Daily Archives: July 6, 2007

Marketing the ‘distance’

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Seth writes about the difficulty in marketing to a consumer about something which is distant in time and space.

His solution:

The lesson of the National Lampoon cover above, the best magazine cover
in history, should be obvious by now. The way to sell the distant is to
make it immediate. The way to sell the drop in a bucket is to make the
bucket a lot smaller, not to extrapolate to even bigger numbers. “Buy
this car and we’ll kill 10 penguins” is a lot more powerful than “Buy
this car and forty years from now, if everyone else buys a car like
this one, your grandchildren are going to spit on your grave.”

In the environmental area it is similar. How do you explain the consequences of climate change, pollution, congestion, etc to ordinary people?

One way to do is to make them immediate as Seth suggests.

A strategic way to do this is to use the framework suggested by Alan Deutschman. From a previous article on marketing:

Alan suggests first the magnitude of the problem.

Alan finds that for people facing with their own death, 9 out of 10
people do not change their lifestyle. Now how can we change their lifestyle for a problem like global warming or sustainability which is
too far down the track and which cannot be seen directly.

He gives examples where people have succeeded in changing behaviour
in heart patients, psychopaths and rogue employees in
auto-manufacturing.

Alan suggests that the problem is “We like to think that the
facts can convince people to change. We like to think that people are
essentially “rational”–that is, they’ll act in their self- interest if
they have accurate information.”

He says his mission with the book “is to replace those three
misconceptions about change–our trust in facts, fear, and force (the
three Fs)–with what I call “the three keys to change.”

So what are the three keys.

THE FIRST KEY TO CHANGE

Relate

You form a new, emotional relationship with a person or community that inspires and sustains hope.

THE SECOND KEY TO CHANGE

Repeat

The new relationship helps you learn, practice, and master the new habits and skills that you’ll need.

THE THIRD KEY TO CHANGE

Reframe

The new relationship helps you learn new ways of thinking about your situation and your life.

I think this is the place to start.

To relate, we need to act local. Even in a large organization or
take a community; different people prefer different ideas. It is
important to relate this issue at multiple levels. For some it is
saving the world, for others their children, for some business
benefits, or operational efficiency or new green markets. Respect the
diversity in opinions.

To repeat, it needs to come in many forms from many different
people. Greening comes in many forms. In saving energy, better
procurement, organic food, recycling waste, etc. Every single step in
various ways will ensure that this idea is disseminated and repeated
over a period of time. Another example is of a Greening Officer in
every business unit who will provide the local support to the idea than
people from the corporate office.

The need is to re-frame the issue. It is important to change the issue
from one of gloom and doom to one of joy and opportunity. The
opportunities in Greening is what I would go ahead with. This is the
most important.

However, we need to go further than that. We need to provide incentives for people to change their behaviour. Like congestion taxes in London. We need to create supporting mechanisms.

Improving Energy Security

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Andy Morris in the Washington Times (Hat tip: Cafe Hayek) :

There is a way to improve energy security: unleash entrepreneurs. Refiners have been solving America”s energy problems since the start of the 20th century. When the U.S. faced a major gasoline shortage in 1910, entrepreneurs revolutionized refining technology and doubled gasoline yields. For the last 30 years, they”ve been boosting output from refineries, making it possible for our total capacity to rise even as older, less efficient refineries were closed.

In short, American refiners have regularly increased the quantity and quality of gasoline from each barrel of crude, and done it without Congress” advice.

If we want to increase our energy security, we”ll stop changing the rules every time a politician needs an issue for his next campaign ad. Refineries, pipelines, and oil fields are all multibillion-dollar investments that take years to earn a return. The constant shifting of government rules undermines the certainty investors need before making such a large-scale capital commitment.

If we want to make America more secure, decrease gasoline prices, have cleaner fuels, and increase the reliability of supplies, we need to get the government out of the way of the entrepreneurs who can deliver those things.

Global Warming Fatigue

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The Everyday Economist links to Gary Rosen writing in the New York Times Magazine:

I have to confess to a serious case of global-warming fatigue. I know
that the planet is heating up and that fossil fuels are the likely
culprit. But I’m tired of the sanctimony and the alarmism that surround
the subject. Every temperature spike is not a portent of the
apocalypse, and the need to see it that way keeps us from dealing
rationally with the problem itself. The issue is climate change, after
all, not weather change. What scientists worry about isn’t the
occasional winter scorcher but the long-term shift in average
temperatures.

[...]

As Cass R. Sunstein of the University of Chicago argues in his book
“Laws of Fear,” a critique of the precautionary principle, a
single-minded focus on particular environmental dangers excludes too
much. “A better approach,” he writes, “would acknowledge that a wide
variety of adverse effects may come from inaction, regulation and
everything between.”

If “precaution” is to make sense, it must be tempered by the logic of
cost-benefit analysis, with its trade-offs and estimates of relative
risk. Taxing carbon consumption is a fine idea — it would create
incentives for new energy technologies — but if pushed too far it could
depress economic growth. Resources might be better invested in
adaptation — that is, in developing new crops and water supplies for a
hotter world. Nor can we let climate change divert attention from more
pressing human needs. The social scientist Bjorn Lomborg persuasively
argues that the Third World suffers more from malnutrition and
H.I.V./AIDS than it is likely to suffer from global warming.

New studies connect ‘Sustainability and Business Strategy’ to stock performance or Do They?

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In a Global Compact Study,

More than 90 percent of CEOs are doing more than they did five years ago to incorporate environmental, social and governance issues into strategy and operations, according to a survey of chief executives participating in the Global Compact.

Seventy-two percent of CEOs said that corporate responsibility should be embedded fully into strategy and operations, but only 50 percent think their firms actually do so. Almost 60 percent of CEOs said corporate responsibility should be embedded into global supply chains, but only 27 percent think they are doing so.

Goldman Sachs suggests that there is a connection between environmental, social and governance (ESG) policies and sustained competitive advantage.

A report released by Goldman Sachs, one of the world’s leading investment banks, showed that among six sectors covered – energy, mining, steel, food, beverages, and media – companies that are considered leaders in implementing environmental, social and governance (ESG) policies to create sustained competitive advantage have outperformed the general stock market by 25 per cent since August 2005. In addition, 72 per cent of these companies have outperformed their peers over the same period.

Statistically this could be right; in the sense that there could be a correlation between the companies which were considered leaders in ESG and their general stock performance. However, it is important to be cautious with these results. Can correlation lead to causation?

From the Everyday Economist:

correlation |ˌkôrəˈlā sh ən| noun – a mutual relationship or connection between two or more things

causality |kôˈzalətē| noun – the relationship between cause and effect

Perhaps the most important thing that an economist, and any individual for that matter, can learn is the difference between correlation and causality. The famous saying is that the rooster does not make the sun rise, but unfortunately that is not always the perception.

As the Executive Director of the UN Global Compact, Georg Kell, says: “The evidence is building that embedding universal principles and related environmental, social and governance policies into management practices and operations delivers long-term business value and is rewarded by markets”.

This might be true to a certain extent. However, in the Goldman Sachs survey we need to understand whether the 25% greater stock market performance is all due to the ESG factors or whether leaders in ESG are also generally leaders in general management and hence, that being a causality to the stock market performance.

In a fantasic Google Answers response to this issue, tox-ga explains the issue and provides multiple silly examples of correlation without causation.

The fact that correlation never implies causation, which may be lost on many people, is extremely important. Causation is just one of three possible relationships between two correlated variables:

a) Causation – a change in X causes a change in Y
b) Common Response – both X and Y change in common to some third, unseen variable
c) Confounding – the effect of X and Y is mixed up with the effects of
other explanatory variables on Y.

To establish causation, a carefully controlled designed experiment must be run.

In this case a better explanation may be “common response” or “confounding” where both ESG and stock performance is responding to the effects of good management.

I do think ESG is about “managing risks and opportunities presented by globalization” however, we need to be more cautious in attributing all the benefits to ESG policies.