Some products with a sustainability-focused positioning are cheaper than their conventional counterparts (most likely due to resource savings in the production process), but most are more expensive, sometimes by several hundred percent! Can this increase be justified by higher production costs or is it mostly an actual price premium to skim a higher willingness to pay for sustainable products?
For some products, such as fair-trade products, a higher price is an inherent component of the concept. After all, resource costs are supposed to be significantly higher in order to support the producers to lead a decent life. But is it really possible to justify a threefold price increase for an organic product solely on a cost basis?
These questions have implications for sustainability marketing: I can set a higher margin for more sustainable products to benefit from a LOHAS‘ higher willingness to pay OR I could refrain from doing so in order to increase both sales and impact of my product or service.
But not only the supply side should be interested in the answers to these questions. As a consumer, I ask myself if prices will eventually go down if the sales of green/fair products increase. If a price premium is the reason, they most likely won’t decrease considerably, but if economies of scale and learning curves play a role, then they should. There are of course some predictions to be made, depending on the development of products of the same category in the past. Also, products based on complex technology or infrastructure (photovoltaic, smart grid equipment) are likely to become cheaper over time. But for regional organic food no big savings are to be expected due to already developed production processes.
In any case, if our economy is to shift towards more sustainable products, the price difference to unsustainable products has to be reduced or even made negative. Either the former have to become cheaper (preferably through a switch from value-based to cost-based pricing, subsidies can only be a short-term solution) or the latter have to become more expensive, e.g. through directed taxation. Only then will the majority of customers (i.e. without a particularly strong consciousness for sustainability) decide in favour of the “right” alternative.