Small businesses aren’t all alike. We can see that when we drive down the street past the car mechanic, nail salon, and pet store. The characteristics and behaviors of these businesses are as diverse as the people who run them. Those who serve and sell to diverse small businesses – from banks to credit card companies to utilities – have tried a number of approaches, from offering a standard set of products and services for the so-called “mass market,” to fully segmenting the small business world into groups that include commercial customers with similar needs, behaviors, and preferences.
There are limitless ways the small business market can be segmented. Depending on the product or service being offered, a marketer might take a look at the size, location, type of business, as well as the ethnicity of the owner or her company’s annual revenues. Energy companies, for example, often segment their commercial customers on the basis of how much energy they use and when they use it, recognizing that different customers will have different product and services needs. Segmenting is also valuable in effective advertising and promotion, by targeting messages and channels through ethnic or trade association groups, for example.
Sustainable businesses comprise another commercial segment that is worthy of attention. Although there has been little market research on the preferences and purchasing behaviors of small sustainable business decisionmakers, research on individuals who support sustainable business practices indicates an interest in and a willingness to pay price premiums for sustainable products and services such as energy efficient equipment, services and renewable energy. This is relevant because in small businesses, the behaviors and preferences of owners/managers as individuals can greatly influence the choices and practices they make for their business.
Compared with small businesses in general, decisionmakers within sustainable businesses
Because of these characteristics, we anticipate that energy product offers that are targeted toward this segment can yield higher participation rates and profits than generic commercial offers designed for a mass market. We do not suggest that targeting this market is the panacea for marketers seeking to solve the small business products and services conundrum, nor is this a segment that everyone should necessarily pursue with every product. Instead, tapping into the sustainable small business world should be viewed as part of a diverse marketing program that also considers minority, trade, geographic, and other segmentation strategies.
What Is a Sustainable Business?
We use the term “sustainable business” to refer to businesses that strive to improve the state of the natural environment, strengthen local communities, or both, in addition to being profitable in the traditional sense. We include providers of natural or healthful products, because they share similar customer demographics with sustainable businesses. However, it’s important to recognize that just because a company sells a product that is perceived to be sustainable or natural doesn’t mean that the management runs the business according to sustainable principles.
Green Mountain Coffee Roasters (GMCR), located in Waterbury, Vermont, is an example of a sustainable company that started out small and has prospered and grown over the years. Paul Comey, vice president of facilities and process engineering for GMCR, notes that, since its founding in 1981, the company has operated by the principle of taking care of the communities in which its employees live and work, as well as the employees themselves. GMCR also openly promotes its social and environmental initiatives.
The company’s sustainable mission and programs are fueled primarily by the individual convictions and initiatives of the CEO, management, and staff, who seem to fall into the LOHAS (lifestyles of health and sustainability) category. GMCR allocates 5 percent of pre-tax profits to socially responsible projects, encourages volunteerism on the part of its employees, and has an aggressive in-house recycling program. One GMCR program releases employees to work “in the field,” where the “field” can mean an employee’s local food bank, library, schools, or in the coffee fields themselves.
Business for Social Responsibility (BSR), one of the foremost organizations concerned with sustainable commerce, defines social responsibility this way in one of its white papers: “While there is no single, commonly accepted definition of corporate social responsibility, or CSR, it generally refers to business decisionmaking linked to ethical values, compliance with legal requirements, and respect for people, communities and the environment.” BSR has more than 1,400 members and affiliates worldwide and serves as a networking and resource tool for companies with a socially responsible mission.
Why This Market Is Worth Investigating
Though the size of the sustainable small business market has not yet been determined, there are several indicators of this market’s growing significance. For example:
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The sustainable business sector is also significant to the degree that sustainable products and services are entering the mainstream. This is seen in two ways: by the strength of large, sustainable business chains like the Body Shop and Whole Foods and by the extent to which traditional retailers such as Kroger and Safeway sell sustainable products such as organic food, recycled paper products, and nontoxic cleaners.
Effective Marketing and Communication Channels
What characteristics do these consumers have? Platts has found that people who purchase green energy such as that generated by wind or solar (whether through their utility or installed at their home) share many characteristics with LOHAS consumers. The prototypical woman (and she is more likely to be female) who pays a premium for renewable energy from her electricity provider is highly educated and more likely than non-green energy buyers to purchase organic food and health food, as is the LOHAS consumer. She volunteers with nonprofit organizations, is active outdoors and in politics (as a Democrat or independent), owns a home computer, shops through certain mail order catalogs, characterizes herself as an environmentalist, and is somewhat more likely to never have married and to live in a one-person household, where she gardens and recycles. She is also an early adopter: More than three times the number of green energy participants than nonparticipants say they tend to be the first to buy new products and services.
LOHAS consumers are more than three times as willing than the general population to pay up to 20 percent more for healthy and sustainable products. However, the sustainable business decisionmaker is more discriminating with whom she does business, demands more information on offers, and responds to different advertising media than other small businesses.
Given a choice, the majority of LOHAS consumers prefer to do business with companies and organizations that share their values. Similarly, Platts found that 64 percent of renewable energy purchasers, compared with only 37 percent of non-purchasers, chose to do business with companies because the consumers believed the companies to be environmentally responsible. LOHAS consumers are also nearly twice as likely as general population of consumers to be strongly affected by brand image. This means that, once sustainable consumers decide they like a particular company’s brand, they are more likely to be loyal to that brand.
Sustainable business consumers demand more information on products and services than other business or individual consumers. These consumers can be expected to read the fine print on bills, brochures, and other media to decide if a product or service will work as it is intended to and will help them meet their sustainability goals. Messages appealing to this group should convey a sense of altruism or “doing right by the environment, society, or future generations” in addition to the other benefits of the product or service. The recent Platts survey of green energy program participants and nonparticipants found that 54 percent of participants strongly agreed with the statement that “each of us has to be responsible-what I do can make a difference,” compared with 31 percent of nonparticipants.
Product and service offerings using a utility’s traditional promotional media may miss the mark with sustainable business consumers. “The LOHAS consumer is more likely to rely on books, product brochures, Internet, and magazines,” says Steve French, Managing Partner of the Natural Marketing Institute. LOHAS consumers also rely heavily on recommendations of friends and colleagues who share their values: 89 percent of LOHAS consumers teach family and friends about the benefits of environmentally friendly products-twice as many as general population consumers.
As a result of these consumer tendencies, companies may need to expend a little more effort to identify niche-marketing channels to reach the customers who may be most interested in their products. Anyone approaching this market needs to be careful that messages appealing to sustainable business values do not sound like greenwashing to the discriminating small business customer. However, this does not mean that a company has to transform itself into a wholly sustainable company before they can market to this group. Instead, our advice is to approach this market by honestly presenting your company’s strengths and limitations. Such an approach will go much further than, say, the announcement of a new corporate sustainability program that never gets off the ground.
++++Tertia Speiser provides research, writing, and analysis for Platts, a unit of the McGraw-Hill Companies, Inc. She serves on the board of directors for P3: People, Planet, Profit of Colorado (formerly Colorado Business for Social Responsibility). Contact her: tertia_speiser@esource.platts.com
This article is an adaptation of a report written for electric and gas utility subscribers to Platts’ E Source Small Business Service.
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