Published on May 31st, 2017 | by Loren McDonald0
“Conspicuous Conservation” — Why Distinctive Electric Vehicles Are Critical To Attracting Early Adopter Buyers
May 31st, 2017 by Loren McDonald
In my article “12 Factors That Will Limit Chevy Bolt Sales In The US (Part 2),” I outlined a number of image and perception problems — including design, brand, and positioning issues — that would limit Bolt sales among early adopters, especially in key green-leaning West Coast and East Coast markets of the US.
The Bolt is simply not distinctive enough and doesn’t (yet) scream “EV greenness,” despite it being an award-winning and breakthrough electric car with its combination of range (238 miles) and relative affordability (~$40,000).
A few commenters thought I was off base on several of my points and others thought I was describing buyer attributes of shallow-minded consumers. For me, however, these factors are simply behavioral economics at work.
In fact, there is an economic term for this green signaling behavior called “conspicuous conservation,” which refers to consumers “engaging in activities that are environmentally friendly in order to obtain or signal a higher social status.” The term grew out of the phrase “conspicuous consumption,” which is “the spending of money on and the acquiring of luxury goods and services to publicly display economic power — of the income or of the accumulated wealth of the buyer.”
In the car world, the existence of conspicuous conservation came to light in research studies from 2007, including one by CNW Marketing Research and revealed in the New York Times article, “Say ‘Hybrid’ and Many People Will Hear ‘Prius.’” More than half of the Toyota Prius buyers surveyed in the spring of 2007 said the main reason they purchased their car was that “it makes a statement about me.” Only a third of Prius owners cited that reason in 2004, revealing that the Prius brand was growing in its dominance as a statement of greenness.
In another 2007 research study, “Symbolism In Early Markets For Hybrid Electric Vehicles,” by Reid Heffner, Kenneth S. Kurani, Thomas S. Turrentine, the authors reported that most of the individuals they interviewed had “only a basic understanding of environmental issues or the ecological benefits of HEVs (hybrid electric vehicles),” but “bought a symbol of preserving the environment that they could incorporate into a narrative of who they are or who they wish to be.”
Hey Baby, Is That a Prius You’re Driving?
Economists Steven E. Sexton and Alison L. Sexton conducted a study on purchase behaviors of the Toyota Prius back in 2011 and reported on it in the paper “Conspicuous Conservation: The Prius Effect and Willingness to Pay for Environmental Bona Fides.”
If you don’t want to read the full 25-page research paper, I highly recommend the following less technical options:
⊕ Hey Baby, Is That a Prius You’re Driving? — Freakonomics podcast
⊕ Hey Baby, Is That a Prius You’re Driving? — Freakonomics podcast transcript
⊕ “Conspicuous Conservation” and the Prius Effect — Freakonomics blog post
The key insight of the Sexton + Sexton paper is that the value of the Prius signal (i.e., the halo effect) is increasing in the greenness of the community in which the owner resides. In essence, in more liberal and environmentally conscious areas such as Berkeley or San Francisco, a Prius conveyed a strong pro-environmental status and that you cared significantly about the planet. Driving a Prius was like wearing a badge that tells your neighbors, “I’m green.”
However, in the more conservative Central Valley of California, for example, driving a Prius had a much lower level of status. The findings point at the neighborhood effect, where you want to make a statement to those around you. Having your neighbors see solar panels on your roof is another example of conspicuous conservation and green signaling.
The success of green signaling hinges on two conditions. First is the observability of costly conservation effort, which may be reflected by willingness to pay premia for green product characteristics or by willingness to accept lower quality for products that generate less environmental damage in production or end-use than conventional products. Second is partial or full revelation through signaling that permits green types to distinguish themselves from others. — Steven E. Sexton and Alison L. Sexton
The unique design of the Prius differentiated it from other hybrids, which were simply hybrid versions of existing models (e.g., the Honda Civic and Toyota Camry). Doug Coleman, who was the Prius product manager at Toyota U.S.A., was interviewed by Freakonomics host Stephen Dubner in 2011 and confirmed the Prius design was intentional:
“Well, that’s right. The design is everything about Prius, right? Everybody understands that the car is both efficient and it has a unique design that stands out. Nothing else looks like it on the road.
“You see a Prius. You know what it is. You know it stands for hybrid. And there’s really no other car that stands for hybrid. So having something that’s unique is really important to our buyers.”
The Sextons did a test to see if the market share for hybrid versions of the Honda Civic also increased in greener ZIP codes. They found no statistical effect, and in fact, in a few of the regressions, they found a negative effect.
Since the Freakonomics podcast does a great job of explaining the Sextons’ research in simple terms, I’ll share part of the interview here:
DUBNER: Right, so how big is the effect? How big is the conspicuous conservation effect then in these places?
SEXTON: So for Colorado, we measured that it accounts for about 21 and 23 percent of the market share. And in Washington we measured that it accounts for about 10 to 17 percent of the market share. So, this translates into a willingness to pay in Colorado for between about $1,000 and $4,000, and in Washington, a willingness to pay between $500 and $1,300.
DUBNER: All right, this needs a bit of clarification. The market-share numbers the Sextons are talking about – that’s not how much of the market the Prius has; it’s how much additional market share the Prius has because of its unique hybrid look. And that “willingness to pay” figure they’re talking about – that doesn’t mean people actually pay that much more for the Prius – they don’t. “Willingness to pay” is just economist-speak for how much the Prius effect is worth to people in terms of feeling good about themselves, being seen by others in a positive light, things like that.
One fascinating aspect of the study is the authors’ suggestion that perhaps government policies should focus on the inconspicuous (home energy examples are window sealings and air fans). And that the conspicuous products, like the Prius, take care of themselves because they offer their own “green signaling” reward.
Implications for the Design and Marketing of Electric Vehicles
While the Sextons’ research is now 6 years old and was focused on hybrids — specifically, the Toyota Prius — I believe its findings are directly relevant to electric vehicles. As we are still very early in the adoption of EVs, it is critical that automakers understand green signaling/conspicuous conservation and design and market their EVs to be attractive to the motivations of green early adopters.
This was my core rationale of why I believe GM needs to target Prius and Nissan LEAF buyers in particular, because each of those models has been a poster child of conspicuous conservation.
Both cars had a distinctive design, that in fact made them stand out, even if many consumers were not fond of the look. The Prius says “hybrid” and the LEAF and BMW i3 have become clearly identified as “electric.” And this is therefore one of the problems with the Chevrolet Bolt. While it is a great car and effort by GM, it simply looks too normal, doesn’t stand out and scream “EV” to the neighbors of potential buyers. Perhaps it will achieve this status in a few years, but I’m not convinced that it will ever achieve the green signaling status of the Toyota Prius.
But what about the Tesla Model S and upcoming Model 3 — don’t they look pretty normal like an Audi or similar luxury car? Yes, they do, but they have a huge advantage over other carmakers in that the Tesla brand itself screams “electric car.” The Tesla models also have other attributes (luxury, performance, tech heavy, innovation) that enable them to live in both the conspicuous consumption and conspicuous conservation categories.
Here are four key implications for automakers selling or planning to sell EVs over the next several years:
- Non-luxury/non-performance brands (who don’t benefit from conspicuous consumption) must design their EVs to stand out among the crowd so models can send a strong green signal.
- Marketing and sales must be focused on markets with a high green sensibility and focus on building the “green cred” of EV models. Not surprisingly, the top 8 states (plus District of Columbia) with the highest percentage of EV sales between January 2016 and March 2017, were all considered blue political states, and hence more environmentally conscious. (see chart below)
- In non-green markets, marketing should focus on more practical factors such as lower energy and maintenance costs, torque, and tax incentives and credits where applicable.
- New model entrants (excluding luxury models) should be positioned as having significantly greater “green cred” than the Prius, LEAF, and Volt.
In several years, when EVs have become much more commonplace, it will be less critical for electric vehicles to standout from other cars and signal their greenness, especially in highly environmentally-aware geographic markets. But until then, creating a distinctive green perception of EVs will be key if automakers want to maximize sales of individual models.
With sales of Toyota’s Prius hybrid models are in a steady decline, the Nissan LEAF and Chevrolet Volt now make an even bigger conspicuous conservation statement in green-aware markets. The question in front of us then is: Which electric car model or models will become heir(s) to the greenness throne held by the Prius and become synonymous with being green and also achieving significant sales in the US?
Images via Toyota.com, Cars.com, Nissan.com, Wikipedia, Alliance of Automobile Manufacturers.
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