Will Your Customers Pay to Go Green?

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Take a simple paradigm: plastic bottles. The cheapest way to make a plastic bottle is to use 100 percent virgin plastic (the worst thing for the environment). If you want a "greener" bottle, you can integrate some recycled content, but with every extra gram of recycled plastic, you will be increasing the price of that bottle (and decreasing its strength). If you wanted to go "uber green," you might use biodegradable plastic -- like Ethos water, which is available at your local Starbucks. That move would result in the most expensive way to make a plastic bottle today.

The trend that this example shows is typical of the dynamic with almost all eco-friendly/organic products today. In other words, the more eco-friendly a product, the higher the cost. This translates, of course, to higher priced products.

Most CEOs of green companies argue passionately that consumers are willing to pay more for green products and that green products should be premium priced. But are they saying this because they have no choice and are just trying to justify a high price? Every time I give a lecture, I ask the audience if they would be willing to pay a penny more on a one dollar product if it were a green version. Typically, only 5 percent of the people raise their hands.

So what is the solution? Should green products be premium priced? If so, is the job of green companies to educate consumers that they should be willing to pay more because it's better for them in the long run?

Tom Szaky

Tom Szaky is the founder of TerraCycle, a New Jersey based company that makes fertilizer using worms and produces retail products from recycled goods. The firm was started while he was a student at Princeton University. Tom was named "The No. 1 CEO Under Thirty" by Inc. magazine in its July 2006 issue.