, but that many want to avoid generics. The study shows that many shoppers keep their name brands by seeking out value through promotions.

This is good news for green consumer companies, as it indicates that they'll be able to weather the latest gasoline-induced economic hurdle with a good marketing plan.

My suggestion would be to speak to consumers on two levels: economics and empathy. Promotions help retain customers -- offer the usual discounts without a loss of quality -- coupons, rewards programs, and so forth. Brand margins may decline, but keeping customers in this environment is what counts.

But companies can find added value in their promotions by how they are offered. Promotional messaging should be tied to rising gas prices to achieve a, "we know how you feel" exchange. Promotions that offer an economic and emotional exchange will help green companies prevent their customers from going traditional or switching to cheaper green brands. Buyers save a few bucks, and sellers strengthen customer loyalty.

This strategy is far better than the alternatives, which include doing nothing, and discounting across the board. While sales of most green products avoided a slide during 2009, consumers may be weary of digging into their pocketbooks again. Cutting prices is likely to stick a brand into a lower price category for a long time or result in a loss of quality.

When marketers notice sales dropping as gas prices rise, they should invite their customers in with open arms and help them pay for gas with smart promotions in the stores.

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