Would you pay more for a cleaner planet? Discover how a BCG survey reveals the willingness among consumers for a 'green premium' on cars and appliances—and what it means for the fight against climate change.
When discussing decarbonization, most people talk about the emissions released during a product’s use. Yet, this focus overlooks a significant source of environmental impact: the production phase. To address production-phase emissions, all companies along a product’s value chain — including raw material suppliers and manufacturers, suppliers across all tiers, and OEMs — must understand consumers’ willingness to pay for decarbonization.
BCG recently surveyed consumers of automobiles and white goods (large home appliances such as washing machines) to gauge their openness to pay a “green premium” — a markup for products manufactured with net-zero emissions. Our global survey identified three consumer segments that say they are, to a varying extent, willing to pay this premium. The survey was conducted in Q3 2023 amid ongoing inflation, a recessionary climate, and diminished consumer confidence — factors potentially leading to a reduced reported willingness to pay.
But understanding consumers’ willingness to pay is only the starting point. Companies, especially OEMs, must also solve the challenge of how to distribute resulting premiums across their complex manufacturing value chains. This implies equitably sharing the costs, responsibilities, and gained value of reducing emissions along a product’s value chain, ultimately leading to more sustainable production.
Three Key-Actions:
In our survey, we explored three questions that led us to the possibility of defining three key-action areas, that suppliers and manufacturers can take.
Convincing Consumers to Pay the Green Premium
Companies, especially OEMs, need a nuanced understanding of the drivers of consumer choice with a comprehensive view of segments’ attitudes, demographics, country-level variation, and their broader sociopolitical context. We see three types of actions that OEMs and suppliers can take to harness existing consumer appetite for sustainability and drive positive developments in the market. OEMs and suppliers must pinpoint key consumer segments by de-averaging them on the basis of willingness to pay; assess and address the barriers and enablers that affect these consumers’ willingness to pay; and adapt pricing strategies to support a decarbonized production value chain.
Covering Decarbonization Costs
Leveraging stated consumer willingness to pay is one element in an array of strategies companies will likely need to cover decarbonization production costs. As companies advance on their net-zero journeys, they need to strategize for decarbonized production now to accommodate product planning cycles. Even if companies cannot fully cover costs, they can consider the following actions to gain green premiums: Identify and address key segments, operationalize net-zero production or consider partially green production, and price strategically.
Spreading the Benefits Along the Value Chain
To improve their positions and secure a larger share of growing green value, companies must recognize that there is no one-size-fits-all solution, as revealed by our interviews. Rather, they need to tailor their strategies for value generation — this is especially important for material and component manufacturers and suppliers to gain more influence. Furthermore, any changes need to be integrated into a coherent decarbonization plan with alignment throughout the company.
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The findings of our global survey are a call to action for every company along a product’s value chain to strategize on how to adapt their pricing, communication, education, and transparency to capitalize on consumers’ stated openness to pay a green premium today and in the future. Respondents revealed a significant willingness to pay for decarbonized production, surpassing expectations in specific segments and regions. From raw material suppliers all the way to OEMs, companies can no longer cite a lack of stated consumer willingness to pay as an excuse to avoid transforming production. Although consumer willingness to pay does not fully cover the costs of decarbonizing production, it is a critical component of a comprehensive approach to financing these efforts. Companies must proactively consider the implications and analyze and cater to key consumer segments to capture the growing opportunity.
If you are interested in the full results, you find our report here.
