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How Pricing Strengthens Your Environmental Sustainability Initiatives

By Shirin Shahidi
May 17, 2016

In October 2015, I had the honor of attending the Climate Reality Leadership Corps training held in Miami, Florida. While there, I heard former Vice President Al Gore and his team explain how climate change is causing worldwide economic instability. He continued to discuss the climate crisis and offered the case for hope.

Coincidentally, as parts of the city were flooded from high tide accentuated by the rise in sea levels, a group of over a hundred climate activists—myself included—was hearing about how world leaders were preparing to talk about climate change at the UNFCCC’s 21st Conference of the Parties (COP21) in Paris.

Later that year, over 180 countries started signing “L’accord de Paris”—the Paris Agreement.

One of the aims of the agreement is to make business operations consistent with a move towards low greenhouse gas (GHG) emissions and the development of tech and products that improve the climate’s resiliency. Aligning with the Paris Agreement requires investment in climate solutions and moving funds away from activities that contribute to climate change. This calls for the development of new technology and implementation of sustainable alternatives through product innovation.

READ MORE: Time (and Price) are Easy, Right?

Take Photovoltaic panels (also known as solar panels) as an example. These experienced an unprecedented advancement in the market. Twelve years ago, analysts said the solar industry would grow at the rate of 1GW/year. In reality, they increased by 17 times over by 2010.

Another great example of an innovative climate solution is electric cars like Tesla. Operating expenses, including R&D costs, are extremely high. However, there are expected to be significant long-run emissions reductions with payoffs occurring in a reasonable amount of time.

As the urgency behind stopping climate change grows, these innovative technologies and products are receiving more R&D funding, thus shrinking the timeline for positive returns on investments. This has already started with clean energy initiatives like President Obama’s Mission Innovation to Bill Gate’s Breakthrough Energy Coalition.

That said, reducing carbon emissions does not come cheap; it is a cost-intensive process and the potential for cost increases—both from R&D and capital investment—makes incorporating sustainability into business decisions even harder.

Add the emerging new low-carbon technologies, innovative products, and rapidly changing market environments to the mix and you can see how competition to be early adopters is rising. This makes margin improvement goals more challenging, and important, to achieve.

READ MORE: Using Pricing Software as an Enabler for Change

In order to succeed in this new market environment, how you price your products to reflect the value added by clean energy technologies is crucial. Transparency is key at the start, as the initial cost of transforming your production process will be costly. Let your customers know that the initial price increase is temporary. Once the clean processes are fully integrated, both of you will benefit.

With increasing expenses, continuous competition and new products coming into market, there will be an evident need for a tool that can help with practical, data-driven pricing.

You need the right system to show you how (1) the new process influences cost and price at each step of production, (2) the new technologies impact your final product’s use, and (3) market information can effectively indicate the value added by the innovation. By understanding the effect your clean energy initiatives have on your product, the environment, and the marketplace, you will be able to optimize your prices and create a business model that is sustainable for your bottom line growth and the environment.

  • al gore , clean energy , climate change , margin , pricing , profit , sustainability

    Shirin Shahidi

    Shirin is a sales development representative at Vendavo. She joined Vendavo with over five years of scientific research experience, specializing in climate change. She graduated from Pennsylvania State University with a Masters in Environmental Sciences and is currently writing her dissertation to complete her PhD in the same field. Prior to joining Vendavo, she was an environmental impact analyst at Climate Earth and a graduate research assistant at Penn State.