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Strategies for Green Product Development

Permanent Link: http://ufdc.ufl.edu/UFE0044948/00001

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Title: Strategies for Green Product Development
Physical Description: 1 online resource (198 p.)
Language: english
Creator: Yenipazarli, Arda
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2012

Subjects

Subjects / Keywords: npd -- portfolio -- sustainability
Information Systems and Operations Management -- Dissertations, Academic -- UF
Genre: Business Administration thesis, Ph.D.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: Back in the 1960s, a small group of consumers preferred "green" products and this was viewed in general as a fringe fad. In the last 5 decades due to several reasons, we have witnessed consumers shift from being highly skeptical about the performance of green products to the commoditization of green in many categories. Few would now question the fact that "green" is decidedly becoming the norm. Is every consumer making every purchase decision based on "green" product attributes? No - far from it. However, we observe that: there are finely defined segments of green consumers; consumer purchasing is guided by values such as how products are sourced, manufactured, packaged and disposed off; a growing number of people are willing to pay premium for "green" products; "green" inspires innovative products that can result in better consumer value, enhanced brands and a stronger company; and "green" is shaping the agendas of governments and non-governmental organizations. This thesis examines green product strategies implemented in response to the changing rules of consumer markets, and in order to reduce a firm's environmental footprint while simultaneously increasing its profitability and market share. Reflecting the swiftly changing attitudes and purchasing behaviors of today's consumers, these strategies cover highlighting inherent green attributes in existing products, greening current product offerings, inventing new sustainable products, and/or acquiring brands with "green" ingrained in their corporate philosophy. Once perceived as a niche opportunity but more often as a burden that represents added cost and overhead, many companies are quickly growing their businesses nowadays through implementing these strategies that enable them extend their appeal from a once very fringe audience to now mainstream consumers. However, it is important to realize that "going green" has not fulfilled its promise for some other firms and this might be attributed to an incomplete understanding of the strategy choices. This research analyzes and proposes underlying drivers of each strategy to help companies transform challenges in the green marketplace into opportunities and re-imagine their products. The analytical and extensive numerical analysis carried out in this research underline that any company striving to succeed in the green marketplace need to comply not just with the laws of government, but also with the laws of the marketplace and the nature.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by Arda Yenipazarli.
Thesis: Thesis (Ph.D.)--University of Florida, 2012.
Local: Adviser: Vakharia, Asoo J.

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2012
System ID: UFE0044948:00001

Permanent Link: http://ufdc.ufl.edu/UFE0044948/00001

Material Information

Title: Strategies for Green Product Development
Physical Description: 1 online resource (198 p.)
Language: english
Creator: Yenipazarli, Arda
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2012

Subjects

Subjects / Keywords: npd -- portfolio -- sustainability
Information Systems and Operations Management -- Dissertations, Academic -- UF
Genre: Business Administration thesis, Ph.D.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: Back in the 1960s, a small group of consumers preferred "green" products and this was viewed in general as a fringe fad. In the last 5 decades due to several reasons, we have witnessed consumers shift from being highly skeptical about the performance of green products to the commoditization of green in many categories. Few would now question the fact that "green" is decidedly becoming the norm. Is every consumer making every purchase decision based on "green" product attributes? No - far from it. However, we observe that: there are finely defined segments of green consumers; consumer purchasing is guided by values such as how products are sourced, manufactured, packaged and disposed off; a growing number of people are willing to pay premium for "green" products; "green" inspires innovative products that can result in better consumer value, enhanced brands and a stronger company; and "green" is shaping the agendas of governments and non-governmental organizations. This thesis examines green product strategies implemented in response to the changing rules of consumer markets, and in order to reduce a firm's environmental footprint while simultaneously increasing its profitability and market share. Reflecting the swiftly changing attitudes and purchasing behaviors of today's consumers, these strategies cover highlighting inherent green attributes in existing products, greening current product offerings, inventing new sustainable products, and/or acquiring brands with "green" ingrained in their corporate philosophy. Once perceived as a niche opportunity but more often as a burden that represents added cost and overhead, many companies are quickly growing their businesses nowadays through implementing these strategies that enable them extend their appeal from a once very fringe audience to now mainstream consumers. However, it is important to realize that "going green" has not fulfilled its promise for some other firms and this might be attributed to an incomplete understanding of the strategy choices. This research analyzes and proposes underlying drivers of each strategy to help companies transform challenges in the green marketplace into opportunities and re-imagine their products. The analytical and extensive numerical analysis carried out in this research underline that any company striving to succeed in the green marketplace need to comply not just with the laws of government, but also with the laws of the marketplace and the nature.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by Arda Yenipazarli.
Thesis: Thesis (Ph.D.)--University of Florida, 2012.
Local: Adviser: Vakharia, Asoo J.

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2012
System ID: UFE0044948:00001


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STRATEGIESFORGREENPRODUCTDEVELOPMENTByARDAYENIPAZARLIADISSERTATIONPRESENTEDTOTHEGRADUATESCHOOLOFTHEUNIVERSITYOFFLORIDAINPARTIALFULFILLMENTOFTHEREQUIREMENTSFORTHEDEGREEOFDOCTOROFPHILOSOPHYUNIVERSITYOFFLORIDA2012

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c2012ArdaYenipazarli 2

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Thisdissertationislovinglydedicatedtomymother,FatmaYenipazarli.Herinnitelove,unconditionalsupportandcontinuousencouragementhavesustainedmethroughoutmylifeandhelpedmeghtmyrecenthealthproblem.Imissyoueverysingledaywearenottogether. 3

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ACKNOWLEDGMENTS IwouldrstliketoacknowledgeandthankmysupervisorcommitteechairDr.AsooJ.Vakhariaforhiscontinuousencouragementandguidance.Dr.VakhariainstilledresearchstandardsthatserveasagoaltowhichIcontinuetostrive,andprovidedmanyopportunitiesthatallowedmetobecomeaself-condentandindependentacademician.IwouldliketoextendmygratitudetomyothercommitteemembersDr.JaniceCarrillo,Dr.AnandPaulandDr.ElifAkcalifortheirvaluablefeedback.IalsowouldliketoacknowledgethedebtIowetomycolleague(andbrother)Dr.ErhunKundakcioglu,whohastaughtmemorethananyoneIhaveencountered.IonlyhopehehasfoundourcollaborationtobehalfasbenecialashaveI.IamalsoverythankfultoJenniferShockley,PatBrawnerandShawnLeeforthesupportandfreedomtheyprovided.SpecialthankstomysisterGozde,myfatherGurol,andmyclosefriendsBuketOnerandAysanKundakciogluwhoseloveandencouragementbroughtmetoGainesvilleandhelpedmegetmyPh.D.IreservemymostspecialappreciationformybelovedmotherFatmaYenipazarli.Shehasbeenmybiggestsupportwithhercaringloveandmydailyinspiration,towhomIowemyeternalgratitude. 4

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TABLEOFCONTENTS page ACKNOWLEDGMENTS .................................. 4 LISTOFTABLES ...................................... 8 LISTOFFIGURES ..................................... 9 ABSTRACT ......................................... 10 CHAPTER 1INTRODUCTION ................................... 12 1.1GreenProductsandGreenShopping:fromSub-CulturetoCommonCulture ..................................... 12 1.2WhatExactlyMakesaProductGreen? ................... 14 1.3MotivationBehindtheDevelopmentofGreenProducts ........... 16 1.3.1TheShiftinGreenBehavior ...................... 17 1.3.1.1Performanceandconvenience ............... 20 1.3.1.2Efciencyandcosteffectiveness .............. 22 1.3.1.3Healthandsafety ...................... 23 1.3.1.4Symbolismandstatus .................... 25 1.3.2TheShareofGreenGovernments,LawsandRegulations ..... 26 1.3.3TheResponseofManufacturers ................... 29 1.3.3.1Opportunitiesingreenmarketandcompetitiveadvantage 30 1.3.3.2Theroleofsupplychainpartners .............. 31 1.3.4SocialMediaTurnstoGreen ..................... 33 1.4ShouldCompaniesDevelopGreenProducts? ................ 35 1.5DissertationFocus ............................... 36 1.6OrganizationofDissertation .......................... 39 2LITERATUREREVIEW ............................... 40 2.1ProductLineDesigninVerticallyDifferentiatedMarkets .......... 41 2.1.1ProductDesignwithaSingleAttribute ................ 41 2.1.1.1Commonalityandproductplatformsinproductlinedesign 54 2.1.1.2Productlinedesignindistributionchannels ........ 61 2.1.2ProductDesignwithMultipleAttributes ................ 66 2.2ProductLineDesigninBothVerticallyandHorizontallyDifferentiatedMarkets ..................................... 72 3GREENPRODUCTSTRATEGIES ......................... 78 3.1ThreeBroadStrategiesforGreenProducts ................. 78 3.1.1GreeningUpStrategy ......................... 80 3.1.2GreeningOutStrategy ......................... 84 5

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3.1.3GreeningOverStrategy ........................ 87 3.2ChoosingtheBestStrategy .......................... 90 4DOESTOGOGREENTRANSLATEINTOPROFITABILITY? ......... 95 4.1Overview .................................... 95 4.2GreenProductIntroductionStrategies .................... 97 4.3TheMonopolist'sStrategyChoice ...................... 99 4.3.1Preliminaries .............................. 99 4.3.2CurrentScenario:SingleBrownProduct ............... 102 4.3.3AccentuateStrategy .......................... 103 4.3.4ArchitectStrategy ............................ 105 4.3.5NumericalAnalysis ........................... 106 4.3.5.1Impactofstrictenvironmentalregulations ......... 111 4.4ImpactofCompetition ............................. 113 4.4.1CurrentSetting-AccentuateStrategy ................ 114 4.4.2CurrentSetting-ArchitectStrategy .................. 116 4.4.3AccentuateStrategy-ArchitectStrategy ............... 119 4.4.4CurrentSetting-CurrentSetting ................... 122 4.4.5AccentuateStrategy-AccentuateStrategy ............. 124 4.4.6ArchitectStrategy-ArchitectStrategy ................ 126 4.5Summary .................................... 128 5GREEN,GREENERORBROWN:CHOOSINGTHERIGHTCOLOROFTHEPRODUCT ...................................... 131 5.1Overview .................................... 131 5.2ModelPreliminaries .............................. 132 5.2.1GreenConsumerSegments ...................... 133 5.2.2Consumers'ValuationoftheProduct ................. 135 5.2.3CostStructure ............................. 138 5.3Analysis:ModelFormulation ......................... 140 5.3.1GreeningOffStrategy ......................... 140 5.3.2GreeningOutStrategy ......................... 142 5.3.3GreeningUpStrategy ......................... 145 5.4ImplementationConsiderations ........................ 148 5.4.1EconomicConsequences ....................... 150 5.4.2EnvironmentalConsequences ..................... 152 5.5Summary .................................... 154 6CONCLUSIONANDFUTURERESEARCHDIRECTIONS ............ 157 APPENDIX APROOFOFTHEOREM1 .............................. 165 BPROOFOFTHEOREM2 .............................. 167 6

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CCOMPLETENUMERICALRESULTSFORTHECURRENT,ACCENTUATEANDARCHITECTSTRATEGIES:MONOPOLYCASE .............. 169 DPROOFOFLEMMA1 ................................ 171 ECOMPLETENUMERICALRESULTSFORTHECURRENTVSACCENTUATESTRATEGIES:DUOPOLYCASE .......................... 172 FCOMPLETENUMERICALRESULTSFORTHECURRENTVSARCHITECTSTRATEGIES:DUOPOLYCASE .......................... 173 GCOMPLETENUMERICALRESULTSFORTHEACCENTUATEANDARCHITECTSTRATEGIES:DUOPOLYCASE .......................... 174 HCOMPLETENUMERICALRESULTSFORTHEGREENINGOFF,GREENINGOUTANDGREENINGOUTSTRATEGIES .................... 177 REFERENCES ....................................... 194 BIOGRAPHICALSKETCH ................................ 198 7

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LISTOFTABLES Table page 3-1Greenproductdevelopmentstrategies ....................... 94 4-1ComparisonofCurrentandAccentuatestrategieswhen=$4 ......... 130 5-1ComparisonofGreening-Off,Greening-OutandGreening-Upstrategieswhen=0.4,F=20andN=4 .............................. 155 5-2ComparisonofGreening-OffandGreening-Outstrategieswhenve=vt>1,=0.4andN=12 .................................. 155 5-3ComparisonofGreening-OutandGreening-Upstrategieswhenve=vt>1andF=20 ...................................... 156 5-4ComparisonofGreening-OutandGreening-Upstrategieswhenve=vt>1,rB=0.52,andF=20 ................................ 156 5-5ComparisonofenvironmentalperformanceofGreening-OutandGreening-Upstrategieswhenve=vt>1,N=4andF=20 ................... 156 8

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LISTOFFIGURES Figure page 4-1Comparisonofprotsofstrategies(=0.20,=$4and=$8) ........ 109 4-2Comparisonofmarketsharesofstrategies(=0.20,=$4and=$8) ... 109 4-3Comparisonofgreenqualitylevelssuppliedbystrategies(=$0.4,=$4and=$2) ...................................... 110 4-4Comparisonofgreenqualitylevelssuppliedbystrategies(=$0.4,=$4and=$8) ...................................... 110 9

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AbstractofDissertationPresentedtotheGraduateSchooloftheUniversityofFloridainPartialFulllmentoftheRequirementsfortheDegreeofDoctorofPhilosophySTRATEGIESFORGREENPRODUCTDEVELOPMENTByArdaYenipazarliDecember2012Chair:AsooVakhariaMajor:BusinessAdministration Backinthe1960s,asmallgroupofconsumerspreferredgreenproductsandthiswasviewedingeneralasafringefad.Inthelast5decadesduetoseveralreasons,wehavewitnessedconsumersshiftfrombeinghighlyskepticalabouttheperformanceofgreenproductstothecommoditizationofgreeninmanycategories.Fewwouldnowquestionthefactthatgreenisdecidedlybecomingthenorm.Iseveryconsumermakingeverypurchasedecisionbasedongreenproductattributes?No-farfromit.However,weobservethat:therearenelydenedsegmentsofgreenconsumers;consumerpurchasingisguidedbyvaluessuchashowproductsaresourced,manufactured,packagedanddisposedoff;agrowingnumberofpeoplearewillingtopaypremiumforgreenproducts;greeninspiresinnovativeproductsthatcanresultinbetterconsumervalue,enhancedbrandsandastrongercompany;andgreenisshapingtheagendasofgovernmentsandnon-governmentalorganizations. Thisresearchexaminesgreenproductstrategiesimplementedinresponsetothechangingrulesofconsumermarkets,andinordertoreducearm'senvironmentalfootprintwhilesimultaneouslyincreasingitsprotabilityandmarketshare.Reectingtheswiftlychangingattitudesandpurchasingbehaviorsoftoday'sconsumers,thesestrategiescoverhighlightinginherentgreenattributesinexistingproducts,greeningcurrentproductofferings,inventingnewsustainableproducts,and/oracquiringbrandswithgreeningrainedintheircorporatephilosophy.Onceperceivedasaniche 10

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opportunitybutmoreoftenasaburdenthatrepresentsaddedcostandoverhead,manycompaniesarequicklygrowingtheirbusinessesnowadaysthroughimplementingthesestrategiesthatenablethemextendtheirappealfromaonceveryfringeaudiencetonowmainstreamconsumers.However,itisimportanttorealizethatgoinggreenhasnotfullleditspromiseforsomeotherrmsandthismightbeattributedtoanincompleteunderstandingofthestrategychoices.Thisresearchanalyzesandproposesunderlyingdriversofeachstrategytohelpcompaniestransformchallengesinthegreenmarketplaceintoopportunitiesandre-imaginetheirproducts.Theanalyticalandextensivenumericalanalysiscarriedoutinthisresearchunderlinethatanycompanystrivingtosucceedinthegreenmarketplaceneedtocomplynotjustwiththelawsofgovernment,butalsowiththelawsofthemarketplaceandthenature. 11

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CHAPTER1INTRODUCTION 1.1GreenProductsandGreenShopping:fromSub-CulturetoCommonCulture Nottoolongago,greenshoppersinthemarketplacewereonlyaminorityandtheywerealldismissedashemp-wearing,tree-huggingandtrash-sortinghippieswithinadequatebuyingpowertodrawattentiontogreenproducts.Atthattime,theenvironmentaldebatewasviewedjustasanover-reactionofmisguidedenvironmentalists.Theyweretreatedwithscornandridicule,andevenborethebruntofmanycomedians'late-nightshows.Greenshoppingwasviewedaspartofafringelifestyleandgreenproductscouldnotndtheirwaysintotheshoppinglistsofmostconsumers.Hence,itisnotsurprisingthatgreenproductsdidnotevenappearinrms'To-Dolistsbecauseenvironmentwasnotthefocusofpublicattentionanddebate,andmostrmstendedtofollowtheoldphraseifitain'tbroke,don'txit.ThewidespreadthinkingwasThisisabadthingforourbottomline.Productsclaimingtobegreenweremostlyfromtinymom-and-poprmsandtheyhadallgathereddustonthebottomshelvesofthestores,ifnotforgottenatallinbackroomsorbasements.Moreimportantly,thoseproductsusedtocarryanegativebaggage:theydidnotperformaswellastheirconventionalalternativesandwerenotagoodvalue.Inaddition,thedrop-offsitesforrecyclingweretoofew,andyouhadtohaulyourusednewspapers,milkcartonsorplasticbottlestolocationsonthefarsideofthetown.Greenproductsalmostnevermadetheheadlinesofnewspapers,werenotareliablestoryelementonthenation'snewschannels,andpublicationsintheprintmediaaboutthemwerelimitedtoonlyacertainnumberofidealistmagazineslikeMotherJonesRandUtneReaderR.Afterall,greenwasjustacolorforthemajority,andthewordsgreenandrepulsivehadbecomemoreorlesssynonymousforthemainstreamshoppers. Thatisallwaterunderthebridge.Noweverythinghaschangedandgreenshoppinghasreachedatippingpoint.Today,therearesubstantialnumbersofconsumerswho 12

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areespousingenvironmentalvaluesandchangingtheirshoppinglists.Consumerswithvaryingdegreesofenvironmentalconcernrepresent87%oftheadultpopulationintheU.S.,andhaveawillingnesstobuygreenproducts 1 .Thewavesofconsumerdesireforgreenproductshavenallyearnedmainstreamunderstandingtodriveaction.Thanksinparttoadvancesintechnology,recentnaturaleventsanddisasters,governmentsandevencelebrities,agrowingselectionoftoday'sgreenproductsarealluring,highlyaccessible,anddesignedtodeliverconvenience,lowercostsandperformbetterthantheirbrowncounterparts.Morenotablytheyareontherisenowadays.Today,youhearthequitehumofaToyotaPriusRcurlingaroundthecorner;tastetheorganiccoffeeinyourStarbucksmug;seehempshirts,sweatersandthree-buttonsuitsinanEmporioArmanicollection;ndhundredsofgreen-certiedproductsrangingfromlightbulbsandbabyfoodtoat-panelTVsinanyWal-Martstore;seetheUnitedStatesDepartmentofAgriculture(USDA)Organiccertiedproductslinedupontheshelvesofyourlocalgrocer;photographthemannequinofPrinceCharlesintheMadameTussaudsmuseumthatismadeupoforganicbeeswax;watchagreenweddingwithsoycandlesandgroom'shempsuitontheNBC'ssoapoperaDaysofOurLivesR;readgreenstoriesintheWashingtonPostReachdayandseegreenproductsfeaturedonthecoversofBusinessWeekRandtheNewYorkTimesStyleMagazineR.Greenshoppinghasremarkablybeengoingfromasub-culturetoacommonculture,anditseemstohavepermeatedeveryaspectofourlives. Interestingreenshoppingisnotjustheretostay;itisalsogrowingrapidly.TheNaturalMarketingInstitutepredictedthegreenmarketplacetoreach$420billionby2010,and$845billionby2015.Eventheongoingeconomicwoeshavenotdeterredgreensentimentsinpurchasingbehavior,norconsumers'expectationsthatcompanieswilldevelophigh-qualitygreenproducts.InformationResources,Inc.foundthat 1 http://www.ats.agr.gc.ca/amr/4531-eng.htm ,accessedDecember5,2010. 13

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consumersareactuallymaintainingorincreasingspendingongreenproductsinspiteoftherecenteconomicdownturn 2 .Greenproductsareincreasinglybecomingwidespreadontheshelves,andanoverwhelmingmajorityofshoppersarenowputtinggreenproductsintotheirshoppingcarts.Thus,greenshoppingisnothowitoncewas:Ithasevolvedfromasub-culture,isnowgettingtractioninthemarketplaceandbeingexpectedtogrowwithtime.Whenwestepbackforamomenttolookbackandanalyzeitsevolution,webetterunderstandthatgreenshoppingandtheproliferationofgreenproductshaverecentlypickeduppaceasaresultofvariousfactorsrangingfromtheshiftinconsumermindsettogovernmentsandsocialmedia,yetitallstartswithanintriguingquestion:Whatisagreenproduct? 1.2WhatExactlyMakesaProductGreen? Green.Itisthenewbuzzwordintoday'smarketplacethatiswidelyusedtodesignateatthebroadestlevelenvironmentallybenignproducts.Ironically,noconsumerproductistrulygreen;eachproductgeneratesanenvironmentalfootprint.Productsandprocessesusedtomanufacturethemconsumefuel/energy,utilizenon-renewablematerials/resourcesandgeneratetoxic/harmfulemissions,andproductdesignerscontinuallyfacetrade-offsbetweensuchenvironmentalimpacts.Aproductcanbeentirelymadeofrenewablematerialsanddecaycompletelyattheendofitslife.However,asubstituteproductmayusefewerresourcesduringitsproductionthatresultsinthereleaseoffewerhazardousemissions.Consider,forexample,thepackageofamodernsnackchipbag.Alightweightpackage,madeofacombinationofextremelythinlayersofseveraldifferentmaterials,hascertainwastepreventionattributes:Ithasalongershelf-life(leadingtolessfoodwaste)andlighterthananequivalentsingle-materialpackage,buttheuseofcertainmaterialsinhibitsrecycling.Similarly,a 2 http://symphonyiri.com/?TabId=97&ItemID=749&View=Details ,accessedDecember6,2010. 14

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carbumpercanbemaderecyclableusingsteelinsteadofglass-reinforcedplastic,yetglass-reinforcedplasticislighterandresultsinlessfueluseoverthelifetimeofthecar.Then,whichonemakesitmoregreen,theabilitytorecycleorthelighterweight? Suchtrade-offsareunavoidable,andrarelyisaproductunambiguouslypreferablewithrespecttoitsimpactontheenvironmentineverydimension(e.g.,recyclability,energyuse,emissions).Thatiswhygenerallyagreenproductcannotbedenedinanyabsolutesense,andthereisnowidespreadconsensusoragreementonwhatmakesaproductgreen.Someoftheindustryandorganizationaldenitionsareasfollows: Greenpeaceratesthegreennessofbrandnameelectronicsproductsbasedontheuseofhazardouschemicals,energyefciency,recyclabilityandupgradeability; 3 GlobalGreenassessesgreennessbasedonfactorssuchasenergysavings,waterconservation,contributiontoasafeandhealthyenvironment,protectionofnaturalresources,andreductionofanegativeimpactoncommunity; 4 Nokiafocusesonmaterialusage,infrastructureandembeddedenergy,sustainablesourcing,recyclingandrefurbishment,energyconsumption,andproductlifetime; 5 and LGdenestheirgreenproductsasminimizingtheenvironmentalimpactonthewholevaluechainandenrichingyourlife. 6 Eventhoughnoproducthasazeroimpactontheenvironment,thedenitionsaboveshowthatagreenproductistypicallycharacterizedbymultipleproductattributes(e.g.,contentofrecycledmaterials,energyusageduringitsoperationallife,andsustainable 3 http://www.greenpeace.org/international/en/news/features/green-electronics-050308 ,accessedJuly22,2010.4 http://www.globalgreen.org/greenurbanism/whatmakesgreen ,accessedJuly22,2010.5 http://www.nokia.com/corporate-responsibility/environment/case-studies/green-products ,accessedJuly22,2010.6 http://www.lg.com/global/sustainability/environment/green-products/eco-design.jsp ,accessedJuly22,2010. 15

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sourcingpractices).Theproblemhereishowgreenboundarieswouldbedelineated:Whatdimensionsofgreenshouldbetakenintoaccount?Materials?Energy?Toxicity?Supplychainpractices?Fromhereonwards,weusethetermgreenproducttodescribeproductsthatstrivetoprotectorenhancethenaturalenvironmentbyeither(1)usingrecycledmaterials,(2)reducingoreliminatingharmfulchemicalsandsolvents,(3)conservingenergyorwater,(4)creatinglessemissions,pollutionandwaste,(5)usingorganicorpesticide-freefarmingmethods,and/or(6)increasingtheproductivityofnaturalresources. 1.3MotivationBehindtheDevelopmentofGreenProducts Thereisawiderselectionofgreenchoicesavailableonsupermarketshelvesprimarilyduetothegrowingglobalconcernabouttheenvironment.Nearlyeveryproductcategorynowoffersadizzyingvarietyofgreenoptions.AccordingtothelatestGreenLivingreportfromMintelInternationalGroup,aChicago-basedmarketresearchrm,thenumberanddiversityofgreenproductsskyrocketedbetween2002and2010:In2002,20greenproductswereintroducedinonly8productcategories(includingfood,personalcareandcleaningcategories)whichgrewto34categories(asdiverseasaircare,homecleaningequipmentandcolorcosmetics)withinjust4years.In2008,thenumberofgreenproductsgrewmorethan300%comparedtopreviousyear,andsincethenitcontinuestogrowbyaround40%eachyear.Inaddition,theyear2010sawasurgeofnewgreenproductsinthehouseholdcleaning,laundryandairfreshenercategories,withmorethan400newproductsintheU.S.market. Thepoolofgreenproductscontinuestogrowatarapidratebecausegreenproducts'shareofwhatgoesintoeachconsumer'scartincreases.Consumers'interestingreenshoppingturnsouttobenotapassingtrendorckle,andapparentlyithasbeengainingforefrontattentionofcompanies.Today,mainstreamconsumer-productsgiantsarediligentlytakingstepstowardarchitectinggreenofferings-buildinggreenproductsfromscratchorredesigningtheirexistingproducts-orevenacquiringleading 16

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sustainablebrands.Toyota'sfuel-efcientPriusR,P&G'sDuracellRrechargeablebatteries,energy-savingTideColdwaterRlaundrydetergentsandPURRwaterltrationproducts,Philip'sMarathonRbulbs,Whirlpool'sDuetRfront-loadingwashersanddryers,naturalpersonal-careproductsofTom'sofMaineandBen&Jerry'sicecreamarejustsomeofthenotableexamplesofthistrend.Itisclearthattheentiregreenmarketisripeforbrandingeffortstoday.Onceofferedunderbrandnamesnoonehadneverheardofandgathereddustontheshelves,greenproductsarenolongerfringeproducts,butrathertheyareattractive,highlydemandedandeasilyaccessibleonalmosteverystore'sspeciallytreatedshelves.Thisbringsintofocustwoimportantquestions:Whatisbehindthegrowinginterestingreenchoices?Whatarethekeydriversrelatedtotheproliferationofgreenproducts? 1.3.1TheShiftinGreenBehavior Greenbehaviorismovingfromhypetohabit-environmentallyconsideratebehaviorisbecomingapartofeverydaylife.Greenshoppingmaynotappealtoeveryoneyet,buttherearealreadysubstantialnumbersofpotentialconsumersthatarereceptivetoagreenappeal.Peopledoappeartobeactivelychangingtheirlifestylestohelptheenvironment,andevenlittlechangescanhelpquiteabit.Recently,almostallofU.S.populationhaveengagedinvariousgreenpractices-fromtakingtheirreusablebagstothegrocerystorestoturningoffthetapwhenbrushingtheirteethorcompostingkitchenscraps/gardenwaste-intheirdailylives.In2007,95%ofU.S.citizensconservedenergybyturningoffthelights,90%turnedoffelectronicswhennotinuse,86%controlledthermostattoconserveenergyand67%recycledpaper(e.g.,newspaper) 7 .Thereisalsoquiteabitofactioninpurchasingbehaviors.ThemajorityofU.S.citizenswouldprefertochooseagreenproductoveronethatislessfriendlyto 7 NaturalMarketingInstitute,UnderstandingtheLOHASMarketReport,March2008. 17

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theenvironmentincategoriessuchasautomobiles(66%),clothesdetergents(62%)andcomputerprinterpaper(51%).Notably,aboutthreeintenconsumersreportthattheyregularlyboycottabrandorcompanythattheyperceivetobesociallyirresponsible,up10%since2006.So,avoidanceisnotanoptionanymore,andmostconsumersareregularlyfactoringgreensentimentsintotheirhabitsandshoppingbehaviors. Thishasledtomorewell-denedsegmentsofgreenconsumersinthemarketplace.Noteveryonerespondstogreenproductsinthesameway-consumersarenotindifferenttothevalueofferedbygreenproducts.Inordertohaveagoodportraitoftheenvironmentalattitudesoftheircustomersandne-tunetheirproducts,packaging,marketingmessagesandalltheothercomplexitiesofbringingproductstomarket,companieshaverecentlyputforththeireffortstosegmentthemarketintodifferentshadesofgreen.Accordingly,the2002publicopinionsurveyfromGfKRoperPublicAffairs&Mediaintroducedave-partsegmentationoftheenvironmentalmarketplacebasedonconsumers'environmentalattitudesandpropensitytopurchasegreenproducts.InRoper'sparlance,thevesegmentsoftheU.S.populationare: TrueBlueGreens(10%):arethemostenvironmentallyactivesegmentofsociety,trueenvironmentalactivistsandleaders,andmostlikelytowalkthegreentalk. GreenbackGreens(5%):arenotaspoliticallyactiveasTrueBlues,butmostwillingtoexpresstheircommitmentbyawillingnesstopayhigherpricesforgreenproducts. Sprouts(33%):arefence-sitterswhohaveembracedenvironmentalismmoreslowlyandwhoarecapableofgoingeitherway. Grousers(15%):areuninvolvedordisinterestedinenvironmentalissues,cynicalabouttheirabilitytoaffecttheenvironment,andbelievethatgreenproductscosttoomuchortheyaretoobusytoshopgreen. BasicBrowns(37%):areessentiallyunconcernedabouttheenvironment-theydon'tcareaboutenvironmentalandsocialissuesandbelievethatbuyinggreenproductsand/orrecyclingcannotmakeadifference. Thesegurespointoutthatenvironmentalattitudesvaryacrosstheshadessuchthatthedeepertheshadeofgreenis,themorethewillingnesstomakegreenpurchasing 18

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decisionsis.Italsoturnsoutthateventhoughgreenproductsdonotappealtoeveryconsumerinthemarket,15%to48%oftheentireconsumermarketcouldbeattractedtogreenproducts,dependingoncertainfactors(e.g.,productcategoryandperceivedbenets). Theredaghereisthatthereisabigproblemthatmostofsuchsurveysdonotbringtolight:Underwhatconditionsareconsumerswillingtomakeagreenerpurchase?Simplyput,eventhedeepestgreenconsumersnolongerbuygreenproductsjusttohelptheplanet.Theywouldpickthegreenerproductsiftheseproductsareatleastasgoodasthebrownproducts,iftheseproductsdonotrequirethemtochangetheirhabits,iftheycanbuytheseproductswheretheycurrentlyshop,andideallyiftheseproductshavesomeotheradditionalbenetsbeyondbeinggreen-thattheylastlonger,lookbetter,savemoneyorwillbeperceivedbyothersascool.Theearlygreenproductsthathadgathereddustontheshelvesofstores(orthatwerescrapped)weredoomedtofailurebecauseconsumersalmostneverselectproductsthatrequiresacricesonperformance,convenience,costsorcomforttohelptheenvironment.ThisisdemonstratedbytheexperienceoftheThinkMobilityelectricvehicleofFordMotorCompany.Thecompanylaunchedtheirhighlypublicizedtwo-seater,plastic-bodiedelectriccar`theFordThink'inthelate1990s.TheThinkwasexpectedtobeamarkethit,butlatein2002thecompanyannouncedtheywerepullingtheplugonthevehicle.Thereasonwassimple:Thevehiclerequireddrasticchangesinthedrivingbehavior-itrequiredsixhoursofrechargingafteronlya53-milecitydrivingwithfewrecharginglocations-andwastooinconvenient 8 .Forcompaniestotakegreentoscale,thegreenproductstheyoffermustfulllconsumerneedsbeyondwhatisgoodfortheenvironmentbecauseconsumersaremostlyunwillingtocompromiseontraditionalproductattributes 8 J.Duffy,Whythisisn'tthecaroftomorrow,BBCNews,8October2002. 19

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suchasprice,qualityandconvenience.Whenitcomestomakeatrade-offbetweenneeds/interestsandenvironmentalbenets,theenvironmentalmostneverwins. Thiscanbeviewedasahighbar-sohighthatnotmanyproductscanclearit.Thegoodnewsintoday'sgreenmarketplace,ontheotherhand,isthatsuchdifferenceshavebeenblurredandaplethoraofgreenproductsarenowdesignedtothepointwheretheyaresuperiorovertheirbrowncounterpartsfrommanyaspects.Manygreenproductsarenowonthetopofconsumers'shoppinglistsbecausetheysimplyperformbetterthanbrownproducts,theyhelptoprotectconsumers'ownhealthandthatoftheirchildren,savemoneyonbills,andsoon.Acloselookatgreenproductsthathavesucceededinthemarketoverthepastdecaderevealsthatmanygreenproductscannowattractpotentialconsumersonthebasisofatleastfourbenetstheyoffer:Performanceandconvenience;efciencyandcosteffectiveness;healthandsafety;andsymbolismandstatus.Thesebenetsappealtoallconsumersinthemarketplace-notjustthegreenestonesonthefridgeofsociety-andtheyarethereasonswhymanygreenproductsarepreferredovertheirconventionalcounterpartsnowadays. 1.3.1.1Performanceandconvenience Whichdetergentwouldcleanbetter,aregularlaundrypowderorahypoallergenicpowderthatdoesnotcontainphosphates?Untilquiterecently,theanswertosuchaquestionwouldbeprettysimple;theregulardetergent.Thisissimplytiedtotheearlygreenproductsthatdidnotperformaswellastheirconventionalalternativesandwerenotagoodvalue-asamatteroffacttheywereexpensive.Forexample,non-phosphatelaundrydetergentsintroducedbackin1970leftclotheslookingdingyandsmellingstale.Earlycompact-uorescentlight(CFL)bulbsusedtoblinkasswitchedon,haveaharshickeringtoneandbuzzduringoperation,anddidnottmostofthelightxtures.Firstlow-ushtoiletswerequiteunsatisfactory,havingproblemswithhighushvolumes,frequentdoubleushingandapperleaks.Lastbutnotleast,multi-graincerealsthatweretoutedashealthyornutritiousendeduptastinglikecardboard.Thoseproductsall 20

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failedtoliveupfullytotheirgreenboastsandformanyshoppersgreenwasequaltoworse.Thatistosay,greenshoppingchoicessimplymeanttobemakingsacricesinquality,performanceand/orconvenience. Today,however,agrowingselectionofproductsaredesignedtodeliverconvenienceandquality,whiletheirmaterials/ingredientsthatcouldharmtheenvironmentduringmanufacture,useordisposalarebeingphasedout.Forexample,energyefcient,front-loadingwasherscleanbetterandaregentleronclothescomparedtoconventionaltop-loadingwashers.Energysavinglightbulbsarecompact,availableinawiderangeofshapestotinmorextures,throwasofterglowandneedinfrequentreplacement-sotheonlydifferenceconsumersnoticewillbeadropintheirelectricitybills.Hybridcarsrequirefewerrefuelingstopsaswellasgrantingtheirdriverstheconvenienceoffreeparkingandallowingsingle-occupantaccesstoHOVorcarpoollanes.Timberland'sEarthkeepersRboots,madefromrecycledmaterialandorganiccotton,arehighquality,durable/sturdy,comfortable,lightweightandstylish.Milgard'sinsulatingSunCoatLow-ERwindowsnotonlycutheatingandcoolinglosses,butalsoreducetheharmfulultravioletraysfadingcarpetsandfurniture 9 .Reusablecanvasshoppingbagsareeasiertocarryandcanhandleheavyloads. Thebottomlineismanyconsumersthatwerenotreadytogiveuptheirbrownmindsetoncearenowturningtogreenproductsbecausetheseproductspromiseahigherperformanceandofferinherentconveniencebenets.Today,nearly80%ofconsumerssaythatgreenhouseholdcleanersareaseffectiveasconventionalcleaners,andmorethanone-thirdoftheU.S.consumersarepurchasingnaturalcleaning/personalcareproducts,organicallyproducedfoods,compact-uorescent 9 http://www.everclearwindows.com/milgard-aluminum-windows.html ,accessedMay28,2011. 21

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lambs,andrechargeablebatteries 10 .Greenproductsarenolongerhurtbytheperceptionthattheyareoflowerqualityorinconvenient-meaningthattheynolongerpresentasubstantialimpedimenttogreenpurchases.Instead,theyplayapivotalroleinmotivatinggreenshoppingchoicesforasubstantialnumberofconsumers. 1.3.1.2Efciencyandcosteffectiveness Inthewakeofincreasingenergyprices,callsforwaterconservationandthreatofAmerica'sforeignoildependency,applianceandautomobilemakershavebeengearinguptooffergreenerproducts.Theinherentbenetoftheseproductsistheirpotentialenergyandresourceefciencyleadingtocosteffectiveness.Forinstance,accordingtoEnergyStarR,ajointvoluntarylabelingprogramoftheU.S.EnvironmentalProtectionAgencyandtheU.S.DepartmentofEnergydesignedtoidentifyandpromoteenergy-efcientproducts,EnergyStarRratedwashersuse30%lessenergyandatleast50%lesswaterthandotraditionalwashers,whileEnergyStarrefrigeratorsuseatleast15%lessenergythandostandardmodels.Likewise,CFLbulbsuseabout75%lessenergythanstandardincandescentbulbsandlastsup10timeslonger.Faucetaeratorsandwater-efcientshowerheadsuseupto30%lesswater.Thankstoitselectricpowerhybridtechnology,theToyotaPriususesupto50%lessfuelthananequivalentvehicle 11 .Inotherwords,suchproductshavetheabilitytohelpfamiliessaveonrecurringexpenses.Theyhaveadownsidethough;theydonotcomecheapanditcanbedeterrent.Forexample,eco-friendlyappliancesofWhirlpoolcancostanywherefrom$1,400upwarddependingonthemodel,orthecostofeco-friendlyappliancesofBoschcanreachupto$1,500 12 10 EnvironmentalLeader,Fast-MovingEco-FriendlyConsumerGoodsAppealtoMany,October2008.11 M.Knowling,TheToyotaPriusHybrid,autospeed,2July2002.12 C.Tan,NewIncentivesforBeingGreen,WallStreetJournal,4August2005. 22

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Thequestionhereiswhethertheup-frontpremiumforenergyefciencyisworthit.Indeed,agrowingnumberofcost-consciousconsumerstodayarewillingtopayanup-frontpremiumforenergy-efcientand/orwater-conservingproducts,becausetheyrealizethatsuchproductswillhelpthemslashenergyand/orwaterbillsoverthelongterm.ThebuyersoftheToyotaPriusRhavebeenlininguponwaitinglistsformonthsandevenpayingthousandsoverstickerforthecar,anditisfuelsavingsbehindthepeakininterest 13 .Thankstotheirenergysavingsandlonglife,thepurchasesofpremium-pricedCFLbulbstopconsumers'shoppinglists,andtheyarefollowedbyenergy-efcientelectronicsandappliances,andrechargeablebatteries 14 .Apparently,inspiteofsignicantpricedifferences,manycost-consciousbuyersarewillingtomaketheconversiontoefcientgreenproducts,andsointerestintheseproductskeepssoaring.Inrecognitionofthat,mainstreamconsumer-productsgiantsfromWhirlpooltoGEhavebeenrollingoutefcientproductswithoutabreak.ArecenthighproleexampleistheMacminicomputers,introducedbyApplein2010andtoutedastheworld'smostefcientdesktopcomputer,whichrequireslesspowerthanasingleenergy-efcientCFLbulb 15 .Asaripeningfruitofthistrend,inefcientbrownproductsarebeingphasedoutandtheirefcientcounterpartsaretakingovertheirplacedaybyday. 1.3.1.3Healthandsafety In2008organicfoodsalesgrewby15.8%toreach$22.9billion,whilesalesoforganicnon-foods(e.g.,organicbers,personalcareandpetfoods)grewby39.4% 13 RisingConsumerInterestinHybridTechnologyConrmedbyMaritzResearch,PRNewswire,5January2006.14 http://www.nmisolutions.com ,accessedMay25,2011.15 http://www.apple.com/environment/progress ,accessedMay25,2011. 23

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to$1.6billionalthoughtheoveralleconomywaslosingground 16 .In2009,thesalesofnontoxiccleaningproductsofSeventhGeneration(e.g.,dishwashingdetergentandpapertowels)fetched$150million,up20%fromthepreviousyear 17 ,despitebigger-namerivals,suchasCloroxandSCJohnson,enteringthemarket.Withasalesgrowthof16%inthefourthquarter,SwedishnaturalcosmeticsOriameconcluded2008thebestyearever 18 .Theseguresindicatethatmanygreenproductshavesurprisinglyweatheredtherecession;theydonothavetheairtakenoutofthembytheongoingeconomichardship.Consumersarepullingtheirmoneybeltsquitetight,butthesalesofmanygreenproductsremainstronganyway.Thisisnosurpriseindeed-thanksinparttothehealthandsafetybenetstheseproductsbestow. Fueledbyasteadystreamofnewsreportsonglobalwarming,wideningozoneholes,exposuretoradiationowingtothedevastatingearthquakeandtsunamiinJapan,theBPoilspillintheGulfofMexicoayearago,therecallofpeanutbutterproductscontaminatedwithSalmonella,andmanyothers,consumersincreasinglyfretabouttheirownhealthaswellasthatoftheirchildren.Concernsoverhealthrisksfromtoxicchemicals,foodsafetyandpollutionineverydayproductshavedrivenconsumerstothinktwiceabouttheproductstheybuy.Cantheybetrusted?Isitsafeforconsumptionfortheentirefamily?Today,themostpreferredhouseholdproductfeaturesincludesafetousearoundchildren,notoxicingredients,nostrongfumes,andnochemicalresidues 19 .Atthispoint,becauseaproduct'ssafetyfortheenvironment 16 http://www.organicnewsroom.com/2009/05/us_organic_sales_grow_by_a_who.html ,accessedMay25,2011.17 L.Burkitt,SeventhGeneration:ProtectingItsGreenTurf,Forbes,18January2010.18 http://investors.oriflame.com/files/press/oriflame/1289306-1.pdf ,accessedMay28,2011.19 E.R.Stafford,TheReturnofGreenMarketing,Green@WorkMagazine,Sept/Oct2002. 24

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ultimatelymeanshigherwaterquality,lesshazardouswasteandairpollution,andtoxin-freeconsumption,greenproductsholdabroaderappealamonghealth-consciousconsumers.Forexample,agrowingnumberofpeoplearewillingtopayapremiumfororganicfoodsjustbecausetheybelieveorganicfoodstobehealthierandsafer 20 .Nontoxicovencleanersaremorepreferredthanconventionalcleanerssincethelatterareknowntobeamongstthemosttoxichouseholdproducts.Whatconsumersareseekingtodayishealthyandsafepurchases.Thatiswhyhealthandsafetybenetsofgreenproductshavebecomeakeymotivatordrivingthegreenofferings. 1.3.1.4Symbolismandstatus Greenproductsarecool.Onceofferedunderbrandnamesnoonehadneverheardof,greenproductsarenownotonlymainstream,buttheyarealsochic.Inasense,theyhavebecomeanalogoustothebrightlycoloredawarenesswristbandbracelets-theyshowtheworldthattheirownerscare.Today,manygreenshoppersgogreennottosavetheplanet,butrathertoimpresstheirneighbors.WhentheNewYorkTimesRreportedthereasonscustomerscitedforbuyingaPriusR,protectingtheenvironmentplacedlastonthelist.Instead,PriusRdriversproudlyreportedthatthemainreasonforbuyingthecaristhatitmakesastatementaboutme. 21 Peoplewanttobeseenrelativelymorealtruistic,andnothingpubliclydisplaysthatbetterthandrivingaToyotaPriusRdownthestreet,orcarryingcanvastotebagsinshopping.Inthesamevein,whencelebritiessuchasLeonardoDiCaprio,CameronDiazandTomHanksarephotographedbehindthewheelofaPriusR,despitebeingabletoaffordmoreexpensiveoversizedsportutilityvehicles,itfunctionsasaself-promotingbillboard:Wearecaringindividuals. 20 OrganicandEthicalFoods,MintelMarketingIntelligence,29May2001.21 M.Maynard,Say`Hybrid'andManyPeopleWillHear`Prius',TheNewYorkTimes,4July2007. 25

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Greenshoppingisalsomotivatedbysocialstatus.Whenshoppersareonthestreetwheretheyarebeingwatchedbyothershoppers,theyaremorelikelytogogreen,andforgoprice,comfortorconvenienceforthesakeofhigher-statusgreenproducts.Greenproductsshowthattheirownersarewillingandabletoincurthehighercostsofbuyingagreenproduct,evenifitisinferiorforpersonalusecomparedtoitsbrowncounterpart.Inotherwords,greenproductssignalthattheirownerscanaffordsuchactsofself-sacriceforthepublicgood:Theyarecaringandabletopayapremiumforthatprivilege.Forinstance,[d]rivingaluxuriousnon-greencar,likeaHummer,communicatesone'swealth,butalsosuggeststhatthebuyerisaselshanduncaringindividualwhoisconcernedprimarilyabouthisowncomfortratherthanthewelfareofsociety.Drivingahybrid,likeaPrius,notonlydisplaysone'swealthasitcostsmanythousandsofdollarsmorethanaconventionalbuthighlyfuel-efcientcar,butalsosignalstheownercaresaboutothersandtheenvironment. 22 Thisexamplecaneasilybeadoptedtoothergreenproductslikeenergy-efcientwashers,organicvegetables,clothnappies,andenergy-efcienttelevisions.Itisthesocialstandingboostedbytheseproductsthatencouragesshopperstochangetheirshoppinglistsandchoosegreenproducts. 1.3.2TheShareofGreenGovernments,LawsandRegulations Thedrivetowardsgreenhastakenitstollonalmosteverygovernment;theirlegislativeagendasincreasinglyadvocateforenvironment.Governmentsaroundtheworldgrapplewithhowtokick-starttheireconomyunderthedarkcloudofrecession,andgoinggreenturnsouttobeapotentialwayout.Rightnow,governmentsareseekingtoprovideamassivepushformoregreeninvestment.Theykeeprollingoutgreenprojectstoharnessthepowerofgoinggreenwhichcannotonlyprovidenew 22 A.Vaughan,Shopperschoosegreenproductstoimprovesocialstatus,saysstudy,guardian.co.uk,29March2010. 26

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markets-whiletheoldonesarealreadyevaporating-requiredtogrowtheeconomy,butalsoaddresstheenvironmentalprotection.Forinstance,the2009EconomicStimulusPackageputforwardbytheObamaadministrationincludeshundredbilliondollarsforgreen-collarjobsthatrequireskilledlaborforcetoworkonproducinggreenproducts,organicfarming,recycling,reusingandrenewableenergyconstruction.Italsoprovidesa30%taxcreditforinvestmentsinfactoriesthatmanufactureenergyefcientproducts,batteries,solarpanelsandwindturbines.Othercountriesarenottobeleftbehindastheyarefollowingthesuit.Inordertoextendahelpinghandtogreencompanies,theFrenchgovernment,forexample,haspledgedtoinvestheavilyintheformoftaxbreaksandgrantsforgreenR&DasapartoftheirGrenelledel'EnvironnementetdelaMerpolicies.Likewise,theGermangovernment'sproducttake-backinitiativesrewardcompaniesforndingwaystoreducepackagingandintegratedesignfordisassembly,reuseandrecyclingintotheirproductdesign.Thesegovernmentaleffortsdoappeartobeadrivingforceingoinggreen.ManagersofcompanieslikeAmericanAirlines,BellAtlantic,HPandCoca-Colaarereactingtosuchinitiatives-inparttohelplower/splittheinitialhighcostsofR&D-bymakinginvestmentingreenR&Dpartoftheiroverallbusinessstrategiesandputtinggreenerproductsinthemarket. Governments'environmentaleffortsarenotsolelyconnedtoeconomicalgrowthpackages.Today,developinggreenproductsisnolongerconsideredasavalueadd-onpracticebecauseitisstringentlycompulsorybyenvironmentallawsandregulations.Thereareincreasingregulationsandlawspassedbygovernmentsnowadaysthatputgreaterpressuresoncompaniestoadheretotheenvironmentalstandardsintheiroperations.Amongtherstout-of-boxregulations:theExtendedProducerResponsibility,RestrictionofHazardousSubstances(RoHS),WasteElectricalandElectronicEquipment(WEEE),andEco-designforEnergy-usingProducts(EuP).Forinstance,in2009theObamagovernmentannouncednewCorporateAverageFuelEconomy(CAFE)standards-anothergreendirectiveaimedatimprovingtheaverage 27

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fueleconomyofcars-thatrequireautomanufacturerstosellvehiclesthatmustgetanaverageof35.5milespergallonby2016 23 .VariouscountriesalongwithanumberofU.S.statesareadoptingsuchregulationsandcreatingtheirownpoliciesintheabsenceoffederalaction.In2007,forexample,SanFranciscoapprovedlegislationtobansupermarketsfromusingnon-recyclableplasticgrocerybagsatcheckouts 24 .FacedwithaEuropeanUniondirectiveonhazardouschemicals,AppleComputerreworkeditsentireproductlineby2008andphasedoutarangeofpersistenttoxicantsandotherdangerousmaterials 25 .Owingtotherequirementsfortoxicemissionreportingthatputcompaniesunderclosescrutiny,tonsoftoxicemissionshavebeeneliminatedinmanycountries. Eachyearthatgoesby,moreandmoreregulationsarebeingissuedbygovernments,andmoreimportantlythedayswhennon-compliancewithenvironmentalregulationsgoesunnoticedarelonggone.Shouldtheyfailtocomply,companiescanberequiredtobearsignicantcostsintermsofnes,penalties,productrecallsandnegativepublicitythatcandamagetheirbrandimage.Forinstance,in2008,HomeDepotagreedtopay$1.3millionpenalty,andimplementacomprehensive,corporate-widecomplianceprogramtoresolveallegedviolationsoftheCleanWaterAct,followingthediscoveryofstormwaterpollutionatmorethan30constructionsitesin28stateswherenewHomeDepotstoreswerebeingbuilt 26 .Morerecently,PepsiColaappearedinthenews,agreeingtopay$1millionpenaltyforviolationofCalifornia'sProposition65by 23 J.Eilperin,Emissionslimits,greaterfuelefciencyforcars,lighttrucksmadeofcial,WashingtonPost,2April2010.24 J.M.Glionna,SanFranciscothinksgreen:Plasticgrocerybagsbanned,LosAn-gelesTimes,28March2007.25 AppleandtheEnvironment,AppleInc.,15January2010.26 EnvironmentalLeader,AllegedCleanWaterActViolationsCostHomeDepot,February2008. 28

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failingtowarnconsumersthatthelabelsonbottledsoftdrinkscontainedlead 27 .Thesesettlementscanspelltroubleforevenbig-namecompanies.Theimpactoffailuretomeetregulationscanbestaggeringandlonglasting;itcanresultinproductsbeingbannedforsaleordelaysindemonstratingcompliancecanslow/haltaproductlaunch.Today,nearly75%ofcorporatemanagerssaypoliticalandregulatoryenvironmentsaretheirtopconcerns 28 andthatiswhytheyhavestartedtoconcentrateontheenvironmentalimpactoftheirproductsandoperationsthattheywillbeheldresponsibleforanydamage. 1.3.3TheResponseofManufacturers AttheCoca-ColaRetailResearchCouncilGlobalForum,inBeijing,Tesco'schief,SirTerryLeahy,saidWemustgogreen. 29 ManycompaniesincludingStarbucks,PepsiCola,TheBodyShopandCarrefourstressenvironmentalstewardshipintheirmissionand/orvisionstatements.Onitscompanywebsite,SCJohnson,producerofavarietyofproductsfromfoodstorageproductsZiplocRbagsandSaranWrapRtoRaidRpestkiller,writes:Fromtheingredientsinourproducts,tothewaywerunourfactories,we'recommittedtoworkingeverydaytodowhatsrightforpeople,theplanetandgenerationstocome. 30 Itdoesappearthatgreensitsattheheadoftheboardroomchartsnowadays.Thereisacompellingbusinesscaseforgreen,andsavvymanagersofcompaniesaretakingstepstoreducetheenvironmentalimpactsoftheirproductsatadeeperlevel-asneverbefore.Goinggreentosavetheplanetis 27 http://articles.latimes.com/2006/apr/22/local/me-soda22 ,accessedJune2,2011.28 EnvironmentalLeader,RiskManagersWorrytheMostaboutPolitical/RegulatoryEnvironments,April2010.29 S.T.Leahy,Tescochief:`Wemustgogreen',guardian.co.uk,3September2008.30 http://www.scjohnson.com/en/commitment/overview.aspx ,accessedJune2,2011. 29

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nolongerapitchedbattlebetweencompaniesandgovernmentalregulationsorradicalenvironmentalists.Today,addressinggreenisnotamatterofregulatorycompliancethataddsnothingbutadditionalcosts.Rathertheoppositeinfact.Itisallaboutdoingbetterandforthatreasonenvironment-relatedactionsofmanycompaniesundertakenrecentlyarenotsolelylimitedtothoserequiredtomeetregulatoryrequirements.Big-namecompanieslikeWal-Mart,Toyota,GEandShellareoftencitedinbusinessarticlesandreportsnowadayswiththeirgreenproducts/operationsbecausetheyaredecisivelyandeffectivelycommittingtogoinggreenandwinningbyreapingitsbenets. 1.3.3.1Opportunitiesingreenmarketandcompetitiveadvantage Leading-edgecompaniesarebewareoftheopportunitiesingreenmarketthatareripeforpicking.Theynolongerconsidergoinggreenanddoingwellnanciallyasaneither-orpropositionbutinsteadattempttoachievebothgoalssimultaneously.Greenpracticesareconsideredtobebetterforacompany'sbottomlinebecauseaddressinggreenproactivelyinoperationscanopennewmarketsanddrivenewrevenuestreams,reducethecostofrawmaterials/energy,strengthenpublicreputation,andavoidbusinessrisks(e.g.,environmentalliabilities).Besides,companieswhoseenvironmentalstrategiesprovideaddeddegreesoffreedomtooperate,protandgrowcanseizecompetitiveadvantageby[getting]aheadoftheGreenWave. 31 Intoday'sbusinessworld,greenisbeginningtobecomeapromisingpartofvaluecreation,andenteringintotheequation.Manycompaniesareseekingtoturntogreenbyfullyidentifyingtherisksposedbytheirproductsandmanufacturingprocesses,andmakingthemgreenerbydesigntoimproveefciency,reduceenergyuse/wasteandloweremissions-inessencetoimprovecorporatebottomline. 31 D.EstyandA.Winston,GreentoGold:HowSmartCompaniesUseEnvironmentalStrategytoInnovate,CreateValueandBuildCompetitiveAdvantage,YaleUniversityPress,2006. 30

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Inalmosteveryindustry(e.g.,textiles,high-techandautomobiles)companiesareseekingtoparticipateinthegrowinggreenmarketandareinaracetopursueenvironmentalpracticesintheiroperationsanddesigngreenproducts-nottobeleftbehindashrewdcompetitor.Forinstance,in1995TrueTextilesdevelopedanewgroupoffabricscalledTerratexR-madefrom100%post-consumerrecycledpolyesterorfromcorn-thatareinherentlylesstoxic,andeasiertorecycleordisposeofthanconventionalfabrics.Ithelpedthecompanyimproveitsbrandingandreputation,anddevelopagrowingrevenuestream,aswellasofferingreducedcostsforrawmaterial,waterandenergyinmanufacturing.In2006thecompanyestimatedthattheTerratexRdeliversrecurringsavingsofaround$300,000eachyear 32 .Likewise,in2008CloroxdevelopedtheGreenWorksRline-alineofvenonsyntheticcleaningproducts.Ithelpedthecompanygrowthemarketforgreenproductsandcapturealargermarketshare.Bytheendof2008,GreenWorksRenjoyeda42%shareoftheU.S.naturalcleanersmarket,andisestimatedtogenerate$200millionrevenueeachyear 33 .ThesestoriesofsuccessarebigtangiblereasonswhymanycompaniesasdiverseinsizeandscopeasApple,HP,SCJohnson,andP&Gareincreasinglyembracinggreenpracticesandlookingtolaunchnewgreenproductsintothemarket. 1.3.3.2Theroleofsupplychainpartners Nearlyeveryday,moreandmoreretailersstepuptheirgamewhenitcomestotheirgreeneffortstohelptheenvironment.Inamovetoimprovetheiroverallreputation,theysetaseriesofgoalstoeliminateoratleastreduceanyharmfulimpactsoftheproductsdisplayedontheirshelves.Someretailersgetengagedinanefforttoencourage 32 T.Greiner,HealthyBusinessStrategiesforTransformingtheToxicChemicalEconomy,CleanProductionAction,June2006.33 EnvironmentalLeader,Clorox'sGreenLineTakes42%OfNaturalCleanersMarket,January2009. 31

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supplierstoredesigntheirproductsinamoreenvironmentally-friendlywaybyofferingthemincentives,whileotherschooselayingdownthelawinordertoforcethemtotakecorrectiveaction.Forexample,inOctober2008,LeeScott,theCEOofWal-Mart,handedoveradirectiveto1000suppliersinChina:Reducewasteandemissions;decreasepackagingcostsby5%by2013;andimprovetheenergyefciencyofproductssuppliedtoWal-Martstoresby25%withinthreeyears 34 .Morenotably,Scottdeliveredasternmessage:GogreentheWal-MartwayorWal-Martwilltakeitsbusinesselsewhere. Wal-Martisnottherstretailertoputforthsupplierrequirementsthatpushforwardinnovationingreenproducts,andenvironmentallyfriendlyandsociallyresponsibleoperations.IKEAhassoughttouse(a)woodfromforestscertiedasresponsiblymanagedthatreplantandmaintainbiologicaldiversity,and(b)onlyrecyclablematerialsforatpackagingsince1992 35 .Inlikevein,inOctober2009,globalretailgiantTescoannouncedsuppliersmustreducecarbonfootprint30%by2020,andsetthegoalofbeingcarbonneutralinitsstoresandsupplychainoperationsby2050 36 .BestBuy,MarksandSpencer's,CVSandHomeDepotarejustsomeofthenoteworthyexamplesofotherretailersthatasktheirsupplierstoredesignaproductusingsafermaterials/components,otherwisetheywillchoosetodobusinesswithothers.Inordertoimprovetheoddsofcontinuingtoworkwiththeseretailers,suppliersaggressivelyendeavortodevelopgreenalternatives.Sincesuppliersworkwithmanydifferent 34 http://gogreenstips.com/tag/green-supply-chain ,accessedJune2,2011.35 http://www.ikea.com/ms/en_US/about_ikea/our_responsibility/forestry_and_wood/index.html ,accessedJune6,2011.36 http://www.thegreensupplychain.com/NEWS/09-10-19-1.PHP ,accessedJune6,2011. 32

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retailers,theirindividualeffortscreatearippleeffectacrosstheentiremarket,andmoresupermarketshelvesareallottedtogreenproducts. 1.3.4SocialMediaTurnstoGreen Inanow-classicSuperBowladof2006,inaspotfortheFordEscapeHybridR,KermittheFrogisseenstrugglinghiswaythroughmountainbiking,kayakingandmountainclimbingwithhistrademarktuneIt'snotthateasybeinggreenplayinginthebackground,butthenencounteringahybridEscapeRsportsutilityvehicleinthemountainside,andinatwist,changinghistunewithIguessitiseasybeinggreen.Nissanlaunchedasimilarlycatchypolarbearadduringthe2010NFLseasondebut,whereapolarbeartreksfromtheArctictothankaNissanLeafRownerforhelpingtosavehishome.OnthebillboardattheexitoftheLincolnTunnelinManhattan,driversseetheToyotaPriusRslogan:Milesandmilesandmilespergallon.Johnson&Johnson'sskincarelineAveenoRbuiltitsadcampaignonthescienceofactivenaturalsingredientslikesoy,oatsandshiitakemushrooms.Alongwiththeseadcampaigns,manyotherbig-budgetcampaignssuchasGoGreenSamsungofSamsung,EcomaginationofGeneralElectric,HumanEnergyofChevronandOwlspotofBoschhavebeenrunningonprimetimetelevisiontoaddressbrands'environmentalcredentialslately. Socialmediahasturnedtogreenandalmosteverybrandhasjumpedonthisgreenbandwagon.Greenhasbecomethenewblackintheadworld;businesseshavebeguntousesocialmediasmartlyformarketing,buildingtheirbrandreputationandpromotion.AccordingtoTNSMediaIntelligence,withinthejustthree-monthspanof2007(fromMarchtoJune),marketersshelledoutacombined$18millionongreen-focusedTVads. 37 Today,amultitudeofhipgreenproductsarewidelybeingtoutedbyan 37 http://www.usatoday.com/money/advertising/2007-06-22-cannes-green-usat_N.htm ,accessedJune6,2011. 33

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increasingnumberofTVcommercials.AbumpercropofgreenstoriesarebeingcoveredintheBusinessofGreensectionofthemajornationaldailiessuchastheNewYorkTimesRandtheWashingtonPostR,andfeaturedonthecoversofmainstreammagazineslikeNewsweekRandVanityFairR.Inaddition,publishersareincreasingtheireditorialcoverageaboutthebusinessstoriesonenvironment,andspawningnumerousnewecoissuesandpublicationsonhowfamiliescanmakegreenapartoftheirdailylives(e.g.,NationalGeographic'sGreenGuideRmagazine).Theheightenedinterestofcompanieshasalsoledtoaplethoraofwebsitesandblogsdevotedtogreenproducts.ThesemediumssuchasSustainableBusiness.com,TreeHugger.com,GreenBiz.com,Mr.Green,SustainablogandEcorazziempowervisitorstosearchandharvestthelatesthighlyratedarticlesonnewgreenproductsandgreenlivingtips,andsharethemwithotherinformation-seekingawareconsumers. MeanwhilemanyHollywoodcelebritiesarededicatingtheirtimetoadvocateforthegoinggreencampaignsandwalkingtheirgreentalk.Forexample,OprahWinfreydeemedGoingGreenworthyofashowinApril2007,askingpeopletoimplementjustonegreenideatohelptheghtagainstglobalwarming. 38 MadonnacomposedthesongHeyYouwrittenfortheLiveEarthconcert.TheNovember/December2006issueoftheTheGreenGuideRmagazinewasguesteditedbyMerylStreep.RobertRedfordandLeonardoDiCapriohavebeenboardmembersoftheNaturalResourcesDefenseCouncilthatworksagainstpollutionandhabitatdestruction,andpromotesactionstomitigateglobalwarmingandincreasetheuseofrenewableenergy.Allthesedailymessagesandimagesthatfangreenlifestylesindeedservetoasinglepurpose;raisingtheawarenessandattractivenessofgreenproducts.Pollsconsistentlyindicatethatthebiggestobstaclewhenbuyersconsidergoinggreenistheirlackofawareness 38 http://www.oprah.com/world/Its-Easy-Being-Green_1 ,accessedJune4,2011. 34

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ofgreenproductalternativesand/orbenetsoftheseproducts 39 .Thatiswhythesemediumsofgreenmediahavebeenprovinginvaluabletothespreadofgreenproductsacrossprospectivebuyers. 1.4ShouldCompaniesDevelopGreenProducts? Untilquiterecently,companiescontemplatinganewproductlaunchtypicallylookedonlyinonedirection;superiortraditionalquality.Buttimeshavechanged.Thankstoconsumers'insatiabledesiresforenvironmentallybenignchoices,potentregulatoryforcesandbusinessopportunities,thepoolofgreenproductsisgrowingatarapidrateandgreencompaniesarenippingattheheelsofmanymid-tierandpremiumbrowncompanies.Theyarelosingsharetothesegreencompetitors,andtheirmanagersincreasinglyfaceastrategicconundrum:Shouldtheytacklethethreathead-onbyexpandingtheirproductlineswithgreenalternatives,knowingthatcandestroytheprotsoftheirbrownproductsintheshorttermbutimprovetheirbottomlineinthelongterm?Orshouldtheyholdtheirproductline,hopethatinterestingreenshoppingisjustafad,andinthemeantimelosetheirpotentialconsumerswhomightnevercomeback?Eventhoughallthosealternativescanturnouttobeunpalatablefromtimetotime,companymanagersareoftentemptedtolaunchgreenerbrandsnotjusttofendoffgreencompetitorsinthemarketplacebutalsotoopenupanewgreenmarketthatexhibitshighgrowthpotential. Initsbestapplications,companiescanreturninremarkablesuccessesfromthisapproach.Forexample,CloroxwasabletocashinfromitsGreenWorksRlinebytheendof2008,andthetailwindhadencouragedthemtolaunchmoregreenproducts:ThecompanyintroducedbiodegradablecleaningwipesinJanuary2009, 39 http://sloanreview.mit.edu/the-magazine/2009-summer/50415/what-the-%E2%80%98green%E2%80%99-consumer-wants ,accessedJune2,2011. 35

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andnon-syntheticdetergentsthefollowingJunewheretheyrunintorivalP&G 40 .Notproperlyexecuted,suchsuccessstoriescanturnouttobetheexceptionthough,anditmayhavedetrimentalimpactonthesecompanies.Greenerproducts,inessence,areofferedtowinbackconsumersthathaveswitchedtoagreenrival.Theycanalsohelpgrowthegreencategoryasawhole,drawattentiontogreenproductsandbuildconsumerawareness.Ontheotherhand,oncedeployed,theseproductscanalsorobsignicantsalesfromacompany'sownprotablebrownofferings.Moreimportantly,companiescanndthemselvesinabattleontwofrontswhentheylaunchagreenalternativeatthetimeofsellingabrownproduct.Thismaysiphonawaytheattentionofcompanymanagementanddividecompanyresourcesaswell.Therefore,launchingagreenerproductcausesacompanyfacewithadualchallenge:Itmustensurethatthegreenerproducthasakeengraspofgreenconsumers'preferences(soitdoesnotmissthemarkwithgreenconsumers),whileguaranteeingthatitdoesnotcausethecompanyfallshortforitsbottomlineasaresultofcannibalizationormanagementdistraction.Acompanymustdiligentlydeterminethevalue,appealandaccessabilityofitspotentialgreenerproductsandweightheeffectsofcannibalizationbeforeofferingthem. 1.5DissertationFocus Greenproductdevelopmenthasnotliveduptotheexpectationsofmanymanagersandenvironmentalists.Movingintothegreenmarkethasnotfullleditsinitialpromise,becauseitisalmostalwaysdifcultforcompaniestochooseandimplementaprotablegreenproductstrategy.Indeed,companiesthathavebeentryingtoforgeapathtogreenproductdevelopmenthavefoundthemselvesinastruggletodealwithacriticalissue:Theredoesnotexistaone-size-ts-allstrategywhenitcomestogreen.Thismayseemlikecommonsense,butsuchwisdomseemstoeludemostcompanymanagers 40 R.Nidumolu,C.K.PrahaladandM.R.Rangaswami,WhySustainabilityIsNowtheKeyDriverofInnovation?,HarvardBusinessReview,September2009. 36

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whostillinsistonpushingoutproductdesign/developmenteffortsthatarevariouslytootechnicalortoovague.Companiesneedmorethaninspiration:Theyneedinformationand,moreimportant,contexttoevaluatealternativegreenproductstrategiesandtheunderlyingrationalebehindeachofthem,andsotofullyunderstandandappreciatehowchoosingagreenproductstrategywillbenetthem.Forstarters,theyneedtoaskthemselvesawidearrayofquestionsregardingthestrategychoicessuchasWhatisourstrategicgoal;broadeningappealtonewconsumers,gaininggreencredibility,and/orbringinginnewgreencapabilities?,Howsubstantialisthegreenconsumermarketforthecompany?,Canwesellthegreenproducttoourcurrentconsumers?,Canwedifferentiateourexistingproductsonthegreendimension?,Dowehavetheresourcesandanunderstandingofwhatitmeanstobegreenintheindustry?,andHowcanwebeatourcompetitorsinthegreenmarket?Itisclearthataddressingsuchquestionsintheirquestforgoinggreenbymeansofofferinggreenerproductsshouldmakethechoicesandtrade-offsclearer,andhelpcompaniesformulateastrategysuitedtotheirobjectivesandmarketspace. Talkingaboutgreenproductdevelopmentturnsouttobeanythingbutnotsimple.Focused,morenuancedapproachesareneededtoensurethatacompany'sgreenproductstrategyisnotaone-size-ts-allaffairandthatitsconcernabouttheenvironmentmatchesthatofitscustomers.Basedonthatthisresearchfocusesontheanalysisofgreenproductstrategiescompaniescanusetogetintotheincreasinglygreen-awaremarketplace.Therstproject(Chapter 4 )isbuiltupontwobroadstrategiesofdevelopinggreenproducts-Accentuate,andArchitect-thatcompaniescanusetoaligntheirgreengoalswiththeircapabilities.Thesestrategiesareintroducedanddescribedby UnruhandEttenson ( 2010 )basedon10in-depthcasestudiesofconsumerproductandindustrialcompaniesthatweremovingintothegreenmarket.AnAccentuatestrategyinvolveshighlightingexistingorlatentgreenattributesinacompany'scurrentproductportfolio.Ontheotherhand,ifacompanyhassubstantial 37

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newproductdevelopmentskillsandassets,itcanarchitectnewofferings-buildthemfromscratch. UnruhandEttenson ( 2010 )suggestthatwhichstrategyisbestdependsonhowgreenableacompany'sexistingportfolioisandhowadvanceditsgreenproductdevelopmentcapabilitiesare.Thecompaniesmustaligntheirgreenstrategywiththeirexistingproduct(s)anddevoteordeveloptheresourcesandcapabilitiesneededtoachievetheirstrategicgoals.Therstprojectquerieswhetherthelevelofacompany'scurrentproduct'sgreenqualitycontentand/oritsgreenprocesscapabilityaretheonlymoderatingfeaturesinmakingachoicebetweenthesestrategies. Thesecondproject(Chapter 5 )buildsuponthesegmentationoftheenvironmentalmarketplacedevisedbyGfKRoperPublicAffairs&Mediabasedonpublicopinionsurveysin2002and2007.Thestudyunderscoresthatconsumershavedifferentinterestsandmotivationswhenitcomestoviewingtheirpurchasesthroughagreenlens.Categorizingconsumersintomeaningfulgroupingsthatdescribeandpredicttheirbehaviorandpredilectionswhenshopping-ratherthanclassifyingaccordingtoconventionaldemographicfactorssuchasage,residenceandincome-canobviouslyhelpcompaniestosmartenuptheirenvironmentalstrategies,andtodeterminewhichproductstodevelopandhowbesttotargetthem.Assertingthatvalues,tastesandpreferencesaremorelikelytoinuenceconsumers'purchasesthantheirdemographictraitsare,thesecondprojectfocusesonacompanyrecognizedforitsbrownoffering(andtraditionalexpertise)andexamineshowtheexistenceofmanyshadesofgreenconsumersaffectsthecompanyshapeandassesstwoalternativegreenproductdevelopmentstrategies.Thestrategiesanalyzedinthisprojectincludesgreeninganexistingbrownproductbymakingsmalladjustmentsinrawmaterials,packagingandsoforth,anddevelopinganentirelynewproductfromscratchwithsignicantlylessenvironmentalimpact. 38

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1.6OrganizationofDissertation Theremainderofthisstudywillbestructuredasfollows.Chapter 2 reviewsthecurrentliteratureonproductdesigninverticallyandhorizontallydifferentiatedmarkets.Chapter 3 outlinesalternativegreenproductstrategiesthatarewidelyusedbycompaniestosuccessfullylaunchthemselvesintothegreenproductrealm,anddiscussestheunderlyingprinciplesandreasoningbehindeachstrategy,aswellasthedifferentmarketconditionsunderwhichtheyworkbest.Itconcludeswithaproposedframeworkforgreenproductstrategies.Chapter 4 introducesanddevelopsastylizedmodelforanalyzingtwogreenproductstrategies-AccentuateandArchitect.Chapter 5 analyzesproductpositioningdecisionsofasinglermthatcontemplatestargetingabrown,greenorgreenerproducttodifferentconsumersegmentswithvaryingenvironmentalattitudes.Chapter 6 underlinesoverallndingsandcontributionsoftheresearch,andnallydiscussesfutureresearchdirections. 39

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CHAPTER2LITERATUREREVIEW Inamarketplaceofconsumersthatdifferintheirwillingnesstopayand/orhaveheterogenoustastes,companiesareoftentemptedtolaunchamenuofofferingstoservethosedifferentmarketsegmentsandcalibratethoseofferingstotheirownstrategicadvantage.Theoverallconsumermarketistypicallysegmentedbyconsumers'propensityforquality,andcompanymanagers,inresponse,usuallyrolloutdifferentquality-pricebundlestocovertheirtargetconsumermarketascompletelyaspossible.Forexample,inthefaceofeconomicstrainsthatcauseconsumerstotradedowntolow-endproducts(lowerquality-pricebundles),manypremiumbrandcompanieslaunchastep-downversionoftheirbrandsoastoavoidlosingmarketsharetolow-endrivals.ConsiderthecarcompanyToyotawhichhasadiversebusinessportfoliowithitsexistinglineofcarsaswellasbrandssuchasLexusRandScionR.ToyotacreatedtheLexusRbrandtotargettheluxury-carmarketsegment,whilethepurposeofofferingScionRwastoattracttheattentionofyouthmarketsegmentbyintroducingthemtoarelativelycheaperbutaradicallydesignedcar.Theresultsofthisproductlinedesignarethecreationoftwobrandsthatbothofferauniquelineupofcarsthattargettheluxuryandyouthmarket. Thisapproachcanhelpacompanyfendofflow-endrivalswhileallowingitshigh-endbrand(highquality-pricebundle)tostayabovethefray.Unfortunately,itiseasiersaidthandone.Designingalineofproductsisveryhardtopulloffmainlyduetothethreatofcannibalizationwithintheproductline.Tobesurelaunchingavarietyofproductsmakessense,companiesmustcarefullypositionandpricetheirproductssothatthelow-endproductswillnotdrawconsumerswithhighwillingness-to-payawayfromthehigh-endproducts.Topreventcannibalization,thecompaniescandeliberatelylessenthevalueorappealoftheirlow-endproductstothehigh-endproducts'targetsegments,andcanevenneedtodisableexistingproductattributesandwithhold 40

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marketingsupportfromthelow-endproducts.Eachproductintheproductlineshouldofferasufcientlydifferentiatedproposition,andbecausepriceandqualityarethetwodimensionsthatdenedifferentproductsinaproductportfolio,itiscriticaltoanalyzethesetwoaspects. 2.1ProductLineDesigninVerticallyDifferentiatedMarkets Itiswellrecognizedthatoneofthecrucialdecisionsforarmistodevelopproductdesignsandselectproductsinitsproductlineunderthethreatofcannibalization.Productdesignsareusuallydenedbymultipleattributesthatcanbegroupedintotwomaincategories:verticalandhorizontaldifferentiationdimensions.Verticaldifferentiationcapturestheproductperformanceorqualityasawell-establisheddriverofconsumerwillingness-to-pay,whereasthehorizontaldifferentiationrepresentsthefeaturechoicesofproductdesign.Unfortunately,marketstructuremodelsthatcombinebothverticalandhorizontaldifferentiationinconsumerpreferencesaremathematicallyintractable,andonlypartoftheresultscanbeobtainedanalytically.Relatedtothispoint,inordertopresentanalyticalresults,themajorityofpastliteraturehasintentionallyexaminedthemarketsthatareeitherverticallydifferentiatedorhorizontallydifferentiated.Inaddition,thoseresearchpapershavealternativelymadeassumptionsaboutmarketcoverage(e.g.,allconsumersmustbuyoneandonlyoneproduct),restrictedthetypesofproducts(e.g.,developmentintensiveproductsdominatedbyxedcostsormarginalcost-intensiveproductsforwhichthedevelopmentcostisarelativelysmallportionoftheoverallcostofproductquality),orfocusedoncomponentsharingacrossdifferentproducts.Westartbyreviewingpriorworkonverticallydifferentiatedmarketsandthereaderisreferredto Lancaster ( 1990 )foracomprehensivereviewofearliermarketingmodelsthatdealwithverticallydifferentiatedproducts. 2.1.1ProductDesignwithaSingleAttribute MussaandRosen ( 1978 ), O'Keeffe ( 1980 )and Katz ( 1984 )aretherstamongcorrespondingresearchpapersthatrestrictthemarketbehaviorintoverticaldifferentiation 41

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andanalyzetheprice-qualitypoliciesofasingleprot-maximizingrmthattargetsalineofproductstodifferentconsumersegments.Inthesestudies,thetermqualityreferstothelevelofasingleattributeorsomescalarmetricrepresentingavectorofattributes(e.g.,variety,functionality,and/orreliability). MussaandRosen ( 1978 )studyverticalproductdifferentiationwithrespecttoasinglecontinuousquality-typeattributeinamarketwithheterogenousconsumers.Theyconsiderasinglermthatsellsoneunitofadifferentiableproducttoeachconsumerwithvaryingpreferenceintensityforquality,q.Theunderlyingutilityfunctionisconsideredtobelinearin>0-measuringtheintensityofaconsumer'spreferenceforquality.Consumers'valuationsofqualityvaryinproportionto,sothatpreferencesofthesetofpotentialconsumersaredescribedbythedistributionof;adensityf()ddenedontheinterval[ ].Theproductinconsiderationisamarginalcost-intensiveproduct.Themarginalcostofproductionatanyqualitylevel,C(q),isassumedtobeconstant,andunitproductioncostisgivenasanincreasingconvexfunctionofquality,thatis,C0(q)>0,C00(q)>0forallq0.Withthismodel,theyexaminethecaseoftwotypesofconsumers,distinguishedbytheirintensityofqualitypreference,handlsuchthath>l. Theefcient(surplus-maximizing)solutionoftheirmodelischaracterizedbytwofeatures.Firstly,eachconsumertypeselectsthequalityforwhichC0(qi)=i(i=h,l),i.e.,wherethemarginalcostofqualityisequaltopreferenceintensity.Secondly,forthatquality,eachconsumertypepaysexactlytheunityofproducingthechosenproducttype,i.e.,pi=C(qi)(i=h,l).Underperfectdiscrimination,wherethetwomarketsegmentsareperfectlyseparable,thermwillofferthesequalities,butathigherpricesthathelpextractallconsumersurplusfromeachconsumertype.Incase,wherethermlacksthecapabilityforpriorsortingofitsconsumersintoclasses,itcansegmentthemarkettoitsadvantagebystructuringitsofferingsinamannerthatinducesself-selectionbyconsumersamongqualitytypeswithvaryingprice-costmargins.Thermcanaccomplishthisbyimposingself-selectionandparticipationconstraints.Givenh>l 42

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andthenumberofconsumersNiineachgroup,thetotalprotofthermisthenwrittenas =Nl[lql)]TJ /F6 11.955 Tf 11.95 0 Td[(C(ql)]+Nh[hqh)]TJ /F6 11.955 Tf 11.95 0 Td[(ql(h)]TJ /F4 11.955 Tf 11.96 0 Td[(l))]TJ /F6 11.955 Tf 11.95 0 Td[(C(qh)],(2) withrst-orderconditions: C0(ql)=l)]TJ /F6 11.955 Tf 14.1 8.09 Td[(Nl Nh(h)]TJ /F4 11.955 Tf 11.96 0 Td[(l),C0(qh)=h.(2) Theimplicationsofthismodelareasfollows:(a)Thepricechargedtothehighvaluationsegmentliesbetweenthecompetitivepriceandtheperfectlydiscriminatingprice.Thermsellsthesamequalityasacompetitivermtothehighsegment,buttheself-selectionconstraintsrequirethequalityofferedtothelowvaluesegmentbelowered,bytheamountN1(2)]TJ /F4 11.955 Tf 12.65 0 Td[(1)=N2.Thissegmentisofferedaqualitylowerthananythatwouldappearundercompetitionorperfectdiscrimination.(b)Thealteredprice-qualitycombinationsimplymorelow-qualitygoodssoldrelativetoacompetitivesetting.Theresultsderivedby O'Keeffe ( 1980 )and Katz ( 1984 )lateronturnouttobesimilartothoseof MussaandRosen ( 1978 ). Moorthy ( 1984 )examinestheproductlinedesignproblemforarmthatsellsamenuofverticallydifferentiatedproducts.Hepresentsamodelfordeterminingtheoptimalproductlineselectionandtheoptimalpriceofeachselectedproduct.Theproductscanbeorderedaccordingtotheirobjectivequalitysothatahigherqualityproductismoredesirablethanalowerqualityproduct.Thermaimstoservemultipleconsumersegmentsthatdifferintheirvaluationsofquality.Higher-valuationsegmentsderivegreatermarginalutilityfromquality,andsotheyareeagertopayahigherpriceforagivenqualitythanlower-valuationsegments.Whentheunitproductioncostisconvexinqualityandthemarketiscomprisedofdifferentsegments,itisshownthatthermisbetteroffcreatingproductssothathigher-valuationconsumersbuyhigher-qualityproductsathigherprices.Hendsthatthehighest-valuationsegment 43

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getsitspreferred(i.e.,surplusmaximizing 1 )quality,whilethequalitiesofproductsaimedatallothersegmentsaredistorteddownwardsandarestrictlylessthanefcientlevels.Furthermore,ifthecannibalizationeffectisstrongenough,itisoptimalforthermnottoservelow-valuationsegmentsofconsumersbyofferinglessthanefcientnumberofproducts.Thepriceofthelowest-qualityproductissetinsuchawaythatthelowest-valuationconsumergetsnovaluefrompurchasingtheproductandisindifferentbetweenbuyingtheproducttargetedtoitandnotpurchasinganyproductatall.Thisisinlinewiththeresultsobtainedby MussaandRosen ( 1978 ),whostudyasimilarmodelwithacontinuousdistributionofconsumervaluations. Themodelsintroducedby MussaandRosen ( 1978 )and Moorthy ( 1984 )constituteastrongbuildingblockindevelopingthethetheoryofproductlinedesigninthefaceofasegmentedconsumermarket.Asanalternativeapproachtoproductlinedesignproblems, DobsonandKalish ( 1988 )proposeamathematicalmodelthatdetermineshowasinglermshouldposition/repositionandpricealineofsubstituteproducts.Intheirmodel,theconsumermarketiscomposedofmdifferentconsumersegmentsofvarioussizes,eachcontaininghomogeneousconsumers.Furthermore,thereexistsasetofnpotentialproductstobelaunched.Eachconsumerprovidesameasureofthevalueofeachpotentialproducttohim(i.e.,reservationprice),andhechoosestheproductthatprovideshimwithhispreferredquality.Eachpotentialproducthasaconstantunitproductioncostthatcanvaryacrossproducts,andthermincursaxedcostassociatedwitheachproductoffered. 1 Maximumsurplusreferstomaximumdifferencebetweenthereservationprice(orconsumers'maximumwillingnesstopay)andactualprice. 44

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Theproposedmathematicalmodelisgivenasfollows: MaximizemXi=1nXj=0Ni(pj)]TJ /F6 11.955 Tf 11.96 0 Td[(cj)xij)]TJ /F7 7.97 Tf 18.3 14.95 Td[(nXj=1Fjyj (2a)subjecttonXj=0xij=18i (2b)xijyj8i,j (2c)nXk=0(Vik)]TJ /F6 11.955 Tf 11.95 0 Td[(pk)xik(Vij)]TJ /F6 11.955 Tf 11.96 0 Td[(pj)yj8i,j (2d)p0=0 (2e)xik,yk=0,18i,k (2f) where Vij thereservationpriceoftheithsegmentforthejthproduct, Ni thenumberofindividualsrepresentedbysegmenti, cj theunitcosttoproduceproductj, Fi thexedcostincurredifproductjisofferedatall,where i rangingfrom1uptomindexesthesegments, j rangingfrom0uptonindexestheproducts,and yj equals1ifproductjisoffered;0otherwise, pj thepriceofproductj, xij equals1ifsegmentiisassignedtoproductj;equals0otherwise. Inthismodelingframework,theydevelopaheuristicalgorithmtosolvetheproblemofhowmanyproductstointroduce,wheretopositionthem,andhowtopricethemsoastomaximizethetotalprotoftherm. MoorthyandPng ( 1992 )extendthesingle-periodproductlinedesignproblemtoatwo-periodsettingandanalyzethetrade-offbetweensimultaneousandsequentialproductintroductionstrategies.Theyconsiderasinglermthatfacestwoconsumer 45

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segments,namelyhigh-valuationhandlow-valuationlsegments.Consumersagreeontheirrankingofavailableproducts,butdifferintheirwillingnesstopay-consumersinhighsegmentvaluequalitymorehighly.Theheterogenouspreferencesofconsumersforqualityarisesthenecessityofadifferentiatedproductline,andthermcanfollowtwostrategiestoofferthesedifferentiatedproducts.Underthesimultaneousstrategy,theretailerofferstwodifferentiatedproductsatonce,butthelowerqualityproductwouldcannibalizethedemandforthehigherqualitymodel.Atthispoint,loweringthequalityoflow-endproduct,whereasreducingthepriceofhigh-endproductmayalleviatethecannibalization.Asanalternativestrategy,thermcanincreasethequalityoflow-endproduct,butforceconsumersoflow-endproducttowaitbeforetheycanbuytheproductbydelayingitsreleasedate.Thedownsideofthesequentialstrategyisthattheprotsfromthelow-endproductwouldarrivelater.Therefore,thermhastoweightheadvantagesofasequentialstrategyagainstthedisadvantageofpostponingtheprotsfromoneoftheproductsinchoosingbetweensimultaneousandsequentialproductintroductionstrategies. Inthismodel,itisassumedthatthermhasavailabletechnologytointroducetwoproductssimultaneously.Itcanonlysellovertwoperiods,andcancommitintherstperiodtosubsequentpricesandqualities.Onthedemandside,thermfacesadeterministicandstationaryconsumerdemand,andtheyassumethatconsumersleavethemarketforeveroncetheyhavepurchasedaunitofproductregardlessofitsquality.Theconsumers'utilityfunctionsareassumedtobelinearinquality.Eachhighsegmentconsumervaluesaunitoftheproductwithqualityqathq,whileeachlowsegmentconsumervaluesatlq,giventhath>l>0.Onthesupplyside,themarginalcostofsupplyingtheproductincreasesasaquadraticfunctionofitsqualityqsothatitiscq2,wherec>0.Anyxedcostsofproductintroductionsareignored,andthereareconstantreturnstoscaleinproducingmultipleunitsofonequality.Finally,insequential 46

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productintroductionstrategy,thetimebetweensuccessiveintroductionsisassumedtobexedexogenously. Thermmustdecideif,howandinwhatordertoservethehighandlowmarketsegments.Hecanserveonlyonesegment,bothsegmentssimultaneouslyorsequentially.Theyinitiallyanalyzethecasewherethermcancommitinadvancetothequalities,pricesandtheorderinwhichtwoproductswillbeintroduced.Therm'sproductlinedesignproblemundersequentialproductintroductionsstrategy(whereitchoosesqualityqhatpricephforreleaseinperiod1,andqlatpriceplforreleaseinperiod2)isgivenasfollows: Maximizeqh,ql,ph,plNh(ph)]TJ /F6 11.955 Tf 11.96 0 Td[(cq2h)+sNl(pl)]TJ /F6 11.955 Tf 11.95 0 Td[(cq2l) (2a)subjecttoc(lql)]TJ /F6 11.955 Tf 11.95 0 Td[(pl)(lqh)]TJ /F6 11.955 Tf 11.96 0 Td[(ph), (2b)(hqh)]TJ /F6 11.955 Tf 11.96 0 Td[(ph)c(hql)]TJ /F6 11.955 Tf 11.95 0 Td[(pl), (2c)lqlpl, (2d)hqhph. (2e) Aconsumerwhopurchasesinthesecondperiodmustwaittoenjoytheproduct.Sincemostindividualsprefertoconsumeearlierratherthanlater,itisassumedthateachconsumerequatesoneunitofconsumersurplusinthesecondperiodtoc2(0,1)unitintherstperiod.Sothediscountfactor,c,willbecloseto1ifconsumersareverypatient,whileitwillbecloseto0iftheyareveryimpatient.Similarly,s2(0,1)representstherm'sdiscountfactoronsecond-periodprots.Inthisproblemformulation,constraints( 2b )and( 2c )aretheself-selectionconstraintsforthetwosegments:sincethesellercannotidentifytheconsumer'stype,hemustdesigntheproductlinesothateachsegmentvoluntarilychoosestheproduct-pricecombinationmeantforit.Theothertwoconstraintsaretheparticipationconstraintsthatensurethateachsegmentwillbuytheproductdirectedtothemratherthannotbuyanythingatall. 47

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MoorthyandPng ( 1992 )alsoanalyzetherm'sproblemwhenitcannotcommitinadvancetoaproductandpricingstrategy.Theyshowthatifrmofferstwoproducts,thenitshouldintroducethehigh-endproductbeforethelow-endproduct(forcingconsumersthatwantthelow-endproducttowait),ratherthanintroducingbothatoncetominimizecannibalizationinmarket.Furthermore,thermneedstopre-committothedesignofthelow-endproducttobeintroducedlaterinordertoobtainthegreatestreductionincannibalization.Thisisbecause,withoutcommitment,thermcanonlyalleviatecannibalizationbytheunavailabilityofthelow-endproduct,whilehecanreduceitbydifferentiatingthedesignoflow-endproductfromthatofitshigh-endcounterpartwithcommitment. BalachanderandSrinivasan ( 1994 )analyzeasimilarproblemthataddressesasinglerm'sselectionofatwo-productlinewithtwodecisionvariables;qualityandprice.Intheirmodel,thermselectsproductlinequalitiesandpricestocrediblysignalitscompetitiveadvantagetoanuncertainpotentialentrantandmoreimportantlytodissuadethepotentialentrantfromenteringthemarket.Theincumbentenjoysacompetitiveadvantagebecauseitisasuperiorproducerofquality(i.e.,itcanproduceagivenqualitylevelatalowercostcomparedtoapotentialentrant)andaimstousethisadvantagethroughitsproductlineselection.Theyanalyzetheincumbent'sselectionofatwo-productlinewithtwodecisionvariables;qualityandprice.Themarketconsistsoftwosegments;ahigh-valuationsegmentandalow-valuationsegment.Consumersinhighsegmenthaveahigherreservationpriceforanygivenlevelofqualitythandolow-valuationsegmentconsumers.Eachsegmentconsistsofoneconsumer,andeachconsumerinasegmentbuysoneunitofaproductinaperiod.Theyconsideratwo-periodframeworkwithpre-andpost-entryperiods.Intherstperiod,theincumbentchoosesthequalitiesandpricesoftheproducts.Theentrantobservestheseproductsatthebeginningofthesecondperiod,dependingonwhichitdecideswhethertoenter 48

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themarket.Here,theentrantdoesnothaveperfectinformationaboutwhethertheincumbentisasuperiorrmorinferiorrm. Incontrastto MussaandRosen ( 1978 )and Moorthy ( 1984 ),theyconcludethatthesuperiorrmadoptsaproductlinewithahigherqualityandsoahigherpriceforeachsegmenttodissuadepotentialentrantsfromenteringthemarket.Thehighpricessignallowprotforthepotentialentrantbecausecompetingwithasuperiorincumbentdoesnotcompensateforthehighcostsofmarketentry.Furthermore,inthepresenceofproductqualitymodication(andwhenitiscostly),thesuperiorincumbentretainsthehigh-qualityproductinthesecondperiodthroughselectingahigherqualityandpriceforeachproductintheline. Inasimilartwo-periodsettingof MoorthyandPng ( 1992 ), Dhebar ( 1994 )analyzesaprot-maximizingrmthatsellsaseriesofproductsofimprovingversions(e.g.,features,functions,performancemeasure)toaheterogenousconsumermarket,andlooksattheeffectofproductimprovementonthepriceofcurrenttechnology.Theirapproachdiffersfromthatof MoorthyandPng ( 1992 )inawaysothatthermdoesnothavetheknow-hownecessarytointroducethehigh-qualityproductintherstperiodandmustdecideontheextentofproductimprovement.Helooksattwocases:oneinwhichtechnologyischangingatamoderatepaceandanotherinwhichtechnologyischangingatarapidpace.Agivenqualitylevelisassumedtobeavailableintherstperiod,andthermintendstochooserst-andsecond-periodpricesandsecond-periodqualityleveltomaximizethepresentvalueofitsprots.Onthemarketside,consumersattempttomaximizethepresentvalueoftheirconsumersurplusbydecidingonwhetherandwhentopurchasetheproduct.Atthispoint,theytakeintoaccountthequalityandpriceofthecontemporaryversionoftheproduct,andexpectedqualityandpriceofafutureversion(ifany). Theconsumermarkethereisconsideredtobeheterogenousinitsvaluationofquality:givenaqualitylevelq,consumersatlow-end(high-end)valuetheproductless 49

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(more).Consumersarerankedaccordingtotheirvaluationofthequalitybytheindex:=0representsthemostlow-endconsumer,while=1representsthemosthigh-endconsumer.Itisfurtherassumedthatisuniformlyandcontinuouslydistributedontheinterval[0,1].ThemaximumwillingnesstopayofaconsumerwithindexforaproductqisgivenbyV(q,)=f(q)g(),wheref(q)0isstrictlyincreasinginqandg()0isstrictlyincreasingin.Knowingthatproduct(q1,p1)willbeofferedintherstperiod,and(q2,p2)inthesecondperiod,consumerscanself-selectwhetherandwhentopurchasetheproduct.Letbetheone-perioddiscountfactor(=1=[1+discountrate])anditissameforallconsumers,consumerswithindexwillpurchasetheproductintherstperiodifandonlyif f(q1)g())]TJ /F6 11.955 Tf 11.95 0 Td[(p10,andf(q1)g())]TJ /F6 11.955 Tf 11.95 0 Td[(p1[f(q2)g())]TJ /F6 11.955 Tf 11.95 0 Td[(p2],(2) andanyconsumerwhohasnotpurchasedtheproductintherstperiodwillpurchaseitinthesecondperiodifandonlyif f(q2)g())]TJ /F6 11.955 Tf 11.95 0 Td[(p20.(2) Theiranalysisshowsthatwhenrationalconsumersanticipatetherm'sopportunisticpricingbehavior,therm'sprot-maximizingpricingschemeresultsinnosalesofoneoftheproductversions.Consumersaregivenonlyoneoptiontobuytheproduct(eithernoworlater)andupgradingtheproductisnotpossibleunlessanupgradepriceisoffered.Facingrapidimprovements,priorconsumersmayregrettheirbuyingdecisionandprospectivecustomerscoulddelaytheirpurchasetiming.Thisforcestherm-whoprimarilyusespricestosegmentmarkets-toconsiderrestrainingthepaceofinnovation. Kornish ( 2001 )usesasimilarsetupto Dhebar ( 1994 ):Atwo-periodproblemofasinglermthatsellssequentialversionsofaproductinthefaceofrationalconsumers. 50

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Eachconsumerdecidesonmarketparticipationandpurchasetimingtomaximizehissurplus.Inhermodel,thetechnologicalimprovementisconsideredtobeexogenousandithappensbetweentherstandsecondperiods(incontrastto MoorthyandPng ( 1992 ),wherebothproductsareavailableintherstperiod).Theprot-maximizingrmsellssequentialversionsofoneproductwithzeromarginalcostsandusestheproductreplacementstrategy:itsellsonlythelatestgenerationinanyperiod.Shegeneralizestheutilityfunctionusedin Dhebar ( 1994 ),disallowsupgradepricingbutallowsoldcustomerstoupgradeevenwithoutsuchpricing.Inthiscontext,sheattemptstoanswerifitisreallybetterforthermtointroduceasgoodaproductasitcanasfastasitcan,orthereisademand-sideconstraintwhichmakesamoderatepacethebestchoice.Lookingatcomparativestatistics,shendsthatifthermdoesnotsegmentthemarketinthesecondperiod,thatis,ifitdoesnotofferspecialupgradepricing,thenanoptimalpricingstrategyexistsevenwhentechnologyisimprovinginthepresentvalueterms. Priorresearch,suchas MoorthyandPng ( 1992 ),haveshownthattominimizecannibalizationinamarketwhereconsumersagreeontheirrankingofavailableproductsbutdifferintheirwillingnesstopay,asinglermofferingtwoproductsshouldintroducethehigh-endproductbeforethelow-endproduct,ratherthansimultaneously.Therefore,consumerswhowantthelow-endproductareforcedtowait. Padmanabhanetal. ( 1997 )useatwo-periodmodeltoanalyzetheimplicationsofdemandexternalityonsequentialproductintroductionstrategy.Theyassumethatthermisexogenouslyendowedwithacertainmarketpotential(i.e.,demandexternality)andthatthisinformationisnotcommonknowledge(i.e.,thermknowsthedemandpotentialthroughpre-launchmarketresearch,butconsumersareinitiallyuncertain).Theproductmarketexhibitsnetworkexternality,andsoacustomer'sutilityforaproductincreaseswiththenumberofadoptersoftheproduct.Theyshowthatitisusefulincrediblyconveyingarmsprivateinformationaboutmarketpotentialtoconsumersinthepresenceofdemandnetworkexternality.Morerecently, Bhattacharyaetal. ( 2003 )questionwhether 51

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theresultprovidedby MoorthyandPng ( 1992 )doesholdinthepresenceofconcurrentevolutionoftechnologythatmaydelaytheintroductionofahigh-endproduct.Theanalysisofboth Padmanabhanetal. ( 1997 )and Bhattacharyaetal. ( 2003 )showthatthereversestrategymaybeoptimalinthepresenceofnetworkexternalityandinthefaceoftechnologicalimprovement(astheoptiontointroducethehigh-endproductrstdoesnotexistuntiltechnologyissufcientlyadvanced),respectively. Recently, MallikandChhajed ( 2006 )considerproductintroductionstrategiesofasinglermundervaluationchangesoftheconsumersandcostsavings.Thermfacesamarketconsistingoftwosegmentswithdifferingvaluationsforquality,namelyhighandlowconsumersegments.Atwo-periodmodelisanalyzedwhereamaximumoftwoproductscanbeintroducedineachperiod;onetargetedtothehighsegment,andtheothertargetedforthelowsegment.Unlike MoorthyandPng ( 1992 ),consumersareallowedtomakerepeatpurchasesovertwotimeperiods.Inaddition,themodelaccountsforvaluationchangeovertime;thatis,onceahigh-endproductisintroducedinthemarket,theconsumersdiscountitovertimeasitsvaluediminishesforthem.Forinstance,acellphonewithabuilt-indigitalcameraisconsideredahigh-endproductinitsrstdesigncycle,butloosesitsexclusivityquicklyinitsnextdesigncycle.Finally,thermisallowedtoderivecostsavingsduetolearningeffectinthesecondperiod,themagnitudeofwhichdependsonthesalesvolumeintherstperiod.Inthissetting,theyattempttodetermineunderwhichconditionsthermshouldfollowthestrategyofintroducingthehigh-endproductfollowedbyalow-endproduct(orviceversa),oritshouldexpandorconsolidateitsproductline,andhowthesedecisionschangeundervaluationchangeforconsumers. Theyconsiderveproductintroductionstrategies:(a)StableSingleProductStrategy,wherethermoffersoneproductdesignedforoneandthesameconsumersegmentsinbothperiods;(b)VaryingSingleProductStrategy,wherethermoffersonlyoneproductineachperiod,buttheproductalongwithitstargetconsumersegment 52

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changesfromthersttothesecondperiod;(c)ExpandingProductLineStrategy,wherethermbeginswithasingleproductintherstperiodandexpandstheproductlinetotwoproductsinthesecondperiod;(d)ConsolidatingProductLineStrategy,wheretwoproductsareofferedintherstperiod;and(e)StableProductLineStrategy,wherebothproductsareofferedineachperiod.Intheproposedmodel,thehighsegment(h)valuesqualitylevelqathq,andthelowsegmentvaluesitatlq(withh>l).Themarginalcostofsupplyingtheproductisassumedtobeaquadraticfunctionofquality:cq2,wherec>0.Thevaluationchangeinthesecondperiodismodeledbytwoparameters0< h1and0< l1suchthatifahigh-endproductisintroducedintherstperiod,thenewvaluationsforthehighandlowsegmentinthesecondperiodwillbe hhand ll,respectively.Thecostsavings(orlearningeffect)iscapturedbytheparameter0<1,representingthemaximumfractionalcostsavingsperunit.Therefore,ifbothsegmentsbuytheproductintherstperiod,(1)]TJ /F4 11.955 Tf 12.27 0 Td[()cwillbethecostcoefcientinthesecondperiod. Theformulationofthisproblemiscompletelyinlinewiththatof MoorthyandPng ( 1992 ).Theanalysisofthemodelprovidescannibalizationandprotabilitymeasuresthatgoverntheoptimalproductintroductionstrategyfortherm. MoorthyandPng ( 1992 )concludethatwhenthereisnorepeatpurchase,armshouldalwaysintroduceahigh-endproductbeforealow-endproduct.Theauthorsconcludethatunderrepeatpurchase,thestrategyofintroducingalow-endproductfollowedbyahigh-endproductcanbeoptimalfortherm.Inaddition,theyshowthatintroductionoflow-endproductinbothperiodscanneverbeaoptimalstrategy,whilestableproductlinestrategyofofferingbothproductsineachperiodisthedominantstrategyundernovaluationchange. Morerecently,insteadofbeginningwiththepremisethatofferingaproductlineisoptimalandthenjusttacklingthequestionofpricing, AndersonandDana ( 2009 )attempttoanswerthequestionofwhethertopricediscriminateisalwaysoptimally 53

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protableandcharacterizethenecessaryconditionsforpricediscriminationtobeprotable.Therearenumerousexampleswherearmmaychoosetoofferasingleversionofaproduct,chooseaconstantpriceovertime,orchoosetoserveallconsumersinmarketwithasinglequeue.Inthisline,theyinitiallyconsiderasinglermthatchoosesthepricesandqualitiesoftheproductsitsells-subjecttoanupperboundonquality-facingamarketcomprisedoftwosegments;highandlowvaluationsegments.Then,theyconsideramoregeneralmodelinwhichthereareacontinuumofheterogenousconsumers.Theyidentifythreeconditionsthatdeterminewhenpricediscriminationisprotableornot;namelythemonotonehazardrate,singlecrossingandincreasingpercentagedifferencesconditions.Themonotonehazardrateconditionissolelybasedontheconsumertypedistribution,whilethesinglecrossingpropertyiscompletelyrelatedtoconsumerpreferences.Thethirdconditiondistinguishesitselffromprevioustwoconditionsasitintegratesbothsupplyside(i.e.,rmcosts)anddemandside(i.e.,consumerpreferences)conditions.Accordingtothiscondition,pricediscriminationisprotableifthepercentagechangeinsurplus(i.e.,consumers'totalwillingnesstopay,lesstherm'scosts)associatedwithaproductupgradeisincreasinginconsumers'willingnesstopay. 2.1.1.1Commonalityandproductplatformsinproductlinedesign Theuseofcommonalityorcomponentsharinginthedesignofdifferentiatedproductsprovidesrmsanopportunitytosatisfydiverseconsumerneedswithlessexpensesduetoeconomiesofscaleinprocurement,productionanddistribution.Companieswidelyviewcomponentsharingasawaytohavehighproductvarietyinthemarketplaceandlowvarietyinoperations.Forexample,85%ofthe250newproductsintroducedbySonyduringthe1980ssharedseveralcommoncomponentsand 54

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wereonlydifferentwithrespecttominorfeaturechangesoraesthetics 2 .Ontheotherhand,thecommonuseofparticularcomponents(e.g.,carbodypanels)canincreasesimilarityacrossproductsandresultinlookalikeproductsthatcaninturninuenceconsumers'valuationandchoiceofofferings.Thismayresultinproductcannibalizationduetoproductsimilarity-differingfromthecannibalizationduetothesubstitutioneffect.Thetrade-offinvolvedincomponentsharingthuscomplicatescommonalityorcomponent-sharingdecisionsinproductlinedesign.Eventhoughthistrade-offhasgainedconsiderablevisibilityandresearchattentionlately,justafewresearchersprescriptivelymodeledtheimpactofcomponentsharingonqualityandhowcomponentsharingcanbeeffectivelyusedtosatisfymarketsegmentswithdifferingqualityneeds. KimandChhajed ( 2000 )studythetrade-offbetweenthecost-savingsandlossesduetoreducedproductdifferentiationbymeansofcomponentcommonality.Theyexplicitlyconsidertheimpactsofcommonalityonconsumers'valuationofproductswhenitisusedtodesignproductsindifferentclasses.Theirmodelincorporatestheissuesofcommonalityandsimilaritybyextendingtheeconomicmodelingframeworkdevelopedby MoorthyandPng ( 1992 ).Theyderiveconditionsunderwhichcommonalityhelpsarmtoincreaserevenue,andpointoutwhenthecommondesignstrategyisoptimalcomparedtonon-commonproductdesignstrategy.Besides,theyattempttondouthowproductsimilarityinteractswithcannibalization(duetosubstitutioneffect)andhowtheproductdesignwithcommonalitydiffersfromtheonewithoutcommonality. Theyanalyzearmthatservestwomarketsegmentswithdifferingvaluationsofquality,namelyhighsegmenthandlowsegmentl.Consumers'utilityisalinearfunctionofqualitysothataqualityqprovidesautilityhqtothehighsegmentwithqualityvaluationhandautilitylqtothelowsegmentwithqualityvaluationl(h>l). 2 S.SandersonandM.Uzumeri,ManagingProductFamilies:TheCaseoftheSonyWalkman,ResearchPolicy,September1995 55

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Theyassumethatoverallqualityqisprovidedtoconsumersthroughamodulardesignqm,representingcommonality,andacustomdesignq)]TJ /F6 11.955 Tf 12.89 0 Td[(qmspecictothetypesofconsumer.Theyintroduceavaluationchangefactor,01,duetotheproductsimilarityifcommondesignisused.Itaffectstheperceivedqualityofproductssuchthat(a)commondesignusedinthelow-endproductprovidesavaluationpremiumpforitsbuyersandtheperceivedqualityoflowendproductincreasestoql+pqm,and(b)thehigh-endproductundergoesavaluationdiscountdduetocommonalitysothattheperceivedqualityofhigh-endproductreducestoqh)]TJ /F4 11.955 Tf 12.22 0 Td[(dqm.Onthesupplyside,costofprovidingaunitofqualityincreasesatanincreasingrateasthelevelofqualityincreasesandisgivenbycq2.Whenacommonmodulardesignisusedforthedesignofmultipleproducts,acostsavingofcf(qm)occurs,where0<1isthecostsavingparameterandf(qm)isthecostsavingfunctionthatisnon-decreasinginqm.Therefore,thetotalisgivenbyc(q2)]TJ /F4 11.955 Tf 11.95 0 Td[(f(qm)). Themodelforthecasewhenthermtargetaproductofqualityqlatpricepltothelowsegment,andoneofqualityqhatpricephtothehighsegmentisstatedasfollows: Maximizepl,ph,ql,qh,qmNl)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(pl)]TJ /F6 11.955 Tf 11.95 0 Td[(cq2l+cf(qm)+Nh)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(ph)]TJ /F6 11.955 Tf 11.95 0 Td[(cq2h+cf(qm) (2a)subjecttol(ql+pqm))]TJ /F6 11.955 Tf 11.96 0 Td[(pll(qh)]TJ /F4 11.955 Tf 11.96 0 Td[(dqm))]TJ /F6 11.955 Tf 11.95 0 Td[(ph, (2b)h(qh)]TJ /F4 11.955 Tf 11.96 0 Td[(pqm))]TJ /F6 11.955 Tf 11.96 0 Td[(phh(ql+pqm))]TJ /F6 11.955 Tf 11.95 0 Td[(pl, (2c)l(ql+pqm)pl, (2d)h(qh)]TJ /F4 11.955 Tf 11.96 0 Td[(dqm)ph, (2e)qh0,ql0,qhqm,qlqm,qm0, (2f) whereequations( 2b )and( 2c )aretheself-selectionconstraintsthatareimposedtoensurethateachsegmentwillvoluntarilybuytheproductdesignedforthatsegment,andequations( 2d )and( 2e )aretheparticipationconstraintstoensurethateachsegmentgetsnonnegativesurplusfromthepurchaseoftheproduct. 56

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Theiranalysisshowsthatcomponentcommonalityisprotableonlywhenthetargetsegments'valuationsofqualityarenottoodifferentorwhenthelower-valuationsegmentissubstantial,suchthatthepremiumeffectismorepronouncedthanthediscounteffect.Ifcommonmodulesareusedinbothhigh-endandlow-endproducts,theyreducetheperceiveddifferenceinqualitybetweentheproductsindifferentclassesandadverselyaffecttheprotsifthereishigherexpectationforthedifferenceinqualitybetweentheclasses. Desaietal. ( 2001 )ruleoutsuchdirectvaluationchangesandanalyzealternativeproductdesigncongurationswithcommoncomponentsbyintroducingamodelthatinvestigatesthetrade-offbetweenrevenuelossesresultingfromreducedproductdifferentiationandcostsavingsinducedthroughdesigneffort.Investmentincomponentsharingacrossproductspaysoffintheformoflowermanufacturingcosts.Ontheotherhand,sharingcomponentsreducestherm'sabilitytochargeapremiumforthehigh-endproductduetohighersimilarityofproducts.Inamodelsimilarto Moorthy ( 1984 ),theyconsiderthateachproductconsistsoftwocomponents,eachavailableinabasicandpremiumversion,andoneofthecomponentscanpotentiallybecommonbetweenthetwoproductsorgoasadistinctcomponentineachofthetwoproducts.Foreachcomponent,thermfurtherhastheoptiontoinvestindesignefforttoreducemanufacturingcosts.Inessence,theyanalyzethreedesigncongurations;unique,premium-common,andbasic-common,andderiveconditionsfortheoverallprotabilityofcommonality,andndoutanindexaswelltorankordercomponentsintermsoftheirattractivenessforcommonality. Theproposedmodelisanalyzedintwo-stages.Intherststage,thecomponentqualitiesareassumedtobepredetermined,andtheobjectiveistodeterminewhethertomakeacomponentcommonacrossproducts,andwhethertomakethelow-qualityorthehigh-qualitycomponentcommon.Inthesecondstage,thecomponentqualitiesaredeterminedaswell.Fortwoproducts,theanalysisshowsthatpremium-component 57

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sharingincreasesrevenuesfromthelow-endsegment,comparedtonosharing.Theaveragequalityoftheproductsofferedtothetwosegmentincreases,too.However,sharingpremium-componentmaynotincreaseoverallrevenuesasitdecreasestheperceiveddifferentiationbetweenthetwoproducts.Theyalsondthatcommonalityalwaysleadstocostreductionsandalessattractiveproductlinewithdecreasedrevenues. Asin Desaietal. ( 2001 ), HeeseandSwaminathan ( 2006 )donotincorporatedirectvaluationchangesthatcouldstemfromacommoncomponent.Theydevelopastylizedmodelofasinglermthatdesignsaproductlinewithtwoproductsofferedtoamarketwithtwosegmentsthathavedifferentvaluationsofquality.Thetwoproductsconsistofcomponentsthatcanbecommonoruniquetobothproducts.Thermdeterminesthecomponentqualitylevels,andwhethertousecommonordifferentcomponentsforthetwoproducts.Foreachcomponent,themanufacturercanreducethecostofproductionbyexertingacertainamountofeffort.Whiletheirmodelandresearchfocusissimilarto Desaietal. ( 2001 ),theirmodelingapproachfundamentallydiffersinhowtherelationbetweeneffortandproductioncostsismodeled. Desaietal. ( 2001 )useanadditivemodelandtherebyimplicitlyassumethatthemarginalcostofqualityisindependentofeffort.Ontheotherhand, HeeseandSwaminathan ( 2006 )useamoregeneralfunction(includesboththegeneraladditivemodelandgeneralmultiplicativemodel)thatexplicitlycapturespotentialinteractions.Byexplicitlyconsideringpotentialinterdependenciesbetweencostreductioneffortandqualitydecisions,theyquestiontheparadigmthatcomponentcommonalitycansubstantiallylowerthecostsofproliferatedproductlines,butatthecostofreducingproductdifferentiationandlowerrevenues.Furthermore,theycharacterizeenvironmentswheretheoptimalproductlineinvolvingcomponentcommonalityfeaturesproductsofhigherqualityandyieldshigherrevenues,andidentifywhichcomponentsarethebestcandidatesforcommonality. 58

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Thendingsofthisstudycontraststronglywiththeresultsin Desaietal. ( 2001 ).Contrarytotheconventionalparadigmthatthelossofproductdifferentiationundercommonalityalwaysleadstolessattractiveproductlines,itisshownthatcommoncomponentsmightindeedleadtoamoreattractiveproductlineandyieldhigherrevenuescomparedtoaproductlineofdifferentvariants.Thecomponentsthatareattributedtoahigherimportancebyconsumersrelativetotheirproductioncostarepreferredforcommonality.Theyalsoshowthatdisregardinginterdependenciesbetweenquality,effortdecisionsandproductioncostcanleadmanufacturerstoofferproductlineswithexcessivedifferentiationandaveragequalityfarbelowtheoptimallevel. Intheirquesttomanagetheincreasingcostsattributedtoofferinggreaterproductvarieties,rmsinmanyindustriesarealsoinvestinginplatform-basedproductdevelopmentthatenhancescomponentsharingandsoleveragesinvestmentsinproductdesign. RobertsonandUlrich ( 1998 )deneaproductplatformbroadlyasacollectionofintellectualandmaterialassets(i.e.,components,processes,knowledge,andpeopleandrelationships)thataresharedacrossasetofproducts.Aproductplatformposesseveralopportunitiesfortherms:(a)ithelpstotailortheproductstothespecicneedsofdifferentmarketsegmentsorconsumersbecauseitreducestheadditionalcostofaddressingthoseneeds,(b)itreducesxedcostofproductdevelopmentbecausemachinery,equipmentandproductiontimecanbesharedacrosshighervolumesofproduction,(c)thelowerinvestmentoneachproductdevelopedfromaplatformimpliesdecreasedriskforeachnewproduct,(d)itallowsrmstoachieveeconomiesofscalebecausetheycanproducelargervolumesofcommonparts,and(e)ithelpsrmsreduceproductdevelopmenttime,sincepartsand/orprocessesdevelopedforoneproducttypedonothavetobedevelopedandtestedfortheothers. MeyerandLehnerd ( 1997 )describeplatform-basedproductdevelopmentstrategyasawaytomapplatformsontodifferingmarketsegments.Atthispoint,thermsdevelopingdifferentiatedproductsbasedonaplatformmustmeettheneedsofdiversemarket 59

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segmentswhilesharingpartsandproductionstepsacrosstheproducts.Thexedcostsofinvestmentindevelopingplatformsshouldalsobeaccountedbytherms. Inoneofthefewattemptstoweighcostsagainstbenetsindecidingonplatformstrategy, KrishnanandGupta ( 2001 )developastylizedmodeltoderiveinsightsabouttheappropriatenessandimpactofplatformsonproductlinedesigndecisions.Theyclaimthatplatformstrategymaystronglyimpactthedesignofproductsofferedinamarketwithdiverseconsumers,aswellastheorderofproductintroductionswhenrmsandconsumersareimpatient.Toaddresstheseissues,theyinitiallyillustratethecostsandbenetsofplatformsusinganindustrialexample,andthenpresentanapplication-drivenmathematicalmodel.Theirmodelincorporatesover-designcostsassociatedwithusingastandardplatformoverproductswithdifferingperformancerequirements,andintegrationbenetsofplatforms(i.e.,cost-efcientdesignsstemmingfromtheeffortspentindesigningtheplatform).Theyconsideraprot-maximizingrmthatdevelopsatechnology-basedproductinthefaceoftwoconsumersegments-highandlowsegments-differingintheirwillingnesstopayforanygivenqualitylevel.Platform-basedproductdesigndoesappeartobeprotableastheintegrationbenetsfromplatformsincreaseandover-designcostsofplatformsdecrease.Ontheotherhand,platformsturnouttobenotappropriateinthepresenceoftoolow/highmarketdiversityorsignicanteconomiesofscale.Theytendtoincreasetheoptimalqualitylevelofthehigh-endproduct(owingtotheintegrationbenetswithoutanyover-designcosts)andover-designoflow-endproducts.Moreimportantly,aplatformincreasestheseparationamongproductsandoffersamultitudeofproductintroductionstrategies. Treatmentofplatformsintheextantliteratureismostlyataconceptuallevelandfocusesmoreonthebenetsthanthecostsoftheplatforms.Thistrade-offistakenintoaccountby KrishnanandGupta ( 2001 ),yettheprimaryfocusoftheirproposedmodelisonmanagerialinsightsratherthanimplementation.Apparentlythereareimportantissues(e.g.,competition,demand-andsupply-sideuncertainties)thathavetobe 60

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factoredintodecisionmakingaboutaplatform-basedproductfamily,andsothecriticallinkbetweenplatformsandproductlinedesignmeritsfurtherresearchattention. 2.1.1.2Productlinedesignindistributionchannels Indeterminingaproductlinedesign,amanufacturerusuallydoesnothavethecontrolovertheultimatetargetingoftheproductswithinthelinetothedifferentconsumersegmentsinthemarketplace.Inmanyindustries,theydependonretailstorestoselltheirproductstoendconsumers,andsoproductlinedesigndecisionisindeedmadebyaretailstoresuchthatitevaluatestheproductssuppliedbythemanufacturerandtheirintermediateprices,andthendecidesonwhichproductstodisplay,aswellasthetargetconsumersegments.Atthispoint,themanufacturershouldaccountfortheretailer'sstrategyinawaysothattheretaileriswillingtocarryalltheproductsinthelineandtargeteachonetotheconsumersegmentdesignatedbythemanufacturer.Forinstance,themanufacturercannarrowdownthenumberofproductsavailabletotheretailertolimitretailer'sdiscretion,oralternativelyitcanincreasethedifferentiationamongtheproductsofferedtotheretailer. Relatedtothispoint, Villas-Boas ( 1998 )studiestheproductlinedesignprobleminatwo-stagedistributionchannel(anupstreammanufacturerandadownstreamretailer),andattemptstondoutthemainissuesamanufacturersellingthroughadistributionchannelhastotakeintoaccountwhendesigningaproductline.Inhismodel,themanufacturerdecideshowmanyproductstohaveinthelineaswellasthequalitylevelofeachproduct.Eachproductcanbetargetedatadifferentmarketsegment,ornot.Besides,themanufacturerdecideshowmanymarketsegmentstotrytotargetandthepricestochargetheretailerforeachproducttype.Giventheproductlinebeingofferedbythemanufacturer,theretailerdecideswhichproductstocarry,themarketsegmentsthataregoingtobetargeted,whichproducttotargettoeachsegment,andthepricesbeingchargedtheconsumersforeachproduct.Inthispaper,theconsumermarketiscomposedoftwomarketsegmentswithvaryingwillingnesstopayforquality. 61

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Itisshownthatthebeststrategyforthemanufacturer,ifpossible,istoincreasethedifferencesamongthedifferentproductsbeingoffered(incomparisontothedirectselling/coordinatedchannelcase).Ifthemanufacturerisnotabletoincreasethesedifferences,thenitselectstopricetheproductlinesuchthatlow-endconsumersegmentendsupnotbeingservedanditconcentratesonthehigh-endsegment. NetessineandTaylor ( 2007 )analyzetheimpactofproductiontechnologyontheproductlinedesignforarmbycombiningtheproductlinedesignproblemproposedby Moorthy ( 1984 )withtheclassicaleconomicorderquantity(EOQ)model.Thermsegmentsthemarketonqualityattributesandoffersproductsthatarepartialsubstitutes.Consumerscanself-selectfromtheproductline,andsoproductcannibalizationisanissue.Inaddition,thermsetsaproductionscheduleinordertobalancethexedcostofproductionsetupswithaccumulationofinventoriesinthepresenceofeconomiesofscale.Secondly,theyanalyzetheimpactofinformationinthepresenceofproductiontechnologybycomparingtwosettings:fullinformationcaseandasymmetricinformationcase. Onthedemandside,consumersbelongtooneofthetwosegments.Consumersoftypet=h,lhavevaluationtqfortheproduct,whereqdenotesproductqualityandh>l.Eachconsumer'sutilityfromtheproductistq)]TJ /F6 11.955 Tf 12.63 0 Td[(p,wherepistheproduct'sprice.Consumersoftypetexogenouslyarriveatadeterministicrateoftperunittime,andeachconsumerdecideswhichproducttopurchase(ifany)basedonhis/herderivedutilityuponarrival.Onthesupplyside,theproductioncostsaremodeledexplicitlyusingtheEOQmodel.Theper-unitproductioncostofaproductisaquadraticfunctionofitsqualityq:cq2,wherec>0.EachmanufacturedproductisinstantlyproducedtostockinbatchesofsizeQ,andthermincursxedsetupcostF0foreachbatch.Eachunitofinventoryincursaholdingcostthatisproportionaltotheproduct'scosticq2;i0.Here,fc,i,Fgcharacterizetheproductiontechnology.Whenthermsellsoneproducttoeachsegment,therm'sproductlinedesignandproductionschedulingproblemunderthe 62

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asymmetricinformationcaseisasfollows: Maximizeql,qh,Ql,Qh,pl,ph=Xt=h,l(pt)]TJ /F6 11.955 Tf 11.96 0 Td[(cq2t)t)]TJ /F4 11.955 Tf 13.15 8.09 Td[(tF Qt)]TJ /F6 11.955 Tf 13.15 8.09 Td[(icq2tQt 2 (2a)subjecttolql)]TJ /F6 11.955 Tf 11.96 0 Td[(pl0 (2b)hqh)]TJ /F6 11.955 Tf 11.96 0 Td[(ph0 (2c)lql)]TJ /F6 11.955 Tf 11.96 0 Td[(pllqh)]TJ /F6 11.955 Tf 11.96 0 Td[(ph (2d)hqh)]TJ /F6 11.955 Tf 11.96 0 Td[(phhql)]TJ /F6 11.955 Tf 11.95 0 Td[(pl (2e) Thelasttwoconstraintsaredroppedunderthefullinformationcase,sincethermknowsthepreferencesofindividualconsumers,cansegmenttheconsumersperfectly,andthecannibalizationproblemdoesnotarise. Itisfoundthatmoreexpensiveproductiontechnology(inthesenseofhigherrelevantcostparameters)canleadtoaproductlineofhigherqualityproductsatlowerprices.Whenproductioncostsarelargeenough,thermcapitalizesonofferingfewerproductseitherbyofferingacompositeproducttargetedtobothsegments(whensegmentsareclosetoeachother),orbyservingonlythehigh-qualitysegmentwithahigh-qualityproduct(whensegmentsarefarapart).Itisalsodemonstratedthatthecannibalizationmaydistortproductqualityupwardorthenumberofproductsupwardinthepresenceofproductiontechnology,whichiscontrarytoresultofstandardmodelomittingthedemandsideorsupplysideoftheequation. Xu ( 2009 )extendstheworkof Villas-Boas ( 1998 )byusingageneraldemandfunctionandfocusingonthejointprice-qualitydecisionsofasingleproductintwodistributionchannelstructures:themanufacturersellstheproductdirectlytoconsumersorthemanufacturersellstheproductthrougharetailer.Inthismodel,themanufacturerjointlydeterminesthewholesalepriceandqualityoftheproduct,andthentheretailerdeterminestheretailprice.TheutilityaconsumerderivesfromthepurchaseofaproductisrepresentedbythefunctionU(p,q)=$(q))]TJ /F4 11.955 Tf 12.23 0 Td[((q)p+,whereprepresents 63

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theproductprice,qtheproductquality,$(q)theobservableutilityvalueoftheproduct,(q)thepricesensitivity,andtheconsumerheterogeneity.Theanalysisshowsthatifthemarginalrevenuefunctionis:(a)strictlyconcave,thenthemanufacturerchoosesproductqualitylevelthatislowerthanifsellingtheproductdirectlytocustomers;(b)afne,thenthemanufacturer'soptimalproductqualitydecisiondoesnotdependonthetypeofdistributionchannel;and(c)strictlyconvex,thenthemanufacturerchoosesahigherproductqualitylevelthanifsellingtheproductdirectlytocustomers. TangandYin ( 2010 )considerarmthathastoselectverticallydifferentiatedproductstosellaswellasthesellingpriceandproductionquantityofeachselectedproduct.Thermhastwosubstitutableproductsintheconsiderationset,whereproduct2hasahigherqualityandreservationpricethanthatofproduct1.Tocapturethefactthatproduct2ispreferredtoproduct1inahomogenousmarket,theyassumethatV2='V1,whereVi(distributeduniformlyover[0,1])isthereservationpriceofeachconsumerforproducti(i=1,2)and'>1isaconstant.GiventhemarketsizeNandthemarketshareofproducti,MSi=ProbfVipig,thedemandforproductiisMSiN.Byincorporatingthecannibalizationeffectthatdependsonthesellingpriceofeachproduct(e.g.,product1oflowerqualitycancannibalizethesalesofproduct2ifitssellingpriceissufcientlylow),theyevaluatetheprotfunctionassociatedwiththreedifferentproductlinedesigns:sellbothproductsoronlyoneofthe2products.Additionally,themodelisextendedtoincorporatetwoadditionalissues:productioncapacityandpricecompetition.Theyndthattheunitproductioncostsandproductioncapacitycanbepartitionedintodifferentregions,eachofwhichhasacorrespondingoptimalproductlineselection. Huaetal. ( 2011 )investigatestheproductdesignprobleminatwo-stagedistributionchannelthatconsistsofanupstreammanufacturerandadownstreamretailer.Inadistributionchannel,theultimatetargetingofproductsinthelinetodifferentmarketsegmentsiscontrolledbytheretailer,andsointeractionsbetweenthemanufacturer 64

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andtheretailer,andbetweentheretailerandconsumersarecriticalinchoosingthebestproductdesignstrategyinadistributionchannel.Consumersareclassiedintotwomarketsegments(i.e.,highsegmenthandlowsegmentl)accordingtotheirvaluationsofquality.Ineachsegment,consumersmaketheirbuyingdecisionssoastomaximizetheirutility.Foreachofthetwopotentialmarketsegments,themanufacturerneedstodecideifitisbenecialtodesignaproductwithappropriatequalityleveltomeetthedemandofconsumersineachmarketsegment.Ithasfourpossibleproductdesignoptions:(a)designtwoproductsforthecorrespondingtwomarkets,(b)designjustoneproductcateringtoonlyoneofthetwomarketsegments,andnotservingtheothersegment,or(c)designnoproduct.Inthisframework,theyinitiallyanalyzetheoptimalproductdesignstrategywhentheretailerandthemanufacturerdonotcooperate,andsecondlyapplytherevenue-sharingcontracttotheproductdesignproblemtocoordinatethedistributionchannel. Onthemarketside,hsegmentconsumershaveahighermarginalvaluationhperunitqualitythanthatoflsegmentconsumersl,withhl>0.Giventhattheretailersellstheproductj(j=h,l)atpricepj,themarketdemandinsegmenti,Di(i=h,l)isdescribedasalinearfunctionofpjsothatDi=Ni)]TJ /F4 11.955 Tf 12.96 0 Td[(ipj,whereNi>0,00.Whenthemanufacturersellsproductjtotheretaileratpricewj,theprotsofthemanufacturer(m)andtheretailer(r)fromtwoproducts(onetargetedtohsegmentandothertargetedtolsegment)undernon-cooperativescenarioareasfollows: m=(wh)]TJ /F6 11.955 Tf 11.96 0 Td[(chq2h)(Nh)]TJ /F4 11.955 Tf 11.95 0 Td[(hph)+(wl)]TJ /F6 11.955 Tf 11.95 0 Td[(clq2l)(Nl)]TJ /F4 11.955 Tf 11.95 0 Td[(lpl)r=(ph)]TJ /F6 11.955 Tf 11.95 0 Td[(chq2h)(Nh)]TJ /F4 11.955 Tf 11.96 0 Td[(hph)+(pl)]TJ /F6 11.955 Tf 11.96 0 Td[(clq2l)(Nl)]TJ /F4 11.955 Tf 11.96 0 Td[(lpl)(2) 65

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Regardingthecoordinationscenario,theauthorsintroducethenotionofrevenue-sharingcontract,wherethemanufacturerchargeslowwholesalepricetotheretailerandsharesafraction1)]TJ /F4 11.955 Tf 12.02 0 Td[((01)ofrevenuegeneratedbytheretailer.Inthissetting,theprotfunctionsofthemanufacturerandretailergetsthefollowingform: m=((1)]TJ /F4 11.955 Tf 11.95 0 Td[()ph+wh)]TJ /F6 11.955 Tf 11.96 0 Td[(chq2h)(Nh)]TJ /F4 11.955 Tf 11.95 0 Td[(hph)+((1)]TJ /F4 11.955 Tf 11.96 0 Td[()pl+wl)]TJ /F6 11.955 Tf 11.95 0 Td[(clq2l)(Nl)]TJ /F4 11.955 Tf 11.95 0 Td[(lpl) r=(ph)]TJ /F6 11.955 Tf 11.96 0 Td[(chq2h)(Nh)]TJ /F4 11.955 Tf 11.95 0 Td[(hph)+(pl)]TJ /F6 11.955 Tf 11.96 0 Td[(clq2l)(Nl)]TJ /F4 11.955 Tf 11.96 0 Td[(lpl)(2) Theanalysisrevealsoutthattherevenue-sharingcontractcanperfectlycoordinatethedistributionchannelintheproductlinedesignproblemthroughreducingthedifferenceofconsumers'utilityindifferentmarketsegments,andsotheperformanceofthesupplychaincanbesignicantlyimproved.Besides,theapplicationoftherevenue-sharingcontracttotheproductdesignproblemresultsinasimilarstructureofthescenarioofnon-coordination. 2.1.2ProductDesignwithMultipleAttributes Inthemodelshighlightedsofar,aproductischaracterizedbyasinglequality-typeattribute,andconsumers'willingnesstopay(partworth)ismeasuredwiththissingleattribute.Asingle-attributeanalysisisoftenusefulincasesinwhichthereexistsamajorattributealongwhichproductdifferentiationmostlyoccurs,orwhereconsumersexhibitsimilarpreferencesfordifferentattributessothattheattributescanbeaggregated.However,inmanycasesinpractice,productsareusuallydesignatedwithmultipleattributesforwhichcustomersmayexhibitheterogeneouspreferences.Ithasnotbeenclearwhethertheinsightsfromthesingle-attributeanalysisarestillvalidinsuchsituations.Inordertollthisgapinliterature,certainpapers(see,forexample, KohliandSukumar ( 1990 ), DobsonandKalish ( 1993 ), Nairetal. ( 1995 ), RamanandChhajed ( 1995 ),amongothers)haveexplicitlyconsideredmultipleattributesinproductlinedesignproblems.However,inthesestudies,theproblemsareformulatedasadiscrete 66

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optimizationmodelandthefocusisonndingtheoptimal/heuristicsolutions,ratherthanofferingmanagerialinsights. Aninterestingstudyinthiscategoryisprovidedby Chen ( 2001 )whodevelopsautilitymodelwithtwoquality-typeattributesonthebasisoftheself-selectionmodelsintroducedby Moorthy ( 1984 )and MoorthyandPng ( 1992 ).Heanalyzesarm'sstrategicdecisionsandpolicyissuesregardingthedesignofaproductlineinaverticallydifferentiatedmarket.Thermintendstosupplyallitsconsumersinthemarketwitheitherasingleproducttypeortwoproducttypes.Itshouldadoptaprotableproductstrategythatspeciesthenumberofproducttypestobedeveloped,aswellastheirqualitiesandpricesbeforeanysalestakeplace.Asmentionedabove,aproductischaracterizedbytwoquality-typeattributes,namelytraditionalandenvironmentalattributes,overwhichconsumerscanexpressquantiablepreferences.Improvementsintraditionalandenvironmentalqualities(i.e.,qtandqe)areoftencoupledandtradedoffindesign.Forinstance,safetyratingandfueleconomyofavehicleusuallyconictwitheachother.Thecompetingnatureofthesetwoqualitiesisincorporatedintothemodelwithconstraintqt+qe=1.Thisdistinguisheshispaperfromthoseof Moorthy ( 1984 )and MoorthyandPng ( 1992 )whodonottakeintoaccounttheinteractionsofconictingproductqualitiesandattributes.Onthedemandside,thetargetconsumermarketisdividedintotwohomogenoussegments:ordinarysegmentandgreensegment.Ordinarysegmentconsumersvalueaunitofaproduct(qt,qe)attqt,wheretisthemarginalvaluationonthetraditionalquality.Ontheotherhand,consumersingreensegmentderiveadditionalutilityfromenvironmentalattributeandsovalueaunitofaproduct(qt,qe)attqt+eqe,whereeisthemarginalvaluationontheenvironmentalquality.Onthesupplyside,thecostofsupplyingaproductisassumedtobeaquadraticfunctionofitstwoqualitiessothatitisctq2t+ceq2e,wherect,ce>0.HealsointroducesaxedcostFforR&Dandotherrelevantexpensesfordevelopinganyproducttype. 67

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Hefocusesontwoproductintroductionstrategies:massmarketingandmarketsegmentationwithself-selection.Massmarketingstrategyischaracterizedbytheintroductionofasingleproductthatservesbothsegments,whilethestrategyinmarketsegmentationistointroduceagreenproducttargetedtogreensegment,alongwithatraditionalproducttargetedtoordinarysegment.Undermassmarketingstrategy,itturnsoutthatthermadoptsawait-and-seepolicyandignoregreenconsumers'preferencesforenvironmentallyfriendlyproducts.Undermarketsegmentationstrategy,thermoffersagreenproducttothegreensegmentwiththesegment'spreferredqualities.Furthermore,heshowsthatnumberofgreenconsumersandtheirvaluationofenvironmentalqualitydrivesgreenproductdevelopment,whilenumberofordinaryconsumersandxedcostidentifyobstacles.Regardingthetotalenvironmentalqualitysuppliedinallproducts,comparisonoftwostrategiesindicatethatoverallenvironmentalqualityisnotimprovedasaresultofgreenproductdevelopment.Healsoanalyzestheeffectsofenvironmentalstandardsontheenvironmentalconsequencesofgreenproductdevelopment,andshowsthatstricterenvironmentalstandardsdonotnecessarilyimproveoverallenvironmentalquality. Likewise, KimandChhajed ( 2002 )extendtheworksof MussaandRosen ( 1978 )and Moorthy ( 1984 )thatconsiderasinglequality-typeattributetoamodelwithabundleofqualityattributes,andstudythedevelopmentofaproductlineconsistingofverticallydifferentiatedproductstoserveamarketwithtwoconsumersegments.Consumersinasegmentarehomogenousintheirpartworthforattributes.TheproductsarecharacterizedbyabundleofKquality-typeattributes,forwhichconsumersmayexhibitdifferentorderofpreference.Designingaproductinvolvessettingthelevelofeachattribute;thelevelofattributekofferedinproductjisdenotedbyqjk,wherej=1,2andk=1,...,K.Onthedemandside,aconsumer'soverallutilityfromaproductisassumedtobethesumoftheindividualpartworthsfromdifferentattributes.Then,theutilitytosegmentifromproductjisgivenasPkikqjk,whereikisthesegmenti'spartworth 68

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forattributek.Onthesupplyside,theyassumethattheper-unitmanufacturingcostofaproductisaquadraticfunctionofthelevelofattributesintheproduct,andisgivenasPkckq2jk.Theproductsareconsideredtobedifferentiatedverticallyifoneproductisbetterthantheotherwithrespecttoallattributes. Intheirarticle,themulti-attributemodelwithtwoconsumersegmentsiswrittenasfollows: Maximizep1,p2,q1k,q2kN1 p1)]TJ /F7 7.97 Tf 17.13 14.95 Td[(KXk=1ckq21k!+N2 p2)]TJ /F7 7.97 Tf 17.13 14.95 Td[(KXk=1ckq22k! (2a)subjecttoXk1kq1k)]TJ /F6 11.955 Tf 11.95 0 Td[(p11kq2k)]TJ /F6 11.955 Tf 11.95 0 Td[(p2 (2b)Xk2kq2k)]TJ /F6 11.955 Tf 11.95 0 Td[(p22kq1k)]TJ /F6 11.955 Tf 11.95 0 Td[(p1 (2c)1kq1kp1 (2d)2kq2k)]TJ /F6 11.955 Tf 11.96 0 Td[(p2 (2e)q1k0,q2k0,8k (2f) Theobjectivefunctionistherm'sprot,whereNirepresentsthesizeofsegmentiandpjdenotesthepriceofproductj(j=1,2,)offeredtosegmenti.Equations( 2b )and( 2c )areself-selectionconstraints,imposedtoensurethatconsumerspurchasetheproductaimedattheirownsegment.Equations( 2d )and( 2e )areparticipationconstraintsthatensurethateachsegmentgetsnonnegativesurplusfrompurchasingtheproduct.Theauthorsconcentrateonparticipationconstraintstoobtainaprice-qualityschedule,andanalyzethreecases;Case1wherebothsegmentsgetzerosurplus,Case2wheretherstsegmentgetspositivesurplusbutthesecondsegmentgetszerosurplus,andCase3wherethesecondsegmentgetspositivesurplusbuttherstsegmentgetszerosurplus. Theanalysisofthemodelindicatesthattheresultsfromaone-dimensionalmodelextendforthemostpartwhenthereisastrictverticaldifferentiation.Asingle-product 69

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offeringstrategyisneveroptimalwhentheordersofpreferenceonproductattributesbetweencustomersaredifferent.Furthermore,whenabundleofattributeswithnon-crossingpreferencefunctionisconsidered,supplyingsociallyefcientproductsisimplementable,andthisispossiblebecausethermcanmakeuseofthemultidimensionalaspectofconsumerpreferencetoavoidcannibalizationwithinaproductline.Theseresults,however,arelimitedinthatonlytwoconsumersegmentsareconsidered,andsoithasnotbeenclearwhethertheresultsarestillimplementablewhenmorethantwosegmentsaretakenintoaccount,andifimplementable,underwhatconditions.Toaddressthisissue, ChhajedandKim ( 2004 )consideraproductlinedesignproblemwithmultipleattributesforarmwhoservesmultipleconsumersegments,andshowthattheresultsdoholdonlyifthepart-worthbetweensegmentsissufcientlyseparated. Inlinewiththemulti-attributemodelsof Chen ( 2001 )and KimandChhajed ( 2002 ), KrishnanandZhu ( 2006 )consideraprot-maximizingrmfacingaheterogenousmarketofverticallydifferentiatedconsumersbutfocusonthedesignofdevelopment-intensiveproducts(DIPs).ThexedcostsofdevelopmentofDIPsfaroutweightheirunit-variablecosts,andtheauthorsattempttoanalyzewhetherthemanagerialinsightsfromthetraditionalapproachtoproduct-linedesigndevelopedforunit-variablecost-intensiveproductscarryovertoDIPs.Theyconsideramarketcomprisedoftwosegments,handl,whereconsumersdifferintheirwillingnesstopay(WTP)forquality.Tocovertwomarketsegments,thermcaneitherpositionandpriceadedicatedproductforeachsegment,inwhichconsumersself-selectfromthesetwoproducts,orofferasingleproduct. Aproductischaracterizedbytwoquality-typeattributes,indexedwithsubscripts1and2.Onthesupplyside,thecouplingbetweenthequalitydimensionsismodeledbyasupermodularcostfunction:thecosttoprovideproductAwithqualityqA(qA1,qA2)isC(qA1,qA2)=c1q2A1+c2q2A2+2dqA1qA2,whered(0d


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bealinearfunctionofquality.Additionally,saturationquality(i.e.,qualitybeyondwhichconsumers'WTPtapersoff)andreservationquality(i.e.,qualitybeyondwhichconsumerswouldnotevenconsiderbuyingtheproduct)areintroducedasconstraints.ThecumulativeWTPofconsumertypetforproductAwithqualityqA(qA1,qA2)isdenotedbyUt(qA1,qA2),andisafunctionofconsumert'sreservationqualitiesintwodimensions(qRt1andqRt2),saturationqualitiesintwodimensions(qSt1andqSt2),andmarginalWTPforqualityintwodimensions(t1andt2),asfollows: Ut(qA1,qA2)=8>>>>>>><>>>>>>>:0if9qAi
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Recently, Wu ( 2010 )studiesarmthatdesignsandproducesasingleproductwithtwoqualitydimensions,designqualityandconformancequality,toserveendconsumerswithdiversewillingnesstopay.Inordertosatisfyconsumers,qualityhastobehighonbothdimensions.Byintegratingthesetwoqualitydimensions,thispaperstrivestoinvestigatetheinterrelationshipsbetweendesignquality,conformancequality,priceandmarketdemandwhenoverallprotismaximized.Theproposedmodelconsistsoftwomaincomponents:costcomponentsthatarejointlydeterminedbydesignqualityandconformancequality,andtherevenuecomponentthatisdecidedbythepriceoftheproductandconsumerdemand.Asin MussaandRosen ( 1978 )and Moorthy ( 1984 ),autility-basedconsumerchoicemodelisusedthatassumesthattheconsumerswillpurchasetheproductonlyifitoffersnon-negativeconsumersurplus.Itisshownthattheoptimaldesignquality,conformancequalityandpricedecisionsarepositivelyinterrelated.Whenoptimalconformancequalitydecreases(increases),theoptimaldesignqualitydecreases(increases)inordertomaximizetheoverallprots,orviceversa.Besides,whendesignqualityorconformancequalitydeclines,theoptimalsellingpriceoftheproductalsodecreases. 2.2ProductLineDesigninBothVerticallyandHorizontallyDifferentiatedMarkets Thetheoryofproductdifferentiationbeginswiththehorizontaldifferentiationmodelof Hotelling ( 1929 ).Inhismodel,consumerutilitydecreaseswiththepriceandthedistancebetweentheidealfeaturedesiredbytheconsumerandtheproductfeatureoffered.Thepurposehereistooptimallypositionaproductormultipleproductsinmulti-attributespacewhereeachconsumerhasanidealpointandchoosestheproductwiththesmallestEuclideandistancefromthispoint.Theresearchpapershighlightedsofardonotsaymuchabouthorizontaldifferentiationastheyfocusonmarketstructuremodelswithonlyverticaldifferentiationinconsumerpreferences.Ontheotherhand, CremerandThisse ( 1991 )showthatthereexistsarelationshipbetweenthesetwo 72

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familiesofproductdifferentiation:theclassofHotelling-typemodelsofhorizontaldifferentiation,andmodelsofverticaldifferentiation.Specically,theyndthattheHotellingtype-modelisaspecialcaseofaverticalproductdifferentiationmodel.Itisworthytonotethattherearecertainresearchpapersinproductlinedesignliteraturethathavecombinedbothtypesofdifferentiation. Desai ( 2001 )addressesthequestionofwhethercannibalizationaffectsarm'spriceandqualitydecisionswhenconsumermarketischaracterizedbybothquality(vertical)andtaste(horizontal)differentiation.Themarkethereconsistsoftwoconsumersegments,ahigh-valuationsegmentandalow-valuationsegment,thatdifferintheirwillingnesstopayforanygivenqualitylevel,andtastedifferencesamongconsumersineachsegmentarerepresentedbyalinearmarketasin Hotelling ( 1929 ).Thetastedifferencesrefertotheproductattributesforwhichallconsumersarenotinagreement.Theidealproductpreferenceofeachconsumerisrepresentedbyhislocationontheline,andthestrengthoftastepreferencesistakenintoaccountbythetransportationcost.Thermhastwooptions:leavingoutsomeconsumersinbothmarkets(i.e.,incompletemarketcoverage),andcoveringbothmarketscompletely(i.e.,fullcoverageofbothmarketsegments). Theanalysisshowsthatthestandardself-selectionresultsderivedby Moorthy ( 1984 )doholdwhenbothsegmentsarefullycovered.However,undertheincompletemarketcoveragecase,therm'spriceandqualitychoicesarenotnecessarilydeterminedbythecannibalizationproblem.Thermisbetteroffprovidingeachsegmentwithitspreferredqualitydependingontwofactors;(a)thetrade-offbetweenqualityandtastepreferencesinconsumers'utilityfunction,and(b)thedifferencesintransportationcostsandqualityvaluationsoftwosegments. Weber ( 2008 )developsatwo-stageproductlinedesignmodelforaprotmaximizingrmthatchoosesatwo-productportfoliosequentially,whenproductscandifferwithrespecttobothverticalandhorizontalattributes.Intherststage,thermpositions 73

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itshigh-qualityagshipproductinamarketwithanimperfectlyknowndistributionoftastesandreservationprices.Inthesecondstage,theuncertaintyovertheconsumercharacteristicsisresolvedandthermhastheoptionofextendingitsproductlinewithaversionedproductbydifferentiatingtheagshipproductusingpurehorizontaldifferentiation,qualitydegrading,orboth.Thatmeanstheagshipproductcreatesanoptionvaluetothermofdelayingproductdifferentiationtoreduceitscommitmenttoaparticularproductportfolio.Inthismodel,allconsumersareinitiallyendowedwithabudgetandpersonaltaste,andeachconsumerofacertaintypehasutilitythatisafunctionofprice,productqualityanddistanceofthehorizontalproductattributefromone'sowntaste.Eachproductofferingstargetsasegmentoftheconsumermarket,andconsumerscanself-selectbychoosingtheproductthatmaximizestheirrespectiveutilities.Onthesupplyside,themarginalcostoftheproductsisassumedtobenegligibleandthecostofcreatingtheagshipproductisassumedtobealinearfunctionofquality. Theanalysisindicatesthatevenwhenarmisabletoextenditsproductlineinthesecondperiodbydifferentiatingthehorizontalandverticalattributesofahigh-endproduct,itisnotoptimaltodifferentiatewithrespecttobothatthesametime.Extendingtheproductlinethroughhorizontaldifferentiationisoptimalforhighcostsofquality(developmentcosts);otherwisepureverticaldifferentiationissuperior.Ontheotherhand,forunexpectedlyhighrealizationsofdemand,thermisbetteroffdifferentiatingitshigh-endproducthorizontally.Forlowdemandrealizations,verticaldifferentiationturnsouttobesuperior,inwhichcaseaproductofdegradedqualityisaddedtotheportfolio. Inlikevein, Lacourbeetal. ( 2009 )studiesproductlinedesignproblemforaprot-maximizingrminamarketspacewithtwodimensions.Thetwodimensionsreectconsumerpreferencesabouttheproductattributes:consumersareverticallyheterogeneousintheirvaluationofproductperformance,whiletheyexhibithorizontal 74

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differentiationfortheiridealfeaturetaste.Thermincursaxeddesigncostandper-unitvariablemanufacturingcost,bothofwhicharequadraticfunctionsofthequalitylevelandindependentofthefeature.Theauthorsintenttostudytheoptimalproductportfoliocompositionaddressingendogenouslyformedconsumersegments,andtodeterminethenumberofproductstobeintroduced,aswellastheprice,qualitylevel,andfeaturedesignforeach. Aproduct'sdesignattributesarerepresentedbytwodistinctdimensions:theperformancequalityq(verticaldimension),andthedesignfeaturef(horizontaldimension).Onthedemandside,eachconsumerischaracterizedbyhisincrementalvalue2[0,1]foranadditionalunitofperformancequality,andhasanidealfeature2[0,1]andsuffersaquadraticutilityloss()]TJ /F6 11.955 Tf 13.24 0 Td[(f)2whentheproductdeviatesfromtheidealfeature.Inthisline,theconsumermarketspaceisdenotedbythesetM=f(,):2[0,1],2[0,1]g.TheconsumerwithpreferenceandvaluationderivesautilityU(p,q,f;,)=q)]TJ /F6 11.955 Tf 12.01 0 Td[(e()]TJ /F6 11.955 Tf 12 0 Td[(f)2)]TJ /F6 11.955 Tf 12.01 0 Td[(pfrompurchasingtheproduct(p,q,f).Onthesupplyside,designingaproductofqualityqandproducingQunitsofitcostsC(Q,f)=Qc1q2+c2q2,meaningthatfeaturedesigniscostneutral.Therefore,theobjectivefunctionoftheprot-maximizingrmiswrittenasfollows: Maximize(n,ffj,pj,qjg,j=1,...,n) (2a)=MaxXj=1,...,n Z(,)2(pj,fj,qj)Z(pj)]TJ /F6 11.955 Tf 11.95 0 Td[(c1q2j)m(,)dd)]TJ /F6 11.955 Tf 11.95 0 Td[(c2q2i!, (2b) wherenisthenumberofproducts,(fj,pj,qj)characterizesproductj,m(,)isthedensityoverthemarketspaceMfunction,and(pj,fj,qj)isthesubsetofallconsumers(,)thatderivethehighestnon-negativeutilityfromproductj. Thekeyresultsofthisresearchpaperaresummarizedasfollows:(a)Highervariablecostsisadriverofverticaldifferentiation.Productswithlowvariablecostsrelativetodesigncostshaveaportfoliothatexhibitsonlyhorizontaldifferentiation;(b)Horizontaldifferentiationisthemainprotlever,andverticaldifferentiationhasonly 75

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alimitedpotentialtoincreaseprotability;and(c)Thelow-qualityproductlineshouldhavemoreproducts,andmarketcoverageincreaseswhenthewillingnesstopayforperformanceincreases. Insummary,priorworkcentersaroundthekeyissuesinmanagingproductvarietybothfromtherm'sperspectiveandtheindividualconsumer'sperspective.Ingeneral,managingproductdevelopmentrequiresdecisionmakingatdifferentorganizationallevelsandoverdifferenttimehorizonsbeforeandafterproductlaunch.Theseworkshavefocusedonthefollowingdecisions:Whataretherm'stargetmarkets?Whatportfolioofproductopportunitieswillbeoffered?Whatisthetimingofthedevelopmentofnewproducts?Whatcomponentswillbesharedacrossproducts?Howshouldarmdesignitsproductlinetobalancetherevenueandcostimpactofitsproductlinedesigndecisions?Inessence,thesetofquestionsinthesearticlesattempttoanswerhowarmcanpursuetherightmarketsandproductsfromastrategicstandpoint.Whiledeterminingthenumberandidentityofindividualproducts,thermndsitselfinthefaceofcannibalization.Whenproductsareintroducedsimultaneously,low-endproductscancannibalizethesalesofthehigh-endproducts.Incaseofsequentialintroduction,aninterestingtrade-offassociatedwithtimingdecisionisseenbetweencannibalizationandfasteraccrualofprot. Themodelsdevelopeddealwithverticallydifferentiatedproductsthatcanbeorderedaccordingtotheirquality-typeattributessothatahigherqualityproductismoredesirablethanalowerqualityproduct.Sinceallconsumershavethesamepreferencerankingfortheproductsinverticaldifferentiation,somethingotherthandifferentpreferencesisrequiredtoprovidemarketsfordifferentqualities.Theotherdimensionthatiscommonlyusedinthesepapersturnsouttobetheprice.Foranygivensellingprice,theproposedmodelsinthesearticlesuseconstant-utilityattractionmodels,inwhicheachconsumerderivesautilityfrompurchasingaproductthatdependsonmarketingandoperationsfactorssuchasproductattributes(priceandquality).The 76

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incentiveforarmtoprovidevarietyinitsproductlineoccurswhenrevenuecanbeincreasedbyadditionalproductsbecauseheterogenouspreferencesofconsumerscanleadthemintonewsegmentsofthemarketorbecauseofanyeconomiesofscope.Theprotabilityofincreasedvarietyinproductline,however,candiminishduetotheeconomiesofscaleintheproductionofeachvariant.Ingeneral,armcannotcaptureallthepotentialconsumersurplusexistentinthemarketwithoutperfectpricediscriminationandhence,therevenuegainunderstatesthesocialgain.Therefore,whiletheoutcomeinthesestudiesdependsveryheavilyonthewayinwhichthedemandsforproductsofdifferentqualityaredistributedovertheconsumermarketandonthecostofincorporatinghigherqualityintoaproduct,thedegreeofeconomiesofscaleintheproductionofeachvariantalsoplaysanimportantpartinthedegreeofvariety. 77

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CHAPTER3GREENPRODUCTSTRATEGIES 3.1ThreeBroadStrategiesforGreenProducts Traditionally,thelinkbetweenproductdesignandtheenvironmenthasnotbeenestablished.Productmanufacturers/designershavefailedtofullyconsidertherisksposedbytheirproducts.Theytendedtonarrowlylookonlyatfactorssuchasperformanceandshort-termcostswhendesigningtheirproducts,oftenwithlittle/noregardfortheenvironmentalandpublichealthhazardsposedbythem.Theyfocusonrmlevelcostsratherthanenvironmentalbenets.Recently,thisapproachhasbeenre-evaluatedinresponsetogreeningpressures.Environmentalconcernsnowdrivenewproductdesignandinnovation.AtCloroxR,CEODonKnausshasrecentlyidentiedsustainabilityasoneofthreecoreconsumertrendswithwhichhewantstoalignCloroxRproducts 1 .Indeed,thequestforgreenproductsisnowforcingcompaniestochangethewaytheythinkabouttheirproducts,manufacturingtechnologies/processesandbusinessmodels.Themostcommonwaythatproductmanufacturersareattackingenvironmentalissuesintheiroperationsisbymeansofframingproductdesignandinnovationasamaterialsproblem.Formanyofthem,whatmattersisnolongerhowmuchmaterialisused,butratherwhatmaterialisusedintheirproductsand/orwhatmaterialsareusedtoruntheirmanufacturingprocesses.Dotheyputtoxicchemicalsintotheenvironment?Aretheyrecyclable?Dotheyemitairpollutants?Widerconcernssuchasthehazardousimpactsontheenvironmentandhealthhavenallyenteredintotheequationatmanycompanies,andproductdesignturnsouttobethekeydecisionpointasthatiswherecriticaldecisionsonmaterialsaremade. 1 http://articles.chicagotribune.com/2012-05-31/lifestyle/sns-rt-us-clorox-healthcarebre84u1dm-20120531_1_clorox-knauss-bleach-business ,accessedOctober4,2012. 78

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Inessence,companieshavestartedtorealizethatenvironmentalresponsibilityiscritical,andatthesametimethatitcanbringwithitexcitingopportunitiesforthemtohelpgrowtheirsalesandbettercompetewithintherulesofamoresustainablefuture.TheyhavebeguntoseegreenproductdevelopmentasanecessityandthequestiontheyneedtoanswernowadaysisWhatisthebetterstrategy:accentuatinglatentgreenattributesintheircurrentproductsand/ormakingsmallgreenenhancementstotheirexistingnon-greenproducts;launchingnewproductsthatareunabashedlygreen;orbuyingsomeoneelse'sgreenbrand?Thesestrategies,ideallyconsideredaspartofaholisticefforttomanageacompany'sproductportfolioratherthanincorporatedinisolation,caninspireprotablegreenerproductsthataddressthenewrulesofbalancingconsumers'needswithenvironmentalconsiderations.Inthisgreeningprocess,thepathtoofferinggreenerproductscanbeasteepclimbbecauseusingresponsiblemanufacturingpractices,forinstance,maydemandnewequipmentandprocessesthatmayinvolveheavyinvestmentsandhighrisks.In2003,tooffsettheirplant'selectricityusethroughsolarpower,KettleFoodsInc.hadmorethan600solarpanelsinstalledatoptheirmanufacturingplant,representingoneofthelargestarraysinthePacicNorthwest 2 .Ontheotherhand,thispathmayturnouttobeassimpleasjustusingsmallercapsonplasticwaterbottlesasisdonebyZephyrhillsWaterCompany,whosenewsmallerEco-SlimRcapscontainanaverageof20%lessplasticthantheiroriginalcaps 3 Inthisresearch,thegreenproductstrategiesintroducedabovearereferredtoas:(1)GreeningUp;(2)GreeningOut;and(3)GreeningOver.Asitwillbeseeninthefollowingsections,thereareuniqueoperationalandexecutionalchallenges 2 http://www.kettlebrand.com/about_us/sustainability ,accessedSeptember12,2012.3 http://www.zephyrhillswater.com ,accessedSeptember23,2012. 79

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inherentineachgreenproductstrategyandeachstrategychoicerequiresverydifferentbusinessconditions,technicalcompetencies,resourcesandpotentialpartnerships.Suchcomplexitiesmakeitdifcultforcompanymanagerstochooseandimplementaprotablegreenproductstrategy,andareviewofthesestrategiesunderscoringtheunderlyingprinciplesandrationalebehindeachoneshouldmakethechoicesandtrade-offsclearer. 3.1.1GreeningUpStrategy Forthesmalltomediumcompaniesthatarelookingtosellgreenproducts,themoststraightforwardwayistostartwiththeircurrentportfolioofproductsandfocusongreeningupwhattheyalreadydowell-oraccentuatingthepositiveoftheirgreenerproducts.Afterexaminingwhattheyarealreadysellingthroughagreenlens,manycompaniesdiscoverthatsomeoftheirexistingofferingsalreadyhaveleveragableenvironmentalattributesthatcanbebuiltupon.HeinzVinegarhasdonejustthis,emphasizingtoenvironmentallyconsciouscustomersthattheirdistilledwhitevinegarwithallnaturalingredients(e.g.,sun-ripenedgrainandcrystalclearwater)isagreathelperaroundthehomeforcleaningandenvironmentallypreferabletochemicalbasedcleaningproducts 4 .Similarly,asplasticwaterbottlesattractedloudcriticsforclogginglandlls,theSwissbrandSiggpromoteditsreusablealuminumbottlesasaperfectantidotethatprotectstheenvironmentwiththesloganAfterall,it'snotwhatyoudrink,butwhatyoudrinkitin. 5 Thekeytakeawayforcompanieshereistoaccentuatetheenvironmentalperformanceoftheirexistingproductthatisalreadygreenerthan 4 http://www.heinzvinegar.com/products-distilled-white-vinegar.aspx ,accessedSeptember13,2012.5 http://www.sigg.bg/en/design/simply-ecological-1 ,accessedSeptember12,2012. 80

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availablealternativesinthemarketplacebyspreadingthegoodnewsthroughmarketingchannels,andtoensurethatthemediapicksupontheirmarketingcampaign. Usinggreenmarketingtosellproductswithmoreenvironmentalbenetsentailssomerisksofcourse.Overreachingintheirsustainabilityclaimscancausecompaniesreceiveheapsofcriticismandfaceaccusationsofgreenwashing.ConsidertheexperienceofGreenMountainPowerCorporation.Environmentalgroupshavenothesitatedtopointoutgreenwashingwhentheyhaveseenthatthecompanyhasallegedlybeenusingpollutingcombustionservices(e.g.,toxiclandllgasesandindustrialwoodwastes)-ratherthancleanrenewableslikewindandsolarpower-fortheirrenewableenergysources,whichtheyhavemarketedasgreenenergy 6 .Likewise,SIGGhasbeenaccusedofmisleadingconsumersregardingtheenvironmentalbenetsofitsaluminumwaterbottleswhenthecompanyhasbeenoutedforfailingtotellthepublicthatitsbottlescontainbisphenol-A,acontroversialchemicalusedtohardenplasticsthatislinkedtoprematurepubertyingirlsanddiabetes 7 .Toutingthegreenattributesofaparticularproductcanalsopromptcomparisonwiththecompany'srestoftheofferings.Alargediscrepancyinenvironmentalperformanceofacompany'sgreenandbrownproductscaninevitablyundermineitslegitimateenvironmentalclaims.In2008,GeneralMotorscaughtackfromactivistsforrunningadvertisementsheraldingagasfriendlyVoltRelectriccarwhilecontinuingtomanufactureoneofthemostenvironmentallyunfriendlycarontheplanet;HummerR 8 .Companiesthatdecidetopositivelycommunicateabouttheenvironmentalperformanceoftheirproductsmust 6 http://www.boycottgreenmountain.com ,accessedSeptember13,2012.7 http://www.time.com/time/health/article/0,8599,1932826,00.html ,accessedSeptember9,2012.8 http://indications.wordpress.com/2009/07/14/the-new-gm-greenwashing-motors ,accessedSeptember9,2012. 81

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bewise:Whileaccentuatingthepositiveoftheirgreenproducts,theyalsohavetoactivelyeliminatethenegativeenvironmentalimpactsoftheiroperationsasawhole.Otherwise,theywilleventuallybecalledasagreenwasherwhichcanbeserious,long-lastingandhugelydetrimentaltotheirsustainabilitycredibilityandreputation. Anotherwaytogreenupistomodifyexistingproductsinasustainableway.Thismeanscarryinganexistingproductdesigntowardless-environmental-impactoutcomesbymakingsmallenhancementsortweaksinthegreendirection.Thetakeawayofthisapproachistoratchetupaproduct'senvironmentalperformancebydesigningbadmaterialsoutofthenon-greenproductbysubstitutingconventionalmaterialswithgreeneronesorbyredesigningthenon-greenproductinawaysothatnon-greenmaterialsarenotrequired.Thecompaniesadoptingthisstrategymustidentifythematerialsthatcauseharmtopublichealthorenvironmentduringmanufacturing,useordisposal,andthenacttoeliminatethemand/orndoutwhatalternativematerialstheycanusethatarestilleffectiveintheproductbutthatdon'tcreateaproblem.Oncethechoiceofwhatmaterialswillbeintheproduct'slifecycleismade,therestcomesuptoreplacinghazardousmaterialswithbetteronesorredesigningtheexistingproduct(s)throughphasingoutthesehazardousmaterials.Forexample,inreformulatingtheirWindexRglasscleaner,SCJohnsonwasabletoidentifyandthenreplacesevenrestricted-usematerialswithonesthatwerefreeofvolatileorganiccompounds(VOCs).Thereformulationnotonlyeliminated400,000poundsofVOCsbutalsoincreasedtheproduct'scleaningpowerby30% 9 .Likewise,Wish-Bonehasrecentlytakenastepinlower-environmental-impactdirectionthroughredesigningtheirsaladdressingbottles.ThenewWish-Bonebottlesuseupto20%lessplasticthatisestimatedtosavenearly30millionbottlesworthofplasticintheyearahead 10 .Saidanother 9 http://api.ning.com/files/Greenlistcasefinal.pdf ,accessedOctober4,2012.10 http://www.wish-bone.com/ ,accessedSeptember24,2011. 82

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way,greeningupbringsgradualimprovementstoexistingproductsandprovidessaferbenetsthatareimportanttosustainingshareamongcurrentconsumersaswellasgettinggreenconsumerstotryaproduct. Onbalance,GreeningUpcanbeaboontoacompany'ssuccess,offeringalimitedbutimportantwindowtoengageinachievingsustainabilitygains.Fromabusinessperspective,forexample,itdoesnotinvolvemajorinvestmentsorriskssinceastructured,predictableandstepwiseprocessisused.Thisstrategyrevolvesaroundanexistingproduct:Itrequiresturningtheexistingproductoveragainandagaintoamoreenvironmentallybenignalternative-andperpetuatingtoworkonanevengreenerone.Therefore,ittoagreatextentbuildsonexistingR&Dandproduct-developmentassets,aswellastechnicalexpertise,keepinginvestmentcostswithinreasonableboundaries.Forexample,Frito-LayinstalledsolarpanelsonitsSunChipsRfactoryinModesto,California-oneofeightplantswhereSunChipsRsnacksaremade-totrackthesunfromdawntodusk,gatheringalltheenergytheycanandreducingcompany'sdependenceonfossilfuel 11 .TransferringthatenergyintoheathelpsthecompanytocookthewheatandheatthecookingoilusedinSunChipsRmanufacturingprocess.Inotherwords,withoutmakingradicalchangesintheirproductionplantandmanufacturingline,Frito-Laykeepsproducing145,000bagsofSunChipsRsnackseverydaythatarebetterfortheenvironment.Followingthistrackalsolowerscompanies'exposuretoriskandreducestheirvulnerabilitytouncertaineventsotherwiseinherentinacompletelydifferentproductionenvironment.Insteadoftryingtoanticipatethefragilemanufacturingandmarketdemandofanewgreenproduct,companiescanturntheirattentionjusttoaddinggreenfeaturesontheirnon-greenofferingswhatwouldhelpbroadentheirappealtogreenconsumers. 11 http://www.sunchips.com/healthier_planet.shtml ,accessedSeptember25,2011. 83

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Fromamarketstandpoint,itisrelativelyeasytodeterminethepossiblenumberofstepsneededtobetakentoimprovetheenvironmentalimpactofanexistingproductbyusingavailableinformationsuchasfeedbackfromuserexperiences,testingandmarketinvestigations.Forinstance,intheirjourneytodevelopabetterbagoverthepast5years,Frito-Layhasavoidedtheamountofpackagingtheyneedtousebymorethan5millionpounds-bymeansofpackagesizeoptimizations,lmthicknessimprovements,andsealchanges-bycontinuouslyprickinguptheirearstoconsumerconcernsandideas.Theirnextstepinrightdirectionhasbeentochangethematerialusedintheirpackaginglms,andthisattempthasendedupwiththeworld'srst100%compostablechipbag.Thosebags,however,havebeennoisy;theysoundabitlouderthanpreviousSunChipsRbags.Inresponse,thecompanyhasrecentlyintroducedanew,quieter,fullycompostablechipbag.Inotherwords,thisstrategyallowsitsfollowerstoidentifyconsumerpreferencesandintegratethemasfeaturesintotheirexistingofferings.Thisinturntendstostrengthenmarketpositionsoftheestablishedcompaniesintheindustryastheycanexpandtheirconsumerbasebybolsteringtheirreputationasaresponsibleenterprise.Thecitedexamplesofsuccessesinmarketplaceshowhowasystematicapproachtogreeningupproductscanyieldanumberofdividends.Poorlyexecuted,greened-upproductsmaynotnecessarilytranslateatthesupermarketshelflevel,though.Shopperscanfailtoappreciategreened-upversionsofbrownproductsastheycruisetheaisles.Inaddition,itcanbehardtohypethefactthatOurovencleanersare20%lesstoxicthanlastyear's,eventhoughbetterthatmaybefortheenvironmentandpublichealth. 3.1.2GreeningOutStrategy TheGreeningOutstrategyissimplyaboutbuildingnewofferingsfromscratchthatareunabashedlygreen.Itentailsthedevelopment/inventionofnewdesignelementssuchasachangeinaproductcomponent(orinventionofanalternativecomponent)combinedwithanewarchitecture/designforlinkingall.Thecompanyrelentlesslyputs 84

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itstechnological,managerialandmarketingmuscleswiththeincumbentpublicrelationspotentialintoanexplicitlygreenproductthatismarkedlydifferentfromitsexistingnon-greenproduct(s).Manymainstreamconsumer-productsgiantshavebeentakingthisrouteandintroducingbrand-spanking-newgreenproductsintothemarket.ToyotatookthispathwhentheydevelopedPriusRinlate1997.Whenwegetdowntothebasics,anautomobilecanbedepictedasametalboxonfourwheelsthatispoweredbyaninternalcombustionengineandpropelledbygasoline.Yet,whenwecometothePriusR,itisfarapartineveryotherway-forinstance,withrespecttoitsadvancedHybridSynergyDrivepowertraintechnology,Kammbackdesigntoreduceairresistanceandlowerrolling-resistancetires,amongotherdesignandtechnologyinnovationsitencompasses.Similarly,Cloroxbecametherstmainstreamconsumer-productscompanytolaunchalineofnon-syntheticcleaningproducts,theGreenWorksRline,in2008.Lastbutnotleast,P&Ghasstartedtoaddressenvironmentalconcernsmostlyviareducedpackaging.DiscoveringthattheirlaundrydetergentTideRcouldmakeU.S.householdsenergyguzzlers(duetotheamountofenergyrequiredtoheatwaterforwashingclothes),thecompanymadethedevelopmentofcold-waterdetergentsapriorityandlaunchedTideColdwaterRin2005. Successalongthisstrategicpathrequiresspecializedknowledge,competencyindealingwithsustainabilityissues,credibilityamonggreenconsumersandeffectivecommunicationskills.Itengenderssignicantlyhigherrisks(especiallyatearlystages)andalongertimehorizonascomparedtotheGreeningUpstrategy,sincecompaniesonthispathmoveintothenewgreenmarketsthatliebeyondtheirtraditionalexpertise.AraftofqualityproblemsuncoveredinthesteeringoftherstgenerationToyotaPriusRvehiclestypiesthisrisk.Thehigherlevelofuncertainty(e.g.,technical,marketandorganizational)inherentinalmosteverystagesofthisapproachcanbeanenormousbarriertothereapingthesweetharvestoftheefforts.Moreimportantly,GreeningOutcanbethecostlierapproach;thecompanyexpendssignicantresourcesintermsof 85

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organization,conceptgeneration,product,tooling,testing,marketingplancreationandevaluation,commercializationandtheeventualintroductionofthenewproductintothemarket.Forinstance,Cloroxspentthreeyearsandmorethan$20milliontodeveloptheGreenWorksRline,delayingthelaunchtwicetoensurethatallveoriginalproductsperformedaswellasorbetterthanconventionaloptionsinblindtests.TheyalsohadtotackleseveralmarketingissuesbeforelaunchingtheGreenWorksR. Thisoptionappearstobemorevolatile,itsoutcomestendtobemoreuncertain,andthetimehorizonalsoturnsouttobemuchlongerthanGreeningUp.Ontheotherhand,thisapproachgivescompaniesahelpinghandtoaddressconsumers'environmentalconcernsindetailintheirproducts/operations,andmoreimportantlyfostersthedevelopmentofvaluable(andeveninimitable)competenciesthatcandifferentiatethemingreenmarketandensuretheircompetitivenessforyearstocome.ConsiderthecaseofthePriusRfromToyota.Toyota'sbolddecisiontogreenlightthePriusR-whileHondaInsightRwasstrikingbutnotearthshatteringatthetime-haspaidhandsomedividends.TheeffortsputbythecompanyinthedevelopmentofthePriusRhavehelpedthemtobuildvaluablecompetencies(particularlyinpowertrainandelectricalarchitecture),whichinturnletthePriusRdominatethefast-growingmarketforhybridcarsintheU.S.-aheadofhybridrivalHondaInsightR,thersthybridintroducedintheU.S.market.Inaddition,thehybridexpertiseandgreenknow-howhavebeguntolterinotherbrandsinToyota'sportfolio(e.g.,LexusR),takingtheedgeoffdevelopmentcoststhatwererumoredtobeonthehighsideofastronomical.Similarly,GreenWorksRallowedCloroxtoaccumulateawidearrayofnewcompetencies.Justafewexamplesincludespecializedknowledgeaboutthepreferencesofenvironmentallyconsciousconsumersandexpertiseinthesupplychainfortheprocurementofnaturalproducts. Thepotentialopeningofnewgreenmarketsegments,oftenexhibitinghighgrowthpotential,foranorganizationtopursuedoesappeartomakethisstrategytempting.Whenitworks,asinthecaseofthePriusRorGreenWorksR,itcouldprovide 86

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sustainablelongtermbenets.Thecombinationofagreenandabrownbrandintheoverallconsumermarketallowsacompanytocalibratethoseofferingstoitsownstrategicadvantage,andeventolimititstroublingcompetitorsinscope.However,thisstrategydoeshavesomedownsides.Agreenbrandhasitsgenesisintherecognitionofconsumers'evolvingpreferences.Thesubsequentdevelopment,introductionandmarketingoftheproductshouldstayfocusedonthistargetconsumersegment,andlackofexperienceinthisrapidlygrowingmarketcanrenderthegreenproduct'sfailure.Theswitchofmanagement'sfocustothegreenconsumersegmentsthatthegreenproductistargetingcanfurthercauseacompanytomissthemarkwithitsexistingconsumersandthisinturnmayrendercompany'sexistingproductsvulnerable.Moreimportantly,thenancialinvestmentmadeongreenbrandscancontributetothedifcultstraitsthatacompanyndsitselfinonthispath.Thelaunch,marketingcommunications,hiringand/ortrainingofstaffandoperatingcostscanresultinsignicantcashowproblems.That'swhybuildinggreenofferingsfromscratchappearstobeaviablepossibilityforcompaniesthatarewellequippedwiththeirhistoryoffrequentproductlaunches,substantialnewproductdevelopmentassetsandenvironmentally-consciousworkforce,andthatenjoyrapidturnoverofproducts. 3.1.3GreeningOverStrategy Inanerawhereconsumersareincreasinglyhyper-consciousofgoinggreen,managershavesuddenlyfoundthemselvesfacingaforkintheroad:Shouldtheytackleconsumers'environmentalconcernsbyredesigningtheirproducts(orproductpackaging)usinglesshazardousmaterialsorsubstitutingthebadmaterialswithmoreenvironmentallysoundalternatives?Orshouldtheydevelopanewgreenbrandfromscratch?Whileitisalreadyachallengingquandary,manycompaniesarenowconsideringathirdoption:takingoversomeoneelse'sgreenbrand.Thequiteshiftsintheownershipofbrands(andsurprisingconnectionofbrandsthatseemunrelatedtoeachother)isnothingnew.Manybrandsrecognizedfortheirgreenassets,and 87

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environmentallyresponsibleandcounter-cultureapproachhavebeentakenoverbywell-establishedcorporationsthatarekeentoestablishcredentialsintheboominggreenmarketsince2000.JustafewexamplesincludeTheBodyShop(acquiredbytheFrenchcosmeticsgiantL'Oreal),Tom'sofMainenaturalpersonal-careproducts(Colgate-Palmolive),StonyeldFarmYogurt(Danone),Avedacosmetics(EsteLauder),Green&Black'sorganicchocolates(CadburySchweppes),Ben&Jerry'sicecream(Unilever),CascadianFarmcereals(GeneralMills)andBurt'sBeespersonal-carelineandBritawaterlters(Clorox).Thegrowinglistoftheseacquisitionsshowsthatitisanattractivestrategyformanycompanies,withitsplusesandminuses.Carefullyexecuted,thisstrategycanenablecompaniestogogreenrelativelyquickly. Insuchdealsthebuyerisoftenexpectedtoleverageitselusivedistributionnetworkcapabilitiesontothegreenbrandtohelphimreachnewmarketsfaster-comparedtoitsself-fundedgrowth-andbroadenitsgreencostumerbase.Whenstructuredproperly,italsoprovidesaquickaccesstothemanagerialcapabilitiesofthebuyer.Therefore,thisroutecaneffectivelymarrythebrandintegrityandenvironmentalknow-howofthegreenbrandwiththecapital,andmanagerialsystemsandcapabilitiesofthebuyer.Initsbestapplicationssuchrelationshipscanhaveevenmoreimpressiveresults.AfterCadburytappedintotheconsumers'appetitefororganicchocolatethroughacquiringGreen&Black'sin2005,salesoftheorganicchocolatemakerhaveblossomedto40millionpoundsin2011intheUK,andthecompanyisexpectedtohittheU.S.marketthisyearwiththenancialsupportfromCadbury 12 .Inlikevein,Unilever'stakeoverofBen&Jerry'shasbeenananciallysuccessfulendeavor.WithintherstthreeyearsfollowingUnilever'sacquisition,Ben&Jerry'sincreaseditsglobalsalesby37%,tripled 12 http://www.independent.co.uk/news/business/analysis-and-features/cadbury-deal-turns-sour-for-green-amp-blacks-2187044.html ,accessedSeptember21,2011. 88

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itsoperatingmarginsandexpandedinto13newcountries 13 .Thesedeals,withoutdoubt,arewin-winsituations;buyersarealsopositivelyimpactedbythesepurchases.InitsbattleagainstNestle,Unileverwasinneedofagoodsupplyofammunitiontobecomethelargestice-creamcompanyintheworld,andhadnallyone-uppedNestle(Haagen-Dazs)throughtakingoverBen&Jerry's.Asaparentcompany,Unileverhasalsoseensubstantialnancialgainsthatstemmedprimarilyfromthewell-denedcultureandestablishedcustomerbaseofBen&Jerry's.AlthoughHaagen-DazsoutspendsBen&Jerry'sinmarketingdollarsby25%to50%,bothbrandscommandanequalmarketshare 14 Notallgreeningoverstoriesreectsuccess.Forthemostpart,thehistoryoftakeoversisarollcallofcampaignsthatnotonlyinicteddamageonthebuyersbutalsoresultedincollaterallossesforthegreenbrands.Thereisnodoubttakeoverisappealingtobigcompaniesthatseekoutwaystoenterthegrowinggreenmarketsthataccompanywithoutredesigningtheircurrentproductsand/orprocesses.Indeed,itmaybethemostandonlyeffectiverouteiftheyarenotgoodatexploringsignicantlynewideasandradicallydifferentbusinessapproaches.Hence,underthisstrategy,acompanyacquiresaready-madepackageofacarefullycraftedgreenbrandimage,specializedknow-howaboutenvironmentallyfriendlyinnovationandmanufacturing,greenproductdevelopmentandaloyalcustomerbase.Inotherwords,thebuyerhedgesitsbetsatrelativelylowoperatingcosts. Thebuyer'smainchallengehereistostayabovethefraybymaintainingthegreenbrand'srootsandcachet,andpreventingitsenvironmental/socialreputationfromtakingabattering.Anintegralpartofthegreenbrand'ssuccessanddistinctiveness 13 http://www.workforce.com ,accessedSeptember22,2011.14 J.Bloom,Ben&Jerry'sSecretFormulaforMarketing:NoApologies,AdvertisingAge,8August2005. 89

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isrootedintheenvironmental/socialvaluesitbringstothemarket,andsothebuyershouldstayawayfrompilingin.Thebuyershouldrecognizethatitdoesnothavethemastery/competencyoverthegreenproducts/technology,andthereforeitneedstoletthegreenbrandoperateasanindependententityandletitsgreencredentials/principlesremainintact.Concentratingoncostrationalizations,andfailingtounderstand/respectgreenbrand'sdistinctiveoperatingcultureandenvironmentalvaluesmayhaveanadverseeffectonthecourtingandsubsequentlysourthemarriage.Incorporatemarriages,adeliberateandcarefulsearchforacomplementarypartneralsoplaysanimportantpartasatakeovercanseriouslystumblewhencompanyculturesclash.Thegreenconsumerscanfeelbetrayedbythegreenbrandwhentheydiscoverthattheirformerallyhasbeenswallowedbyaviliednon-greencompanywithitspoorenvironmentalcredentials,andthescrutinyofgreenconsumersmaybeaseriousthreattothepotentialbenetsofthetakeover.WhenTheBodyShopwassoldouttoL'Orealin2006,itspurreddebateandprotestamongstitsconsumerbase,andL'Orealhasfacedboycottcampaignsoverissuessuchasanimaltesting.Greentechnologyand/orproductscanbeunreachableandverydifculttoreplicateforbigcompanies,andatthesetimestakeovercanbeconsideredasanefcientpathtotheemerginggreensegmentsandbusinessapproaches.However,therearealsonastybumpsalongthispath,andsocompaniesshouldbeverycarefulontheirwaytocapturingthepotentialsynergiesintheirmarriage. 3.2ChoosingtheBestStrategy Asdiscussed,GreeningUp,GreeningOutandGreeningOverareallvalidapproaches,withtheirplusesandminuses,forcompaniesthatareeyeinggreenconsumersandtargetingthegreenmarketplace.However,thereisabiggerstoryhereforcompaniesthatareseekingtoreachouttotheboominggreenmarketwiththeirgreenerofferingstobeefuptheirbottomlinesandboosttheirtop-linerevenues.Aone-size-ts-allstrategydoesnotexistinthissizeablegreenmarket.Thecompany 90

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managersmustalwayskeepinmindthatthesethreestrategiesofgoinggreenworkbestunderdifferentmarketandbusinessconditions,andrequiredifferenttechnicalcompetencies,resourcesandpotentialpartnerships.Eachofthesestrategieshasmerit,buttheyallcomeatthecostofuniquechallengesthatrequirethedevelopmentofspeciccompetencies. Simplyput,regardingtheGreeningOutstrategy,thefailuretodevelopandlaunchanewgreenproductputsbrowncompanies-particularlytheestablishedones-atriskofbeingknockedoutofthecompetitivegreenlandscapeforever.Whileprospectivegreentechnologiesandenvironmentallybenignproductsareattractivealongseveraldimensions,theyarealsohighlyresourceintensive,comprisedmainlyofunprecedentedfeaturesthatarenotfullyprovenandriskladen.GreeningOutprovidesanewplatform(i.e.,bloominggreenmarket)forthelong-termgrowththatmanycompaniesdesperatelyseekwhenitisimplementedproperly,yetitistypicallyplaguedbyhighuncertainty.Indeed,manycompanies,underpressuretomaximizetheirshort-termnancialperformance,arereluctanttoinvestinGreeningOutduetovariousriskfactorsincludingtechnicalrisks(e.g.,newgreenproductmaynotperformasexpected),marketrisks(e.g.,greenconsumersmaynotrespondtothenewgreenproductasexpected),andorganizationalandresourcerisks.AttemptsatGreeningOutdrivecompaniesclosertothevergeoffailuresthansuccesses,andcompelthemtodealwithhighuncertaintyinthetimingandeffectivenessofresults.Themovementofanewgreenproductfromascratchpapertothegreenmarketcantakeseveralyears,afterwhichtheproduct'smarketsuccessisanunknown.Inaddition,credibilityontheissueofcompany'sanditsnewgreenproduct'senvironmentalclaimsisanecessityfortheacceptanceofanewmarketformedbyconsumerswhoareespousingenvironmentalvalues.Bygreeningout,acompanycanhaveanenormousheadstartoveritspotentialcompetitorsingreenmarketandcreateastepchangeinitsrevenues.However,inlightoftiminganduncertaintyissues,manymanagersdonotoptforgreeningoutandpreferinsteadto 91

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pursuegreenmarketsthroughgreeninguptheirexistingproductsorgainingaccesstogreenmarketsbytakeovers. Onotherotherhand,GreeningUpmightnotbeadifcultchoiceforcompaniesasGreeningOut.EventhoughGreeningOutoftenmakesheadlines,makingstepwisechangestoitsexistingproductsandtechnologiesintherightdirectioncanhelpacompanyoutmaneuverthecompetitorsingreenmarketovertheshortterm-withitsexistingproductplatforms.GreeningUpallowscompaniestoaddresstheever-changingneedsandpreferencesofgreenconsumersandkeepscashowshealthy.ComparedtoGreeningOut,itislessambitiousinitsgreenscope,doesofferlesspotentialforsustainabilitygains-achievessmalldegreesofgrowth,andconsistsofsmallendeavors,makingthemeasiertomanage.ContrarytothelongandwindyroadfollowedbyGreeningOut,anenvironmentaltweakonanexistingproductisplacedwithinaclearlydenedproductionprocessinarelativelyshortertimeperiod.Developmentofthegreenerproduct,andcompany'sinvestmentandmarketingeffortsaregenerallydirectedalonganorderlyandwell-denedstage-gateapproach.Thecompaniesaremorelikelytobelessvulnerabletotechnicalproblems(e.g.,majorsetbackingreentechnologydevelopment),marketuncertainties(e.g.,failuretosuccessfullydeveloparelationshipwithgreenconsumers),andnancialstorms(e.g.,majorlossoffundingduetothefailureofanewgreenproduct).However,itmayleadtoalossofcompetitiveadvantageingreenlandscapeovertime.NewgreenproductsandgreentechnologiesofthecompetitorsingreenmarketappearingonthehorizonmaycausethefollowersofGreeningUptobeunderminedbycompanieswhopreferablyfollowGreeningOutorGreeningOveroverthelongterm. Companieswithrecordlevelsofcashandonlylimitedvalue-creatinginvestmentopportunitiesfornewattractivegreenproductsrightlyturntoGreenOvertomeetgoalstheycannotachieveinternally(e.g.,buildingacompetitivepositioninemerginggreenmarkets).Theytakeoversomeoneelse'sgreenbrandwithloyalcustomer 92

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bases,specializedknowledgeaboutenvironmentalinnovationandmanufacturing,andgreenmarketdevelopmenttoserveasaplatformfortransformativegrowth-justastheycouldiftheyfollowedGreeningOut.Properlyexecuted,itisfaster,lessriskyandmoreeconomicaltobuyanattractivegreenproductthatthecompaniescouldmakethemselves,givenenoughtimeandresources.Abuyercanboostitscompanyperformanceorjump-startitslong-termgrowthingreenmarketwithlimitedgreenexpertiseintheblinkofaneye.TheprospectofrobustgrowthinGreeningOverisveryappealing,butthebuyershouldcarefullyevaluatetheriskthattheiranticipatedsynergieswiththesellermaynotmaterialize.Acounter-culturalworkforce,aniconicfounder,scrutinybygreenconsumers,orsomeotheraspectcancreatecultureclash.Inaddition,thetakeovercanstumbleifthebuyercannotpreservetheintegrityofthesellerbrand.ItisalsoworthnotingthatthebuyeranditsgreenclaimsshouldbehighlycredibleinGreeningOverstrategy,becauseacquiredgreenconsumershavetoviewthebuyerasacrediblestewardofthesellerbrand. Basedonthisdiscussion,themanagerialchoiceamongthesestrategiesisobviouslyafunctionofmultiplefactors.ThisissummarizedinTable 3-1 ,whichhypothesizeshowthesefacetsdriveeachstrategychoice.Forexample,ifacompanypossessesinherentgreenproductdevelopmentcapabilities,itismorelikelytochoosetheGreeningOutstrategyandleastlikelytochoosetheGreeningOverstrategy.Ontheotherhand,ifthermhassignicantcashreserves,thentheGreeningOverstrategybecomesamorefeasiblechoiceascomparedtotheGreeningUporGreeningOutstrategychoices. 93

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Table3-1. Greenproductdevelopmentstrategies Pathstogreenproductdevelopment Greening-UpGreening-OutGreening-Over GreenproductdevelopmentcapabilitiesLowHighN/AInvestmentLowHighVariableTechnicalrisksLowHighVariableGreenexpertiseMediumHighLowMarketuncertaintyLowHighLowTimetomarketMediumHighLowMarketingeffortsLowHighHighThreatofgreenwashingaccusationsHighMediumLowSustainabilitygainsLowHighHigh 94

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CHAPTER4DOESTOGOGREENTRANSLATEINTOPROFITABILITY? 4.1Overview Doesgoinggreentranslateintoincreasedprotability?Oristhissimplyanadditionalcostofdoingbusinesswhichwillinalllikelihoodtranslatetohigherconsumerpricesinthelongrun?Thesefundamentalquestionsarebeingposedrepetitivelyinthecurrentbusinessenvironmentsincemostrmsareincludinggreenproduct(s)intheirproductportfolio.Thistrendappearstobedrivenbymultiplefactors.First,thereisagrowingsegmentofcustomerswhoprefergreenproducts(e.g., Klenier ( 1991 ))andinseveralcases,theseconsumersarealsowillingtopaymorefortheseenvironmentallyfriendlychoices 1 .Second,greenproductdevelopmentisalsostimulatedbyenvironmentalregulationsandgovernmentalincentiveswhichpromptrmstoaddgreenproductsintotheirportfolios.AspointedoutinSection 1.3.2 ,federal,stateandlocalgovernmentsdevelopenvironmentalpolicies,andpasslawsandregulations(e.g.,RoHsandEuP)thatcanimpactdirectlyorindirectlyontheproductsandservicesofsuppliersandend-productmanufacturersbyputtinggreaterpressuresoncompaniestoadheretotheenvironmentalstandardsintheirproductdesigns.Similarly,theEuropeanUnion(EU)putssustainedeffortstoadvanceenvironmentalprotectionthroughincreasedproductsregulation.TheEUhasinrecentyearsadoptedlegalmeasuresthatconditionmarketaccessforautomobiles,householdappliances,electronicequipment,andbiotechproductsoncompliancewithnewproduct-basedenvironmentalrequirements.Inthecomingyears,theEUisexpectedtoadoptadditionalmeasuresthatwouldsimilarlyregulateimportsofchemicals,energyusingproducts,andcertaintimberproducts. 1 GreenBiz.com,SeveralStudiesSayConsciousConsumersWillingtoPayMoreforGreen,June2009. 95

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Third,initiativesbeingimplementedbysupplychainpartnersshouldstimulategreenproductdevelopmentinthenearfuture.Forexample,LeeScott,CEOofWal-Mart,statesAsupplierthatcheatsonovertimeandtheageofitslabor,thatdumpsitsscrapsandchemicalsinourrivers,thatdoesnotpayitstaxesorhonoritscontractswillultimatelycheatonthequalityofitsproducts.Andcheatingonthequalityofitsproductsisthesameascheatingoncustomers. 2 Relatedtothisstatement,everynewsupplieragreemententeredintobyWal-Martisexpectedtorequire:(a)manufacturingfacilitiesmustcertifycompliancewithlawsandregulationswheretheyoperateaswellasrigoroussocialandenvironmentalstandards,setbygovernmentagencies;(b)suppliersmustworkwithWa-Marttomakeatleast20%improvementsinenergyefciencyby2012;and(c)allsuppliersmustsourceatleast95%oftheirmaterialsfromproductionplantsthatreceivethehighestratingsonenvironmentalandsocialpractices.Finally,duetoindustryinterestinsustainability/greenissues,theconceptofcradle-to-cradlecerticationhasalsostartedgainingmoreattention.AccordingtoMcDonoughBraungartDesignChemistry(MBDC),TheCradletoCradleframeworkmovesbeyondthetraditionalgoalofreducingthenegativeimpactsofcommerce(`eco-efciency'),toanewparadigmofincreasingitspositiveimpacts(`eco-effectiveness'). 3 Thishasalsomotivatedorganizationalinterestininvestigatingtheimpactofaddinggreenproductstoitscurrentassortment. Thischapterstartswithananalysisoftwoalternativestrategiesthatcanbepursuedbyarmtointroduceagreenproductintothemarket.Keyfeaturesincorporatedinthisanalysisareasfollows.First,undertheproposeddemandmodel,themarketshareforagivenproductdependsonitsqualityandprice(andthequalityandpriceofeveryproductintheassortmentincasethermisofferingmorethanoneproduct).Second, 2 http://www.cio.com/article/print/456625 ,accessedJuly22,2010.3 http://mbdc.com/detail.aspx?linkid=1&sublink=6 ,accessedAugust27,2012. 96

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whilestudyingthepricingandmarketingdecisionsofarm,focusingonasingleaggregatemeasureofgreenqualityallowstheobtainedresultstobeapplicableacrossawidervarietyofsettings.Third,costeffectsspecictoeachstrategychoiceareexplicitlyintegratedintotheanalysisandhence,insightsreecttheimplementationofeachstrategyinpractice.Finally,motivatedbythegovernments'environmentalmandatesonproductdesign,theimpactofstringentproduct-basedenvironmentalregulationsonthenancialperformanceofeachstrategychoiceisinvestigated.Inthesecondpartofthechapter,theanalysisisextendedtoaduopolysettingwheretwormscompeteonthebasisofpriceandgreenquality.Inthisenvironment,theanalysismakesanattemptatcharacterizingacompetitiveequilibriumunderdifferentcombinationsofstrategychoiceswithaviewtoprovidefurtherguidelinesonstrategychoices. Theremainderofthischapterisorganizedasfollows.Inthenextsection,alternativegreenproductintroductionstrategiesproposedby UnruhandEttenson ( 2010 )arediscussed.Section 4.3 studiestheprotmaximizationproblemforeachstrategychoice,characterizestheoptimalsolutions,providesinsightsintothestrategychoicesforasinglerm,andevaluateshownancialperformanceofeachstrategychoiceismoderatedbyenvironmentalregulations.InSection 4.4 ,theimpactofduopolycompetitiononstrategychoiceswherermscompeteunderalternativegreenproductstrategiesisexamined.Finally,Section 4.5 containsconcludingremarks. 4.2GreenProductIntroductionStrategies Accordingto UnruhandEttenson ( 2010 ),thechoiceofagreenproductdevelopmentstrategyismoderatedbytwofactors:(a)thelevelofgreenattributesinthecurrentproductofferings;and(b)theinherentgreenprocesscapabilityoftherm.Basedonthiscategorization,theirindustrycasestudiesindicatethatsuccessfulrmsmakethechoiceasfollows. Ifarmhaslowinherentgreenprocesscapability,then; 97

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iftherm'scurrentproductportfoliohasalowgreencomponent,itshouldchoosetoacquireanotherrmwhichalreadyoffersagreenproducttothemarket.ExampleacquisitionsincludePTC(withitsacquisitionofPlanetMetric),Siemens(withitsacquisitionofSolel),andHoneywell(withitsacquisitionofE-Mon,LLC).ThisstrategyisreferredtoastheAcquirestrategy. iftherm'scurrentproductportfoliohasahighgreencomponent,itshouldchoosetoaccentuatethegreenattributesofthisproductportfoliothroughmarketingefforts.Forexample,Brittawaterltersasnotedby UnruhandEttenson ( 2010 )isacaseinpoint.Giventhatthesalesofwaterlterswerebeingthreatenedbytheuseofbottledwater,thecompanynotedtheadverseconsumerreactiontothecloggingoflandllswiththeplasticbottles.Sensinganopportunity,thecompanyinvestedinacommunicationseffortdirectedatpointingouttheadvantagesofusingtheirwaterltersascomparedtobottledwaterandthisresultedinsignicantsalesincreasesforitsproduct.ThisstrategyisreferredtoastheAccentuatestrategy. Ifarmhashighinherentgreenprocesscapability,then; iftherm'scurrentproductportfoliohasalowgreencomponent,itshouldchoosetoarchitectanewgreenproductin-house.Thedegreeofgreencontentinthenewproductisamanagerialdecision,andinsomecasesitcouldresultinthermintroducingacompletelynewproduct(e.g.,Caterpillarmarketingnewsustainableproductsthroughafocusedbusinessunit),orapartialredesignofanexistingproduct(e.g.,ToyotaPriusR).ThisstrategyisreferredtoastheArchitectstrategy. iftherm'scurrentproductportfoliohasahighgreencomponent,thechoiceamongstrategiesisunclear.Thatistosay,thebeststrategychoicecouldbeanyoneofthestrategiesoutlinedabove. Althoughthesestrategychoicesareintuitivelyreasonableandindustrycasestudiessupporttheproposedframework,therearesomefurtherissuesofrelevance.First,sinceitispossibleforarmtobecharacterizedbyhighinherentgreenprocesscapabilityandhighgreenproductattributesinitscurrentportfolio,howshouldthermmakeastrategychoiceinthissetting?Second,arethereadditionalfactors(e.g.,marketsizeandstrategyspeciccosts)thatneedtobeincorporatedwhenarmevaluatesthesestrategies,andifso,howisthestrategychoicemoderatedbysuchfactors?Basedontheseobservations,thischapterfocusesonarmwithsubstantialnew-product-developmentassetsthat(i)currentlyoffersabrownproducttothemarket 98

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whichalreadyhasenvironmentalattributesthatarejustwaitingtobeleveraged;and(ii)istryingtoincorporateenvironmentalfriendlinessintoitsproductdesignbyadoptingoneofthetwostrategiesdescribedearlier-specicallytheAccentuateandArchitectstrategies 4 4.3TheMonopolist'sStrategyChoice 4.3.1Preliminaries Inordertomodelaconsumer'sproductchoicedecision,thepriorworkinmod-elsofdiscrete(orquantal)choiceisdrawnuponandspecicallythemultinomiallogit(MNL)choicemodelisused.TheMNLdeterminesthechoiceprobabilityasafunctionofconsumerutilityforasetofalternatives.Forn1products,acustomerisassumedtoassociateautilityiwithproducti2f1,...,ngdenedbyi=i+i,wherewechoosetoexpressthetermiasalinearfunctionofobservedattributesofproducti,namelyqualityqiandpricepi,suchthat 5 i=qi)]TJ /F6 11.955 Tf 12.8 0 Td[(pi.Therandomtermirepresentstheunobservableutilityoridiosyncraticpreferenceofeachcustomer 6 .Therefore,anindividualconsumer'sutilityforproductiincludestwofacets:irepresentsthehomogeneousvaluationofallconsumers,andireectstheheterogeneityofconsumers'valuation.Assumethattherandomtermsfigareindependentand 4 ThefeasibilityoftheAcquirestrategyisnotevaluatedsincethisstrategywouldrequiremoreofanindustrylevelanalysisratherthanarmlevelanalysis.Forexample,theimplementationofsuchastrategywouldrequireastrategicanalysisofhowwellthetargetrmanditsproducts/processestintothecurrentproducts/processesoftheacquiringrm.5 Asimilarrepresentationisusedby McFaddenandZarembka ( 1974 ), Andersonetal. ( 1992 )and Dongetal. ( 2009 )).6 Noticethattheutilityfunctioniincorporatestheideathatacustomerprefershigherquality(lowerprice)levelsascomparedtolowerquality(higherprice)levels. 99

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identicallydistributedGumbelrandomvariableswiththefunction P(i)=e)]TJ /F7 7.97 Tf 6.58 0 Td[(e)]TJ /F21 5.978 Tf 6.95 3.09 Td[()]TJ /F21 5.978 Tf 5.76 0 Td[( ,2(,1), (4) whereisashiftparameterand isascaleparameter(e.g., Ben-AkivaandLerman ( 1985 )and HansonandMartin ( 1996 )).Withoutlossofgenerality,itisassumedthat=0and =1fortheanalysis. Basedonthisutilityrepresentation,theprobabilityofacustomerpurchasingproductiis 7 i=ei e0+nPj=1ej,i=1,...,n, (4) wheree0istheprobabilityoftheno-purchaseoutcome.Itisassumedthat0=0andhence 8 ,e0=1.Therefore,theprobabilityofano-purchasedecision0isgivenby 0=1 1+nPj=1ej. (4) Theanalysishereiscarriedoutassumingamarketsizeof1whichimpliesthatthechoiceprobabilitycanbeinterpretedasthemarketshareassociatedwitheachproductoffering. Lettheindexkrepresenteachstrategychoice(k=Creferencesthecurrentsetting,k=AreferencestheAccentuatestrategy,andk=BreferencestheArchitectstrategy).Themodelingassumptionscanbesummarizedasfollows.First,themarginalcostsofproductionareassumedtoberelatedtothequalityleveloftheproduct.Inlinewiththeargumentputforwardby Moorthy ( 1984 )thatproductioncostincreasesata 7 See Ben-AkivaandLerman ( 1985 )foraderivationofthechoiceprobabilityindetail.8 Thisrepresentationisalsoadoptedby Chintagunta ( 2002 ) 100

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fasterratethantheconsumers'willingnesstopay,theunitcostofproductionisassumedtobeconvexandstrictlyincreasinginthequalitylevelqthatisreectedbyaspecicfunctionq2with>0.Second,higheradvertisingexpenditureshavebeenassociatedwithhigherqualitylevelsinpriorresearch(e.g., MilgromandRoberts ( 1986 )),and Sutton ( 1991 )empiricallycharacterizesadvertisingcostsasafunctionofproductquality.Drawinguponthiswork,itisassumedthattotaladvertisingcostsareanincreasingfunctionofquality,representedbyq2=2,where>0 9 .Beingconsistentwiththepreviousliteratureonproductredesign(e.g., KrishnanandLecourbe ( 2010 )),thenalassumptionisthattotalproductredesigncostsareincreasingandconvexinqualityasreectedinthefunctionalformq2with>0. Recallthatgovernmentshaveadirectstakeineliminatingandpreventingthenegativeenvironmentalimpactofproducts,andhence,theycanregulateproductdesignsbasedontheirsustainabilityortheirexternalcosttotheenvironment.Thisaspectisintegratedintotheanalysisinthischapterasfollows.Deneqeasthegreenqualityandqbasthenon-greenqualityinaproductportfolio/assortment.Then,theoperationalizationoftheregulatoryconstraintisgivenby qe qb (4) where>0reectstheminimumpercentageofgreenqualitywhichmustofferedintheproductportfolio/assortment.Althoughthereareseveralpossiblemethodstooperationalizearegulatoryconstraint,havingtheabovechoiceisintuitivelyreasonablesinceitexpressesthegreenqualitylevelinreferencetothecurrentlevelofbrownqualityandhence,itshouldbeapplicableacrossavarietyofsettings.Forinstance,asforfuelefciency,inAugust2012,theObamaadministrationissuedthenalversionof 9 Giventhat Sutton ( 1991 )empiricallyderivedtherelationshipM(q)= z(qz)]TJ /F5 11.955 Tf 13.12 0 Td[(1)withz>1,thefunctionalformheldhereobviouslysatisesthisrelationshipwithz=2. 101

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regulationsthatforceautomakerstonearlydoubletheaveragefueleconomyofallnewcarstheysellintheU.S.sothatthenewstandardsmandateanaveragefueleconomyof54.5milespergallon,comparedto29.7milespergallonnow 10 .Then,ifproductqualityrepresentstheaveragegasmileage,therecentlynalizedgovernmentalregulationonfuelefciencyiscapturedbysettingthevalueoftheparameterequalto2.Inthissetting,thehighervaluesofimpliestheenforcementofstringentenvironmentalregulationsontheproductdesign,whilelowervaluesofindicatestheuseofweakenvironmentalstandards. Inthenextthreesubsections,initiallythecurrentscenariowhereabrownmonopolistrmoffersasinglebrownproductisexamined,andthenthetwogreenstrategychoicesforthemonopolistrm(i.e.,AccentuateandArchitectstrategies)withandwithouttheenforcementofenvironmentalstandardsarecharacterized.Thisisfollowedbyanumericalanalysiscomparingthecurrentscenarioandtwostrategychoicesunderweakenvironmentalstandards,andthenevaluatinghowprotabilityofeachstrategychoiceisaffectedwhenenvironmentalregulationsaretightened. 4.3.2CurrentScenario:SingleBrownProduct Inthissection,thesettingforamonopolistbrownrmofferingasinglebrownproduct,ofqualityqb,tothemarketatpricepbisanalyzed.Giventhatthermcurrentlysuppliesasinglebrownproductwithhighgreeneableenvironmentalbenetsinamonopolisticenvironment,themarketshareofthebrownproductisdenedasCb=eqb)]TJ /F7 7.97 Tf 6.59 0 Td[(pb=(1+eqb)]TJ /F7 7.97 Tf 6.59 0 Td[(pb).TheprotmaximizationprobleminthissettingcanthenbestatedbyC=Cbpb)]TJ /F4 11.955 Tf 11.95 0 Td[(q2bwithpb,qb0.Basedontherst-orderconditions(whicharenecessaryandsufcientsincetheprotfunctionisstrictlyandjointlyconcaveinthe 10 BillVlasic,U.S.SetsHigherFuelEfciencyStandards,TheNewYorkTimes,28August2012. 102

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decisionvariables),theoptimalbrownqualityembeddedintheproductis: qb=1 2(4) andtheoptimalpricepbisgivenbythe(implicit)solutionofthefollowingequation; pb=1 4+1 1)]TJ /F4 11.955 Tf 11.95 0 Td[(Cb,(4) where Cb=1 1+epb)]TJ /F17 5.978 Tf 10.19 3.26 Td[(1 2.(4) Therefore,thecorrespondingoptimalprotforthermisC=Cb=(1)]TJ /F4 11.955 Tf 12.16 0 Td[(Cb)withCbasdenedabove. 4.3.3AccentuateStrategy Underthisstrategychoice,twoprimarydecisionsforthemonopolistrmare:(a)theleveloftheenvironmentalbenetsoftheexistingbrownproductwhichshouldbeaccentuated;and(b)therevisedmarketpriceforthecurrentbrownproductofferingwhichwillnowbeperceivedasbetterfortheenvironment.Thesedecisionsarerelatedtotheoptimalqualityandpriceofthecurrentbrownproductasfollows: LetqAbrepresenttheperceivedqualityoftheaccentuatedbrownproductanditintegratestwoaspects:(a)thecurrentbrowncomponentqb=1 2;and(b)theaccentuatedgreencomponentqAe.Then,Ab=qAb)]TJ /F6 11.955 Tf 12.55 0 Td[(pAb,whereqAbisdenedbyqAb=qb+qAe(orqAb=1 2+qAe)with0<1.Notethat2(0,1]meansanindividualconsumerplacesalowervalueonenvironmentalattributescomparedtotraditionalattributesandsodoesnotfullyintegrategreenissuesintohisproductvaluecalculation. Thermcanrevisethemarketpriceforitsaccentuatedbrownproducttocoveradditionalmarketingcosts 2)]TJ /F6 11.955 Tf 12.46 -9.68 Td[(qAe2,andpAbrepresentstherevisedprice. 103

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Basedontheaboveconsiderations,themarketshareAboftheaccentuatedbrownproductisgivenby Ab=eqAb)]TJ /F7 7.97 Tf 6.58 0 Td[(pAb 1+eqAb)]TJ /F7 7.97 Tf 6.59 0 Td[(pAb,=1 1+epAb)]TJ /F17 5.978 Tf 10.19 3.26 Td[(1 2)]TJ /F18 7.97 Tf 6.59 0 Td[(qAe, (4) andthemonopolistrm'sprotmaximizationproblemundertheAccentuatestrategychoicegetsthefollowingform: maxpAb,qAe0A=AbpAb)]TJ /F4 11.955 Tf 11.95 0 Td[((qb)2)]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qAe2 (4) subjecttoqAe qb (4) withAbisasgiveninequation( 4 )andqb=1=(2).Thetheorembelowcharacterizesthesolutiontothisproblem. Theorem4.1. AssumingthatAisstrictlyandjointlyconcaveinpAbandqAe(detailedinappendix); Ifregulatoryconstraintisnon-binding,thentheoptimalvalueofqAeisgivenbythe(implicit)solutionofthefollowingequation; G)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qAee )]TJ /F21 5.978 Tf 5.76 0 Td[(qAe)]TJ /F18 7.97 Tf 6.59 0 Td[(qAe)]TJ /F17 5.978 Tf 10.19 3.26 Td[(1 4)]TJ /F4 11.955 Tf 20.12 8.08 Td[( qAe+1=0,(4) basedonwhichtheoptimalvalueofpAbcanbeobtainedasfollows: pAb=1 4+ )]TJ /F4 11.955 Tf 11.96 0 Td[(qAe(4) Ifregulatoryconstraintisbinding,then qAe= 2, (4) andpAbisobtainedbythe(implicit)solutionofthefollowingequation: L)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(pAbpAb)]TJ /F5 11.955 Tf 16.92 8.08 Td[(1 4)]TJ /F5 11.955 Tf 11.95 0 Td[(1epAb)]TJ /F17 5.978 Tf 7.78 3.26 Td[(1+ 2)]TJ /F5 11.955 Tf 11.95 0 Td[(1=0 (4) Proof. SeeAppendix A 104

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4.3.4ArchitectStrategy Underthisstrategychoice,thethreeprimarydecisionsforthemonopolistrmthatiscurrentlyofferingabrownproductqbatpricepbare: 11 (a)thegreenqualitylevelthatwillbedesignedintothenewproduct(i.e.,qBe);(b)themarketpriceforthisnewproductoffering(i.e.,pBe);and(c)therevisedmarketpricefortheexistingbrownproduct(i.e.,pBb).Fromthemarketperspective,thelogit-basedconsumerchoiceframeworkdescribedearlierisfollowedandhence,themarketshareforthenewgreenproduct)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe,pBeisequaltoBe=eqBe)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe=1+eqBe)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe+eqb)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb.Notethatwhileexpandingitsproductlinewithagreenalternative,abrownrmcanleveragethepriceofitsexistingbrownproductduetothethreatofcannibalizationwithintheproductline.Forthatreason,inthisanalysisthermisallowedtomodifythepriceofitsexistingbrownproductundertheArchitectstrategy 12 .Then,themarketshareoftherm'scurrentbrownproductisBb=eqb)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb=1+eqBe)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe+eqb)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb.AsconsideredundertheAccentuatestrategy,theimpactofregulatorycomplianceunderArchitectstrategychoiceisalsoincorporatedbyimposinganenvironmentalregulationconstraintonthequalityoftherm'snewgreenproductsuchthat qBe qb (4) with>0.Intermsofunitproductioncosts,theseareafunctionofthequalitylevelsofthegreenandbrownproducts,andareassumedtobe)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe2and(qb)2,respectively.Theadvertisingandproductredesigncostsforthisstrategyare)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe2=2and)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe2,respectively,basedonthediscussioninSection 4.3.1 11 Thevaluesofqbandpbareasprovidedinequations( 4 )and( 4 )inSection 4.3.2 .12 Bythisstage,thequalityoftheexistingbrownproductisxedatqb=1=(2)asitisdeterminedintheproductdesignphaseandittakesalongertimeperiodtochangequalitycomparedtoprice. 105

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Inthisframework,themonopolist'sprotmaximizationproblemundertheArchitectstrategychoiceis: maxpBe,qBe,pBb0B=BehpBe)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe2i)]TJ /F14 11.955 Tf 11.96 13.27 Td[(h 2+i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe2+BbpBb)]TJ /F4 11.955 Tf 11.95 0 Td[((qb)2 (4) subjecttoqBe qb (4) withqb=1=(2).Thetheorembelowcharacterizesthesolutiontothisproblem. Theorem4.2. AssumingthatBisstrictlyandjointlyconcaveinpBe,qBeandpBb(detailedinappendix),andgiventhatqb=1 2,theprotmarginsofthebrownandgreenproductsareequalsothatpBe)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe2=pBb)]TJ /F4 11.955 Tf 11.95 0 Td[((qb)2.Then; Ifregulatoryconstraintisnon-binding,thentheoptimalvaluesofthequalityandpriceofthegreenproduct(i.e.,qBeandpBe)satisfythefollowingequation: =qBeh2+(+2)1+epBe)]TJ /F18 7.97 Tf 6.58 0 Td[(qBe+e1 4+(qBe)2)]TJ /F18 7.97 Tf 6.59 0 Td[(qBei(4) Ifregulatoryconstraintisbinding,then qBe= 2,(4) andtheoptimalvalueofpBeisgivenbythe(implicit)solutionofthefollowingequation: W)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(pBeepBepBe)]TJ /F4 11.955 Tf 14.04 8.09 Td[(2 4)]TJ /F5 11.955 Tf 11.96 0 Td[(1)]TJ /F6 11.955 Tf 11.96 0 Td[(e 2)]TJ /F6 11.955 Tf 11.95 0 Td[(e1+2 4=0(4) Proof. SeeAppendix B Forallthreecasesdescribedabove,theoptimaldecisionscanbestructurallycharacterized.However,asisobvious,nodirectcomparisonbetweenthestrategiescanbeprovidedintermsofmarketshare,prots,andlevelsofgreenquality.Forthatreason,nextsectionresortstoanumericalanalysistooffersomeinsightsintothechoiceamongstrategies. 4.3.5NumericalAnalysis ThissectionsstartswithananalysisofthedominancerelationshipbetweentheAccentuateandArchitectstrategiesundersufcientlyweakenvironmentalstandardsto 106

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identifytowhatextentarmchooseseachstrategy.Thisisfollowedbyananalysisofhoweachstrategychoiceismoderatedbytheenforcementofstringentenvironmentalregulations.Thenumericalcomparisonbetweenstrategiesusesthefollowingparametersettings: Unitproductioncost().Thevaluesofthisparameteraresetat$0.20,0.40,0.60,0.80,and1.00. Consumervaluationofgreenattributes().Thevaluesofthisparameteraresetat0.20,0.40,0.60,0.80,and1.00. Marginaladvertisingcosts().Thevalueofthisparameterissetat$4. Marginalproductredesigncosts().Thevaluesofthisparameteraresetat$2,4,6,and8. Foreachcombinationofparametersettings 13 ,theoptimalpricesandqualitylevels,marketshares,protmargins,andtheprotforthemonopolistaretracked.ThesolutionsareobtainedusingtheEXCELevolutionarysolver.Morespecically:(a)forthecurrentsetting,theoptimalpricepbisobtainedusingequation( 4 );(b)fortheAccentuatestrategy,theoptimalvalueofaccentuatedgreencomponentqAeisobtainedbysolvingequation( 4 )andthecorrespondingoptimalpricefortheaccentuatedproductpAbisobtainedbyusingequation( 4 );and(c)fortheArchitectstrategy,rsttheoptimalgreenproductqualityqBeandpricepBeareobtainedbyusingequation( 4 )andthenusingtheresultthatprotmarginsforboththegreenproductandbrownproductareequal,theoptimalpriceofthebrownproductpBbisdetermined. Ratherthanpresentingalltheresults,asamplingofsomeoftheresultsforthecurrentsettingandeachstrategychoicearepresentedinFigures 4-1 4-2 4-3 and 4-4 13 HerethevalueofissetsuchthattheenvironmentalregulationconstraintimposedonthegreenqualitylevelisneverbindinginordertoconcentrateonandclarifywhatfactorsarmshouldconsiderwhenchoosingbetweentheAccentuateandArchitectstrategies.Howstringentenvironmentalstandardsimpactonthenancialperformanceofeachstrategychoiceisanalyzedinthefollowingsection. 107

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(SeeAppendix C forcompleteresults).Ingeneral,thefollowingobservationsareworthnoting.Acrossallparametercombinations,theArchitectstrategydominatestheAccentuatestrategythatinturndominatesthecurrentsettingintermsofprotabilityandmarketshare.Notethatthisdominancerelationshipholdsevenwhentheconsumervaluationofgreenattributesisverylow(i.e.,=0.20),andmarginaladvertisingandproductredesigncostsareveryhigh(i.e.,=$4and=$8)asshowninFigures 4-1 and 4-2 .Thus,bothAccentuatestrategy(i.e.,themarketingofgreenattributes)andArchitectstrategy(i.e.,simultaneousintroductionofagreenproduct)rewardthebrownrmwithprotandmarketsharegains.Thesegainsinprotsandmarketsharearedependentuponseveralfactors.Forexample,ascustomersdemandmoreenvironmentallyfriendlychoices(i.e.,!1),thermrepositionsitsbrownproductasbetterfortheenvironmentbypursuingtheAccentuatestrategy.Thisenhancestheperceivedvalueoftheexistingbrownproduct(eventhoughitsqualityisxedat1=(2)),andenablesthermtogainalargermarketshare,chargeahigherpricefortheaccentuatedproductandenjoyrisesinprotmargins(sinceproductioncostsareconstantbasedonthebrownqualitylevel).AsimultaneouspriceincreaseforthebrownproductistheresultwhentheArchitectstrategyischosenoverthecurrentsetting.However,inthissetting,thermlosesthemarketshareassociatedwithitsbrownproduct(whencomparingthecurrentsettingversustheArchitectstrategy)duetocannibalizationeffects,whichisoffsetbythesimultaneousintroductionofanewgreenoffering.ThisresultsinthermcommandingagreatertotalmarketshareundertheArchitectstrategyincomparisontothecapturedmarketshareundercurrentsetting. AsecondinterestingresultisinthecontextofcomparingtheoptimalgreenqualityspeciedintheaccentuatedproductandgreenproductofferedundertheAccentuateandArchitectstrategies,respectively.Acrossallparametercombinations,itisobservedthattheAccentuatestrategyrequiresthermtohighlightagreaterdegreeofgreeninitsproductascomparedtotheArchitectstrategy.Inotherwords,whiletheAccentuate 108

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Figure4-1. Comparisonofprotsofstrategies(=0.20,=$4and=$8) Figure4-2. Comparisonofmarketsharesofstrategies(=0.20,=$4and=$8) strategyyieldslesstotalprotsandmarketsharethandoestheArchitectstrategy,itdominatestheArchitectstrategyfromagreenperspective(seeFigures 4-3 and 4-4 ).OneunderlyingreasonforthisresultisattributedtothefactthatmarginalcostsofincorporatinggreeninaproductarelowerundertheAccentuatestrategy(asitonlyincludescostsofadvertising)ascomparedtotheArchitectstrategy(asitincludesnotonlyadvertisingcostsbutalsoproductredesigncosts).Inessence,thisresultpointsouttoatrade-offneededtobemadebetweengreenqualitylevelsandprots/marketshare.Giventhatbothgreenstrategiesarepreferredoverthecurrentsetting,theAccentuate(Architect)strategyrequiresmarketing(redesigning)ahigher(lower)degreeofgreenin 109

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theaccentuated(green)product,whereasprovidingsmaller(higher)protsandmarketshareascomparedtotheArchitect(Accentuate)strategy. Figure4-3. Comparisonofgreenqualitylevelssuppliedbystrategies(=$0.4,=$4and=$2) Figure4-4. Comparisonofgreenqualitylevelssuppliedbystrategies(=$0.4,=$4and=$8) AnalissueofinterestexploredhereistheexistenceofextremeconditionswhichwouldresultinthermnotchoosingtoadopteithertheAccentuateand/orArchitectstrategies(i.e.,choosingtonotgogreen).Itisobviousthatassumingxedmarketprices,anincreaseinenvironmentalqualitywouldleadto:(a)agreatermarketshare;(b)alowerprotmargin;and(c)higheradvertisingand/orproductredesigncosts.On 110

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theotherhand,assumingxedlevelsofquality,anincreaseinmarketpricesleadsto:(a)asmallermarketshare;and(b)ahigherprotmargin.Itsohappensthatwhenthemarginalcostsofadvertisingand/orproductredesignareextremelyhigh,therm'soptimalgreenqualityleveldropssignicantly(andiscloseto0).Ifthisisthecase,thentheoptimalchoiceforthermistorevertbacktosimplyofferingonlythebrownproducttothemarketandhence,intheseextremecases,thermisactuallybetter-offnotaccentuatingtheexistingbrownproductorintroducinganewlydesignedgreenproduct. 4.3.5.1Impactofstrictenvironmentalregulations TheanalysisoftheimpactoftheregulatoryconstraintontheAccentuateandArchitectstrategiesstartswiththefollowingobservations.First,theregulatoryconstraintisbindingonlywhentheoptimalgreenqualitylevelfortheunconstrainedprotmaximizationproblemforastrategychoicedidnotmeettheregulatoryconstraint.Hence,underthebindingconstraint,thermisrequiredtochoosehigherlevelsofgreenquality.Second,assumingthatregulatoryconstraintisbindingforbothstrategychoices,thermoffersidenticallevelsofenvironmentalqualitytothemarket(i.e.,qAe=qBe==(2)),andbasedonthisresult,thecostsofadvertising(incurredundertheAccentuatestrategy)andproductredesign(incurredundertheArchitectstrategy)arexed.Apparently,thecostsfortheArchitectstrategyarehigherthanthosefortheAccentuatestrategy,sincetheformerincludesbothadvertisingandproductredesigncosts,whilethelatterincludesonlyadvertisingcosts.Finally,theonlyremainingdecisionforeachstrategychoiceturnsouttobethemarketpricingdecision. Togainsomeinsightsintothismarketpricingdecision,itisobservedthatthermwillraisemarketpricestoincreaseitsprotmargin.However,givenxedlevelsofgreenandbrownquality,anincreaseinmarketpriceswillreducemarketshares.Thus,theoptimalmarketpricewillbesuchthatitbalancesoutthesetwoeffects.Inallofthecarriedoutnumericalexperiments,thefollowingdistincteffectsarenotedwhentheregulatoryconstraintisbindingforbothstrategies: 111

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regardlessofthestrategychoice,theprot(andtotalmarketshare)forthermunderabindingregulatoryconstraintisalwayssmallerthantheprot(andtotalmarketshare)forthermunderthenon-bindingregulatoryconstraint; thereareseveralinstanceswherethermcouldnotrecoverthecostsofadvertisingand/orproductdesign,resultinginthermprotsbeingnegative; fortheArchitectstrategy,theimpositionoftheregulatoryconstraintleadstothermincreasingthemarketpriceofbothproducts;whilefortheAccentuatestrategy,thermraisesthemarketpricefortheaccentuatedproduct;and theArchitectstrategystilldominatestheAccentuatestrategyintermsofprotsandmarketshare. Theseresultsareinlinewithindustryobservations.Forexample,therecentstudiesoftheNationalAutomobileDealersAssociation(NADA)indicatethatmorestringentstandardswillhiketheaveragepriceofanewvehiclebynearly$3,000whenfullyimplemented.Moreimportantly,NADAalsostatesthatapproximately7millionpeoplewillnotbeabletoaffordnewcars,andifthesestandardssuppressnewvehiclesales,achievingthenation'sgreenhousegasandeverysecuritygoalswillbeneedlessdelayed 14 Analresultofinterestisthattheimpositionoftheregulatoryconstraintcouldmoderatetheoptimalstrategychoicefortherm.Asobservedearlier,whentheregulatoryconstraintisnotimposed,theoptimallevelofgreenqualityishigherundertheAccentuatestrategyascomparedtotheArchitectstrategy(i.e.,qAeqBe).Ifthevalueof(i.e.,theminimumproportionofregulatedgreenquality)issetsuchthatqBe
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indicatesthatunderthisscenario(i.e.,qBe
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thisduopolycongurationwhichimpliescompletemarketcoverage.Fromacostperspective,itisalsoassumedthatbothrmsareequallyefcientintermsofthemarginalcostofproduction(i.e.,1=2=),marginalcostofadvertising(i.e.,1=2=)andmarginalcostofproductredesign(i.e.,1=2=).Finally,theregulatoryconstraintisnotincorporatedintotheduopolysetting,sincetheprimaryfocushereisonvalidatingwhetherthestrategyrecommendationsunderthesinglermsettingholdinthepresenceofcompetition. 4.4.1CurrentSetting-AccentuateStrategy Inthisscenario,itisassumed,withoutlossofgenerality,thatFirm1adoptsthecurrentsetting(i.e.,offersthebrownproducttothemarket)whileFirm2adoptstheAccentuatestrategy(i.e.,offersanaccentuatedbrownproducttothemarket).Hence,thekeydecisionsforFirm1arethelevelofbrownqualityqCb1andthemarketpriceforthebrownproductpCb1,whileforFirm2,thecorrespondingdecisionsarethelevelofaccentuatedgreenqualityqAe2andtherevisedmarketpricefortheaccentuatedbrownproductpAb2.NotethatforFirm2,thelevelofbrownqualityisxedatqAb2=1=(2),whichisinlinewiththeanalysisfortheAccentuatestrategyinSection 4.3.3 .Giventhatallconsumersbuytheirproductfromoneoftworms,themarketsharesofFirm1andFirm2aregivenrespectivelyasfollows: Cb1= 1+ (4) Ab2=1 1+ (4) whereistheratioofthemarketshareforFirm1tothemarketshareofFirm2sothat=e)]TJ /F5 11.955 Tf 6.59 -1.16 Td[((1 2+qAe2)]TJ /F7 7.97 Tf 6.58 0 Td[(qCb1)+(pAb2)]TJ /F7 7.97 Tf 6.59 0 Td[(pCb1).Basedonthemarketsharefunctions,givenqCb1andqAe2,eachrm'sprotmaximizationproblemtosetoptimalpricesis: C1=Cb1hpCb1)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qCb12i (4) A2=Ab2pAb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4)]TJ /F14 11.955 Tf 11.96 13.27 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qAe22 (4) 114

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Thenecessaryconditionsforoptimummarketpriceschargedbythetwormsare: @C1 @pCb1=0)pCb1=)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qCb12+1+ (4) @A2 @pAb2=0)pAb2=1 4+1+1 (4) sothatpAb2)]TJ /F6 11.955 Tf 12.74 0 Td[(pCb1=1 4)]TJ /F4 11.955 Tf 12.74 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qCb12+1 )]TJ /F5 11.955 Tf 12.74 0 Td[(.Then,atthepriceequilibrium,theprotfunctionsforeachrmcanberestatedasfollows: ^C1= (4) ^A2=1 )]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qAe22 (4) Intherststage,theFOCsforeachrmare: @^C1 @qCb1=2 1++2)]TJ /F5 11.955 Tf 5.48 -9.69 Td[(1)]TJ /F5 11.955 Tf 11.96 0 Td[(2qCb1 (4) @^A2 @qAe2= 1++2)]TJ /F4 11.955 Tf 11.96 0 Td[(qAe2 (4) Settingtheseequalto0,itisobtained qCb1=1 2, (4) qAe2= (1++2), (4) andsubstitutingthesevaluesintheexpressionforgives =e)]TJ /F21 5.978 Tf 22.55 3.26 Td[(2 (1++2)+1 )]TJ /F13 7.97 Tf 6.59 0 Td[(.(4) Lemma1. Giventhat2(0,1]and>0,thevalueofimplicitlysolvingtheequation=e)]TJ /F21 5.978 Tf 22.55 3.26 Td[(2 (1++2)+1 )]TJ /F13 7.97 Tf 6.59 0 Td[(mustbestrictlygreaterthan0andstrictlylessthan1. Proof. SeeAppendix D GiventheresultinLemma 1 andthatistheratioofthemarketshareofFirm1tothatofFirm2,thermchoosingtheAccentuatestrategy(i.e.,Firm2)wouldgarnera 115

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greatermarketsharethanthermwhichchoosestocontinueofferingthebrownproduct(i.e.,Firm1).Althoughitisnotpossibletostructurallycharacterizetheexistenceofauniqueequilibrium,therelativeprotabilityofthetwormscanbeevaluatedbyusingtheresultprovidedinLemma 1 .Inordertodothis,thevalueofissetequalto$4,andthenthevalueofisvariedtobe0.20,0.40,0.60,0.80and1.00 15 .Foreachcombinationofand,initiallytheexpressioninequation( 4 )issolvedtoobtainavalueof.Usingthisvalueof,theaccentuatedgreenqualitylevelqAe2isthendeterminedbyusingequation( 4 ).Finally,thesesolutionsareusedtoobtaintheprotsforbothrmsusingequations( 4 )and( 4 ),andtheseresultsarepresentedinTable 4-1 .Table 4-1 showsthatforallparametercombinations,Firm2alwaysmakesgreaterprotsascomparedtoFirm1.Hence,italwayspaysforarmtochoosetoaccentuateitscurrentbrownofferingwhenitisincompetitionwithanotherrmwhichissimplyofferingabrownproduct.Second,aswouldbeexpected,anincreaseinthemarginalconsumervaluationforgreenqualityleadstoincreasesinthegreenqualitylevelaccentuatedbyFirm2,andalsoincreasesintheprotsforFirm2.Onesetofresultsnotshownherearethatasimilarpatternholdsevenifweincreasethemarginaladvertisingcostparameterintermsofrelativeprotsforthetworms(seeAppendix E forcompleteresults). 4.4.2CurrentSetting-ArchitectStrategy Inthissetting,analternativeduopolyscenarioisanalyzed,whereFirm1onlyoffersasinglebrownproducttothemarketandFirm2addsanewgreenofferingtoitsexistingbrownproduct.InlinewiththeequilibriumconceptstudiedinSection 4.4.1 ,theattempthereistondanequilibriatothetwo-stagegame,whereFirm1choosesthequalityofitsbrownproductqCb1andFirm2choosesthequalityofitsnewgreenproductqBe2intherststage,andbothrmsselectthepricesoftheirproductsinthemarketplace 15 Thesearethesamenumericalparametersettingsusedintheprevioussection. 116

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(i.e.,pCb1,andpBb2andpBe2)inthesecondstage.FollowingtheargumentputforwardinSection 4.3.4 ,itisassumedthatFirm2hastheoptionofalteringthepriceofitsexistingbrownproductatthetimeofintroducinganewgreenproductintothemarket,whereasitsqualityisxedat1=(2).ThemarketsharesideissimilarasintheduopolymarketstructurestudiedinSection 4.4.1 andsothemarketsharesoftheproductsaregivenasfollows: Cb1=e(qCb1)]TJ /F7 7.97 Tf 6.58 0 Td[(pCb1) e(qCb1)]TJ /F7 7.97 Tf 6.59 0 Td[(pCb1)+e(qBb2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb2)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Bb2=e(qBb2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2) e(qCb1)]TJ /F7 7.97 Tf 6.59 0 Td[(pCb1)+e(qBb2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb2)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Be2=e(qBe2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBe2) e(qCb1)]TJ /F7 7.97 Tf 6.59 0 Td[(pCb1)+e(qBb2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb2)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) withqBb2=1=(2).Then,givenqCb1andqBe2,eachrm'sprotmaximizationproblemtosetoptimalpricesis: C1=Cb1hpCb1)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qCb12i (4) B2=Bb2pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4+Be2hpBe2)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22i)]TJ /F14 11.955 Tf 11.96 13.27 Td[(h 2+i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22 (4) Thenecessaryconditionsforoptimummarketpriceschargedbythetwormsare: C1 @pCb1=0)pCb1=)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qCb12+1 1)]TJ /F4 11.955 Tf 11.95 0 Td[(Cb1 (4) B2 @pBb2=0)pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4=1+Be2hpBe2)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22i+Bb2pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4 (4) 2 @pBe2=0)pBe2)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22=1+Be2hpBe2)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22i+Bb2pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4 (4) 117

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Equations( 4 )and( 4 )pointoutthatthepricemarkupsforthebrownandgreenproductsofFirm2areequal,basedonwhichitisstraightforwardtoderive pCb1)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.47 -9.69 Td[(qCb12=1 B2, (4) pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4=1 C1,and (4) pBe2)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22=1 C1, (4) whereB2=Bb2+Be2andC1=Cb1.Nowsupposethat=C1=B2,yieldingto =0@eqCb1)]TJ /F18 7.97 Tf 6.58 0 Td[((qCb1)2 e1 4+eqBe2)]TJ /F18 7.97 Tf 6.58 0 Td[((qBe2)21Ae(1 )]TJ /F13 7.97 Tf 6.59 0 Td[().(4) Basedonthatthepricefunctionsprovidedinequations( 4 ),( 4 )and( 4 )canberewrittenasfollows: pCb1=)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qCb12+1+ (4) pBb2=1 4+1+1 (4) pBe2=)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22+1+1 (4) Therefore,atthepriceequilibrium,theprotfunctionsforeachrmgetequalto ^C1=, (4) ^B2=1 )]TJ /F14 11.955 Tf 11.95 13.27 Td[( 2+)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22. (4) Thenecessaryconditionsforoptimalityfortheprotfunctionsintherststageare @^C1 @qCb1=2 2++1)]TJ /F5 11.955 Tf 5.48 -9.69 Td[(1)]TJ /F5 11.955 Tf 11.96 0 Td[(2qCb1,and (4) @^B2 @qBe2=1 2++1 )]TJ /F5 11.955 Tf 11.96 0 Td[(2qBe2 1+e1 4+(qBe2)2)]TJ /F18 7.97 Tf 6.58 0 Td[(qBe2!)]TJ /F5 11.955 Tf 11.96 0 Td[((+2)qBe2, (4) 118

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andsettingtheseequalto0,itisseenthat qCb1=1 2,and (4) qBe2< 2. (4) Asinthepreviouscase,itiseasytoshowthat0<<1.AssumingthattheFOCsarenecessaryandsufcienttoidentifyanequilibrium,thefollowingresultsholdforthissetting.First,since<1,themarketshareforFirm2isgreaterthanthatofFirm1.ThisimpliesthatitwouldbebenecialforarmtopursuetheArchitectstrategy,assumingtheotherrmisofferingabrownproduct.Second,throughnumericalexperiments(seeAppendix F fornumericalresultsfor=$4),itisobservedthat:(a)Firm2'sprotsaregreaterthantheprotsofFirm1;and(b)thedifferenceinprotsisremarkablyinsensitivetothemarginalcostsofadvertisingandproductredesign(i.e.,and,respectively).AsexpecteditalsoturnsoutthatFirm2incorporatesahigherlevelofgreenqualityinitsnewproductasthemarginalvaluationofconsumersgoesup.Insum,thispointstothefactthatarmincompetitionwithanotherrmwhichsimplyoffersabrownproductreapssignicantbenets(bothinprotsandmarketshare)byadoptingtheArchitectstrategy. 4.4.3AccentuateStrategy-ArchitectStrategy FollowingasimilarcompetitionprocedureproposedinSection 4.4.1 andSection 4.4.2 ,twocompetingrmsareconsideredhere-oneaccentuatingitsbrownproductandothercomplementingitsbrownproductwithagreenalternative-andtheMNLisusedtodescribethechoiceprobabilities.Intherststage,withoutlossofgenerality,Firm1choosesthelevelofaccentuatedgreenqualityqAe1whileFirm2choosesthequalitylevelofitsgreenproductqBe2.Inthesecondstage,revitalizedpricesofthebrownproductspAb1andpBb2,andthepriceofthenewgreenproductpBe2areselectedbyrms.Giventhatallconsumersalwayspurchaseoneunitoftheirmostpreferredproductinthemarketplace, 119

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themarketsharesoftheproductsare: Ab1=e(1 2+qAe1)]TJ /F7 7.97 Tf 6.58 0 Td[(pAb1) e(1 2+qAe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pAb1)+e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Bb2=e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2) e(1 2+qAe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pAb1)+e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Be2=e(qBe2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBe2) e(1 2+qAe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pAb1)+e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Basedonthateachrm'sprotmaximizationproblemtosettheoptimalpricesis: A1=Ab1pAb1)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4)]TJ /F14 11.955 Tf 11.96 13.27 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qAe12 (4) B2=Bb2pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4+Be2hpBe2)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22i)]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2+i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22 (4) Basedonthenecessaryconditionsforoptimummarketpriceschargedbythetworms,thepricemarkupsforthebrownandgreenproductsofFirm2appeartobeequalthatyieldsto pAb1)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4=1 B2, (4) pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4=1 A1, (4) pBe2)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22=1 A1, (4) whereB2=Bb2+Be2andA1=Ab1.Nowsuppose=A1=B2sothat =e(1 2+qAe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pAb1) e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2),(4) basedonwhichthepricefunctionscanberewrittenasfollows: pAb1=1 4+1+ (4) pBb2=1 4+1+1 (4) pBe2=)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22+1+1 (4) 120

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Therefore,atthepriceequilibrium,theprotfunctionsforeachrmcanberestatedas ^A1=)]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qAe12, (4) ^B2=1 )]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2+i)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22, (4) andthenecessaryconditionsofoptimalityforeachrmgetsthefollowingform: @^A1 @qAe1=2 1++2)]TJ /F4 11.955 Tf 11.95 0 Td[(qAe1 (4) @^B2 @qBe2=1 1++2")]TJ /F5 11.955 Tf 11.95 0 Td[(2qBe2 1+e1 4+(qBe2)2)]TJ /F18 7.97 Tf 6.59 0 Td[(qBe2#)]TJ /F5 11.955 Tf 11.95 0 Td[((+2)qBe2 (4) Settingtheseequalto0,itiseasytoobtain qAe1=2 (1++2),and (4) qBe2< 2. (4) SimilartondingsinSection 4.4.1 andSection 4.4.2 ,itisrelativelystraightforwardtoshowthat0<<1.RepresentingtheratioofthemarketshareofFirm1'saccentuatedbrownproducttothetotalmarketshareofFirm2'sbrownandgreenproducts,<1pointsoutthatarminthepursuitofcommandingalargermarketshareisbetteroffemployingtheArchitectstrategy,presumingthatitscompetitorisimplementingtheAccentuatestrategy.EventhoughthermfollowingtheArchitectstrategycannotavoidthelossesinmarketshareofitsexistingbrownproduct,thenewgreenproductrecoupsthebrownproduct'slostsales,helpingthermsubsequentlyenjoyasuccessintotalmarketshare.ThenumericalanalysiscarriedoutforthiscompetitionscenarioalsoshowsthatarmchoosingtheArchitectstrategyinthepresenceofanotherrmchoosingtheAccentuatestrategystandstomakehigherprots(seeAppendix G fornumericaldataandresults).Notably,thisgapbetweentheprotsdoesnotnoticeablynarrowdownorwidenoutwithdifferingvaluesofmarginaladvertisingandproductredesigncosts. 121

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Inthefollowingthreesections,theduopolyenvironmentwherebothrmscompeteunderidenticalstrategychoicesisanalyzed. 4.4.4CurrentSetting-CurrentSetting Itisrstproposedthattwormscompeteunderthebasescenarioinwhicheachrmoffersasinglebrownproductintothemarket.Then,thekeydecisionsforbothrmsarethelevelsofbrownquality(i.e.,qCb1andqCb2),andthemarketpricesfortheirbrownproducts(i.e.,pCb1andpCb2).Giventhatno-purchaseoptionisnolongeraccommodatedforconsumers,themarketsharesofFirm1andFirm2aregivenrespectivelyasfollows: Cb1= 1+ (4) Cb2=1 1+ (4) where=e)]TJ /F5 11.955 Tf 6.59 -1.16 Td[((qCb2)]TJ /F7 7.97 Tf 6.58 0 Td[(qCb1)+(pCb2)]TJ /F7 7.97 Tf 6.59 0 Td[(pCb1).Basedonthemarketsharefunctions,givenqCb1andqCb2,eachrm'sprotmaximizationproblemtosetoptimalpricesis: C1=Cb1hpCb1)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qCb12i (4) C2=Cb2hpCb2)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qCb22i (4) Thenecessaryconditionsforoptimummarketpriceschargedbythetwormsare: @C1 @pCb1=0)pCb1=)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qCb12+1+ (4) @C2 @pCb2=0)pCb2=)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qCb22+1+1 (4) Evaluatingtheprotfunctionsforeachrmatthepriceequilibriumthenyields: ^C1= (4) ^C2= (4) 122

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Intherststage,theFOCsforeachrmare: @^C1 @qCb1=)]TJ /F2 11.955 Tf 5.48 -9.69 Td[()]TJ /F5 11.955 Tf 9.3 0 Td[(2qCb1+1 (4) @^C2 @qCb2=)]TJ /F2 11.955 Tf 5.48 -9.69 Td[()]TJ /F5 11.955 Tf 9.3 0 Td[(2qCb2+1 (4) Settingtheseequalto0,itisobtained qCb1=1 2, (4) qCb2=1 2. (4) Nowitmustbeshownthatthesecond-orderderivativeofprotfunctions^C1(^C2)withrespecttoqCb1(qCb2)when@^C1=@qCb1=0(@^C2=@qCb2=0)isnegative.Followingasimilarprocedureusedforthederivationoftherst-orderconditionsabove,itisstraightforwardtoshowthat @2^C1 @qCb12=)]TJ /F5 11.955 Tf 9.3 0 Td[(22 2++1<0, (4) @2^C2 @qCb22=)]TJ /F5 11.955 Tf 9.3 0 Td[(22 2++1<0. (4) Therefore,theprotfunctions^C1and^C2arequasi-concave,andqCb1=qCb2=1=(2)meansthatequilibriumpricesinthesecondstageareequalwithavalueof2+1=(4). Comparisonoftheresultsderivedforthemonopolyandduopolyenvironmentsunderthebasescenariohasthefollowingimplications.First,nomatterwhattheoutsidealternativeis(anotherprot-maximizingrmorano-purchaseoption),thermretainsofferinghisbrownproductatthesamequalitylevelgivenby1=(2).Thisalsoimpliesthatinaduopolisticmarketbothrmsselectthesamequalitywhichisthehighestpossibleone.Secondly,theoptimalqualityinbothmonopolyandduopolysettingsisadecreasingfunctionofmarginalcostofproduction.Finally,itisobservedthatwhentheunitcostofproductionisincreasedbyaxedamount-giventhatthemarginalcost 123

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ofqualityisunaffected-qualityofthebrownproductremainsunchanged,butthecostincreaseispassedontoconsumers. 4.4.5AccentuateStrategy-AccentuateStrategy Analternativeduopolyscenarioisconsideredherewherebytworms-currentlyofferingbrownproducts,ofquality1=(2)-competeundertheAccentuatestrategy.Theequilibriumconceptissimilarasintheprecedingsections-thatis,theobjectiveistondequilibriatothetwo-stagegamewherethelevelsofgreenqualitythatshouldbeaccentuated(i.e.,qAe1andqAe2)arechosenattherststageandpricesoftheaccentuatedbrownproducts(i.e.,pAb1andpAb2)atthesecond.Inthiscompetitionenvironment,themarketsharesofFirm1andFirm2aregivenrespectivelyasfollows: Ab1= 1+ (4) Ab2=1 1+ (4) (4) where=e)]TJ /F18 7.97 Tf 6.59 0 Td[((qAe2)]TJ /F7 7.97 Tf 6.58 0 Td[(qAe1)+(pAb2)]TJ /F7 7.97 Tf 6.58 0 Td[(pAb1).Then,givenqAe1andqAe2,eachrm'sprotmaximizationproblemtosetoptimalpricesis: A1=Ab1pAb1)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4)]TJ /F14 11.955 Tf 11.95 13.28 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qAe12 (4) A2=Ab2pAb2)]TJ /F5 11.955 Tf 16.91 8.08 Td[(1 4)]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qAe22 (4) Thenecessaryconditionsforoptimummarketpriceschargedbythetwormsare: @A1 @pAb1=0)pAb1=1 4+1+ (4) @A2 @pAb2=0)pAb2=1 4+1+1 (4) 124

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sothatpAb2)]TJ /F6 11.955 Tf 11.87 0 Td[(pAb1=1 )]TJ /F5 11.955 Tf 11.86 0 Td[(.Then,atthepriceequilibrium,theprotfunctionsforeachrmcanberestatedasfollows: ^A1=)]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qAe12 (4) ^A2=1 )]TJ /F14 11.955 Tf 11.96 13.27 Td[(h 2i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qAe22 (4) Intherststage,theFOCsforeachrmare: @^A1 @qAe1=2 1++2)]TJ /F4 11.955 Tf 11.96 0 Td[(qAe1 (4) @^A2 @qAe2= 1++2)]TJ /F4 11.955 Tf 11.96 0 Td[(qAe2 (4) Settingtheseequalto0,itisobtained qAe1=2 (1++2), (4) qAe2= (1++2). (4) Takingthedifferenceofthesetwoequationsyields qAe1)]TJ /F6 11.955 Tf 11.95 0 Td[(qAe2= 2)]TJ /F5 11.955 Tf 11.96 0 Td[(1 1++2. (4) Besides,providedthatpAb2)]TJ /F6 11.955 Tf 11.96 0 Td[(pAb1=1 )]TJ /F5 11.955 Tf 11.95 0 Td[(,theexpressionofyieldsanimplicitsolution =e)]TJ /F18 7.97 Tf 6.59 0 Td[((qAe2)]TJ /F7 7.97 Tf 6.58 0 Td[(qAe1)+1 )]TJ /F13 7.97 Tf 6.58 0 Td[(. (4) Nowcombiningequation( 4 )withequation( 4 )leadsto =eh2 2)]TJ /F17 5.978 Tf 5.75 0 Td[(1 1++2)]TJ /F19 7.97 Tf 6.59 8.8 Td[(2)]TJ /F17 5.978 Tf 5.75 0 Td[(1 i, (4) whichclearlyhasacandidatesolution=1.Basedonthissolution,fromequation( 4 )andequation( 4 ),thecandidateequilibriumsolutionsareqAe1=qAe2==(3)withthecorrespondingpricespAb1=pAb2=2+1=(4)accordingtoequation( 4 )andequation( 4 ). 125

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NowitmustbeshownthatqAe1(qAe2)maximizes^A1(^A2).Withoutlossofgenerality,considerFirm1.Thesecondorderderivativeof^A1withrespecttoqAe1isgivenas @2^A1 @qAe12=23(+2) (1++2)3)]TJ /F4 11.955 Tf 11.96 0 Td[(. (4) Atthecandidateequilibriumwhere=1,thisexpressiongetsequalto @2^A1 @qAe12=2 9)]TJ /F4 11.955 Tf 11.96 0 Td[(, (4) whichisnegativeaslongas<3p .Inotherwords,whenthisinequalityissatised,thereisasymmetricequilibriumoftherststagegamewithqAe1=qAe2==(3). 4.4.6ArchitectStrategy-ArchitectStrategy ThisscenariofocusesonaduopolycompetitionunderArchitectstrategywhereeachrmhastheoptionofalteringthepriceofitsexistingproductatthetimeofintroducinganewgreenproductintothemarket,whereasitsqualityisxedat1=(2).Themarketsharesideissimilarasintheduopolymarketstructuresstudiedintheprecedingsectionsandsothemarketsharesoftheproductsaregivenasfollows: Bb1=e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb1) e(1 2+qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb1)+e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe1)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Be1=e(qBe1)]TJ /F7 7.97 Tf 6.58 0 Td[(pBe1) e(1 2+qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb1)+e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe1)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Bb2=e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2) e(1 2+qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb1)+e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe1)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Be2=e(qBe2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBe2) e(1 2+qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb1)+e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe1)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2) (4) Basedonthateachrm'sprotmaximizationproblemtosettheoptimalpricesis: B1=Bb1pBb1)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4+Be1hpBe1)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe12i)]TJ /F14 11.955 Tf 11.96 13.27 Td[(h 2+i)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe12 (4) B2=Bb2pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4+Be2hpBe2)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe22i)]TJ /F14 11.955 Tf 11.96 13.28 Td[(h 2+i)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22 (4) 126

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Basedonthenecessaryconditionsforoptimummarketpriceschargedbythetworms,thepricemarkupsforthebrownandgreenproductsofeachrmappeartobeequalthatyieldsto pBb1)]TJ /F5 11.955 Tf 16.91 8.08 Td[(1 4=1 B2, (4) pBe1)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe12=1 B2, (4) pBb2)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4=1 B1, (4) pBe2)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22=1 B1, (4) whereB1=Bb1+Be1andB2=Bb2+Be2.Nowsuppose=B1=B2sothat =e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb1)+e(qBe1)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe1) e(1 2)]TJ /F7 7.97 Tf 6.58 0 Td[(pBb2)+e(qBe2)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe2),(4) basedonwhichthepricefunctionscanberewrittenasfollows: pBb1=1 4+1+ (4) pBe1=)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe12+1+ (4) pBb2=1 4+1+1 (4) pBe2=)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22+1+1 (4) Therefore,atthepriceequilibrium,theprotfunctionsforeachrmcanberestatedas ^B1=)]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2+i)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe12, (4) ^B2=1 )]TJ /F14 11.955 Tf 11.95 13.27 Td[(h 2+i)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe22, (4) andthenecessaryconditionsofoptimalityforeachrmgetsthefollowingform: @^B1 @qBe1= 1++2")]TJ /F5 11.955 Tf 11.96 0 Td[(2qBe1 1+e1 4+(qBe1)2)]TJ /F18 7.97 Tf 6.58 0 Td[(qBe1#e(1 )]TJ /F13 7.97 Tf 6.58 0 Td[())]TJ /F5 11.955 Tf 11.96 0 Td[((+2)qBe1 (4) @^B2 @qBe2=1 1++2")]TJ /F5 11.955 Tf 11.96 0 Td[(2qBe2 1+e1 4+(qBe2)2)]TJ /F18 7.97 Tf 6.58 0 Td[(qBe2#)]TJ /F5 11.955 Tf 11.96 0 Td[((+2)qBe2 (4) 127

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Settingtheseequalto0andtakingtheratioyields S)]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe1,qBe2e(1 )]TJ /F13 7.97 Tf 6.59 0 Td[())]TJ /F5 11.955 Tf 11.96 0 Td[(2qBe1 )]TJ /F5 11.955 Tf 11.96 0 Td[(2qBe2"eqBe1)]TJ /F18 7.97 Tf 6.58 0 Td[(qBe12 eqBe2)]TJ /F18 7.97 Tf 6.58 0 Td[(qBe22#)]TJ /F6 11.955 Tf 13.15 8.09 Td[(qBe1 qBe2=0 (4) astheequationdescribingputativeequilibria.NotethatthereexistsaqsuchthatqBe1=qBe2=qand=1asafeasiblesolutionforS)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe1,qBe2,anditisobtainedbytheimplicitsolutionofthefollowingequation: H(q) 3(+2)1 q)]TJ /F14 11.955 Tf 11.96 16.86 Td[(4 3+6+1)]TJ /F6 11.955 Tf 11.96 0 Td[(e(1 4+q2)]TJ /F18 7.97 Tf 6.59 0 Td[(q)=0 (4) OnthebasisoftheanalysesofallcompetitionscenariosstudiedinSection 4.4 ,thepayoffmatrixrepresentingthecorrespondingprotsofbothrmsforeachpossiblecombinationofstrategiescanbeformulatedasfollows: Firm2BaseAccentuateArchitect Base ^C2^C1 ^A2^C1 ^B2^C1 Firm1 Accentuate ^C2^A1 ^A2^A1 ^B2^A1 Architect ^C2^B1 ^A2^B1 ^B2^B1 Structuringasabargaininggameofalternatingstrategies(i.e.,Base,AccentuateandArchitect)thatcanbeimplementedbytworms,asubgameperfectNashequilibriumofthisgamecanbecharacterizedundersomeadditionalassumptionstoidentifytheoptimalstrategypairinacompetitivegreenlandscape. 4.5Summary Theincreasingconsumerdemandforgreenproductsiscreatingopportunitiesforcompaniestopromotethegreennessoftheircurrentofferingsandintroduceprotablenewgreenerproducts.Totheextentthatthesecompaniescanmeetorexceedtheseevolvingconsumerpreferences,theywillenhancetheirabilitytoincreasetheir 128

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marketshareandprotability.Oneofthekeyissuesinthiscontextishowarmshouldchoosetherightgreenproductdevelopmentstrategy.Recentanecdotal/casestudyhasindicatedthatthereexiststhreebroadstrategiesthatcompaniescanusetoaligntheirgreengoalswiththeircapabilities:(a)marketingthegreenattributesinherentintheirexistingproduct(i.e.,Accentuatestrategy);(b)introducingagreenproductdevelopedbytherm(i.e.,Architectstrategy);or(c)takingoverarmwhichoffersgreenproducts(i.e.,Acquirestrategy).Basedonthecasestudyevidence, UnruhandEttenson ( 2010 )hypothesizethatthebeststrategychoiceisdeterminedbythetwodimensions:greenattributesintheexistingproductlinesandgreenprocesscapabilities.However,thisframeworkisincompletefortworeasons.First,itofferslittleornoguidelinesonstrategychoiceforarmwhichhasanexistingbrownproductofferingwithgreenableattributesaswellassubstantialgreenproductdevelopmentcapabilities.Infact,inthissettingtherm'schoicebetweentheAccentuateandArchitectstrategiesneedstobeevaluated.Second,theperspectiveinthischapteristhatthereareotherkeydrivers(inadditiontogreenproductattributesandgreenprocesscapability)whichneedtobeintegratedinmakingthestrategychoice. Inordertoaddresstheseconcerns,thischapterprovidesinsightsintothestrategychoicebetweentheAccentuateandArchitectstrategiesusingastylizedapproachwhichincorporatesconsumerpreferencesforgreenquality,strategyspecicsupplysideeffects,andenvironmentalmandates.Fromatheoreticalperspective,notethatthisisoneoftherststudieswhichhasexaminedalternativegreenproductintroductionstrategies,andthisanalysisleadstoastructuralcharacterizationoftheoptimalgreenqualityandpricingdecisionsundereachstrategychoice,andanidenticationofthecriticalfactorsthatdrivethebeststrategychoicenotonlyinamonopolistsettingbutalsoundercompetition. Thekeymanagerialinsightsofthischapterareasfollows.Ifregulatoryconstraintscanbeeasilyachieved(orarenotimposed),thenacompanythatisrecognizedfor 129

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itsbrownproductinthemarketplacestandstobenetfromintegratingenvironmentalfriendlinessintoitsproductdesign.Nomatterwhatgreenproductintroductionstrategyischosenandimplemented,incorporatingenvironmentalgoodintoitsproductofferingstrategyhelpsstrengthentherm'smarketsharewhilesimultaneouslyprovidingbottom-linebenets.Ofcourse,thereissignicanteffortrequiredtoeitherrepositionandadvertiseitsexistingbrownproductasbetterfortheenvironmentundertheAccentuatestrategyorpromoteanewgreenproductundertheArchitectstrategy.Anotherresultworthnotingisthatregardlessofwhetherthermdecidesoneitherpromotingtheenvironmentalperformanceofitsexistingbrownproductorintroducinganewgreenproduct,itincreasesitsmarketshareandprotsandhence,establishesacompetitiveadvantageoverarmholdingontoitsexistingbrownproductandexistingmarketingstrategy.Finally,itisobservedthatstrictenvironmentalregulationsdriveupthepricesofarm'sproductofferingsandcouldhindertheprotabilityofeachgreenstrategychoice. Table4-1. ComparisonofCurrentandAccentuatestrategieswhen=$4 qAe2^C1^A2 0.200.9990.0170.9991.0010.400.9960.0350.9961.0020.600.9900.0510.9901.0050.800.9820.0680.9821.0091.000.9720.0860.9721.014 130

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CHAPTER5GREEN,GREENERORBROWN:CHOOSINGTHERIGHTCOLOROFTHEPRODUCT 5.1Overview Thewordgreenhasenteredtheagendainmanycompaniestoday,and Klenier ( 1991 )bringsintofocusthreeimportantquestionsthatanycompany'sgreenagendashouldinclude:(1)Whatgreenproductsshouldacompanybringtothemarket,andwhatmaterialsshoulditincludeinthem?,(2)Howshouldacompanyalignitsenvironmentalactionswithpublicperceptions?,and(3)Howcanacompanyengageinenvironmentalprotectionatthesource,ratherthancapturingorlteringpollutantsdownstream?Thus,arm'sdecisionofhowtogogreenismainlydrivenbydecidingwhattypeofagreenproducttoofferandwhatfeaturestoincorporateintothisproduct,aswellasunderstandingtheenvironmentallyconsciousconsumermarketsegments.Relatedtothispoint, Hopkins ( 2010 )pointsoutthatarmrecognizedforitsbrownofferingscanmouldgreenconsumers'perceptionsaboutitsproducteitherbyaddinggreenfeaturesintoitsexistingproductorbycomingupwitharadicallydifferentdesignthatisunabashedlybetterfortheenvironment.Theseobservationsmotivatethefocusofthischapter.Theintenthereistoanalyzetwoalternativestrategiesarmwithanexistingbrownproductcanchooseandimplementforintegratingenvironmentalbenetsintoitsproductdesign,andhelpbrandexecutivesatconsumerproductmanufacturerstounderstandthesestrategiesneededtondaprotablepathtoeffectivelyaddressingthechangingneedsoftoday'sconsumerswithaheightenedenvironmentalconsciousness.ThischapterfundamentallydistinguishesfromChapter 4 inhowconsumermarketischaracterizedsuchthatthemodelingframeworkproposedhereincorporatestwoimportantcharacteristicsofgreenmarketplace.First,asdescribedindetailinChapter 1 ,intoday'smarketplacetherearemanyshadesofgreenconsumers,eachhavingdifferentattitudesandvaluesthatleadthemtoviewparticularofferingsdifferently.Purchasingbehaviorvariessignicantlyacrosstheseconsumers,suggestingthatnotall 131

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productsareaffectedequallybyconsumers'environmentalconcerns.Thisnecessitatesacleversegmentationscheme-ratherthendividingwholeconsumermarketintotwodistinctcampsasBrownsandGreens-forthermstohelpthemcreateasensibleroadmapofhowtochooseamarket-facinggreenproductstrategythatworks.Second,greenproductscanevenearnconsiderationfromconsumersthatdemonstratetheleastenvironmentalresponsibilityofallthesegments.Likewise,eventhoughtheylineuptheirshoppingchoiceswiththeirgreenvaluesandexpresstheirenvironmentalconcernsinproductstheybuy,eventhemostenvironmentalistconsumersaremotivatedbyuniversalneedsandthistranslatesintopurchasingstrategieswithimplicationsforthewaygreenerproductsaredesigned.Tosummarize,consumersreachdifferentlytogreenappealsandanopportunityexistsforcompanymanagerstopracticesellingdifferentproductswithdifferentappealstodifferentsegments. Theremainderofthischapterisorganizedasfollows.Section 5.2 describesthemodelingframeworkthatinvolvesthedescriptionofalternativegreenproductdevelopmentstrategiesandgreenconsumermarket,andthisisfollowedbythemodelanalysisinSection 5.3 .InSection 5.4 ,theeconomicandenvironmentalconsequencesofeachstrategychoiceanddrivers/obstaclesofimplementingeachstrategyarediscussed,andSection 5.5 containsconcludingremarks. 5.2ModelPreliminaries Thefocushereisonaprot-maximizingmonopolistrmthatcurrentlyoffersabrownproducttoaconsumermarketdividedintothreecampsbycustomers'environmentalattitudesandshoppingbehaviors,andthatrethinksthewayshowitsproductcanberepositionedtoappropriatethefullpossiblevaluethesecustomers'shiftinggreenshoppinghabitswillrelinquish.Inresponsetochangingpatternsinconsumers'shoppingbehavior,thermcannimblyne-tuneorradicallyadjustitsproductthroughfollowingoneofthreeways:(a)realigningtheprevailingbrownproductwithoutaddressingenvironmentalconcerns;(b)greeninguptheexistingproduct 132

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byaddinggreenfeatures;or(c)replacingthecurrentbrownproductwithanewgreenproduct.ThesethreechoicesarereferredtoasGreeningOff,GreeningUpandGreeningOutstrategies,respectively,onwards.Inwhatfollows,thegreenconsumermarketandhowitissegmentedintodifferentshadesofgreenarebrieydescribed,anditisfollowedbythedelineationofthecoststructureofeachstrategy. 5.2.1GreenConsumerSegments Asnotedearlier,consumersareincreasinglyfactoringgreensentimentsintotheirshoppingbehaviors,andtheincidenceofgreenpurchasingissoprevalentnowadays.Noteveryshopperrespondstogreenproductsinthesameway,though.Thatmotivatesrmstosegmentconsumersbytheirshoppingbehaviorandcommitmenttogreeninordertozeroinontheirmostappropriatetargetcustomers.OnesuchsegmentationisprovidedbyGfKRoperPublicAffairs&MediaaspresentedinChapter 1 .Recallthataccordingtotheir2002publicopinionsurveyonenvironmentalissues,thevastmajorityoftoday'sconsumerscanbeclassiedassomeshadeofgreen,signifyingtheirinvolvementingreenpurchasingandenvironmentalvalues,asfollows: TrueBlueGreens:This10%oftheU.S.populationarethemostenvironmentallyconsciousandholisticallyoriginatedconsumers.Theybelievethatindividualactionscanmakeadifferenceinsolvingenvironmentalproblemsandaremostlikelytowalkthegreentalk.Politicallyandsociallyactive,theyregularlyboycottproductsmadebycompaniesthatarecarelesstowardtheenvironment,rallysupportforenvironmentalandsocialcauses,anddedicatetimeandenergytoinuenceotherstodothesame. GreenbackGreens:AboutoneintwentyconsumersintheU.S.fallsintotheGreenbackGreenssegment.GreenbackGreensseethemselvesascommittedtosustainability,butinreality,theyarenotaspoliticallyactiveandasdedicatedtogreenpurchasingorbehaviorsastheirTrueBluecousins.Nevertheless,theyaresonamedbecauseoftheirwillingnesstopayapremiumforenvironmentallyfriendlyproductsorforegocertainconveniencestoensureacleanerenvironment. Sprouts:Sprouts,representingtheone-thirdoftheU.S.population,arealsonamedasenvironmentalfence-sitters.Theyshowmiddlinglevelsofconcernaboutenvironmentalproblems.Eventhoughtheyareinclinedtoadjusttheirshoppingbehaviors,theyarenotutterlyresoluteaboutwhichsideoftheenvironmentalfencetheyareon,andsocapableofgoingeitherway.With 133

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moreandcarefuleducation,theyareoftenthesourcefornewGreenbacksandTrue-Blues. Grousers:Grousers,representing15%oftheU.S.population,areuninvolvedinenvironmentalissues.Theyarecynicalabouttheirabilitytoprotecttheenvironment,andbelievethatresponsibilityactuallybelongstothegovernmentandlargecorporations.Truetotheirname,Grouserscomplainthatgreenproductscosttoomuchanddonotperformaseffectivelyastheirbrowncounterpartsorthattheyaretoobusytoshopgreen. BasicBrowns:37%oftheU.S.populationisclassiedasBasicBrowns.IncontrasttoTrue-BluesandGreenbacks,BasicBrownsareessentiallyunconcernedabouttheenvironment.Theydonotcareabouttheenvironmentalissuesandtheyareconvincedthatbuyinggreenproductscannotmakeadifferenceinhelpingtoprotectandimprovetheenvironment. Thesegurespointoutthatenvironmentalattitudesvaryacrosstheshadessuchthatthedeepertheshadeofgreenis,themorelikelycorrespondingconsumersaretopurchasegreenproducts.ThedeepestaretheTrueBlueGreensandGreenbackGreensthatqualifyasthetrueenvironmentalists.InthemiddlearetheSprouts,referredastheswinggroupthatcangoeitherwayonanyenvironmentalissue,followedbynon-environmentalistsinnature,namelyGrousersandBasicBrowns.Itisimportanttonotethateventhoughgreenproductsdonotappealtoeverysingleconsumerinthemarketyet,thenumberofconsumerstoutingatrueblueorgreenbackperspectiveincreasesovertime,and15%to48%oftheentireconsumermarketcouldbeattractedtogreenproducts,dependingonperceivedbenetsassociatedwithgreenproducts.TrueBluesandGreenbacksare,inaddition,highlydesirabletargetshoppers,representinghighvaluesegmentsthatarelesspricesensitive,morelikelytorepurchaseproductsandthattendtostickwithagreenproductoncetheyhaveadoptedit.Theirpotentialtoexertincreasingpressureontheirpeers-particularlyontheSprouts,thesecondlargestofthevegroups-alsounderscoresalargeopportunityforcompanymanagerswhocanwinovertheseinuentialTrue-BluesandGreenbacks. Priortomarketingandprovidinggreenerproducts,understandingtheeffectsofgreenconsiderationsonshoppingbehaviorofthetargetconsumermarketisvery 134

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essentialforarmtodeterminewhethergreennessisakeyattributeinuencingshoppingdecisionsandhowitshouldbeincorporatedintotheproductdesign.Everygreenconsumersegmenthasdistinctivetastesandshoppingbehaviors-theyarenotindifferenttothevalueofferedbygreenproducts.Inordertorespondconsumers'varyingdegreesofgreenshoppingbehaviors,herethetargetconsumermarketissegmentedintothreeshadesofgreen:Greens,Fence-SittersandBrowns.TheGreenssegment(G)consistsofTrueBluesandGreenbacks;theFence-Sitterssegment(F)iscomprisedofSprouts;andnally,GrousersandBasicBrownsconstitutetheBrownssegment(B).ItisassumedthatthetotalnumberofconsumersinthemarketisM,andtheproportionofconsumersfallingintotheGreens,Fence-SittersandBrownssegmentsaredenotedbyrG,rFandrB,respectively,withrG+rF+rB=1.Basedondifferingpurchasingbehaviorsofgreenconsumersegments,thenextsectiondescribestheindividualpurchasedecisionofaconsumerineachmarketsegment. 5.2.2Consumers'ValuationoftheProduct Awarenessofenvironmentalissuescontinuestogrowanditsinuenceonconsumerbehaviorandproductchoicescontinuestoevolve.Today'sconsumershavehigherexpectationsfortheproductstheybuyandenvironmentalattributesemergeasanewdimensionofproductquality.Therefore,itcanbepositedthataproduct'sdesignattributescanbeclassiedintotwodistinctdimensions:traditionalandenvironmentalattributes-sothatdesigningaproductinvolvessettingeachattributelevel.Thiscanbeinterpretedastheaggregationofmultipleattributesintotwomajordimensions.Anenvironmentalattribute,forinstance,mayrepresentasetofproductcharacteristicsthataremoreenvironmentallysustainablesuchasrecycledcontent,energy-andfuel-efciency,andnon-toxicity,whileatraditionalattributecanbeconsideredasacompositemeasureofsafety,availabilityandstyle.Giventheassumptionthatbothattributesbehavelikequalities(i.e.,consumersalwaysprefermoreofattributesthan 135

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less),fromhereonwardstheywillbecalledastraditionalandenvironmentalqualities,denotedbyqtandqe,respectively. Consumersinaverticallydifferentiatedmarketagreeontherankingofproductquality,yettheydifferintheirwillingnesstopayforquality.AsdescribedinSection 5.2.1 ,theconsumermarkethereiscomprisedofthreedistinctmarketsegments,namelyGreens,Fence-SittersandBrowns,withdifferingwillingnesstopayforagivenproduct 1 .TheutilitythataconsumerinBrownssegmentderivesfromaproduct(qt,qe)isgivenbyUB=vtqt+Bveqe)]TJ /F6 11.955 Tf 12.45 0 Td[(p,wherevt(ve)isthemarginalwillingnesstopayormarginalvaluationontraditional(environmental)quality,pisthepriceoftheproduct,andB2(0,1)representsBrowns'responsivenesstoenvironmentalbenetsintegratedintotheproductdesign 2 .NotethatthevalueofBreliesonwhich-andtowhatextent-product-relatedenvironmentalissuesconcernBrownssegmentconsumers.Inpractice,greenappealsarenotlikelytoattractBrownssegmentconsumers.Ontheotherhand,environmentalbenets,suchasenergy-efciencyandwater-efciency,canhelpcost-consciousBrownssegmentconsumerssavemoneyonenergyandwaterbillsoverthelongterm,andsocanbeapowerfulmotivator 3 .Similarly,aBrownssegmentconsumer,forexample,mightownahybridbecauseitismorefuel-efcientandsohecaneventuallysavemoney(beyondthepurchasepremium),orhecanmakefewertripstothellingstation.Suchgenuinevalue-addedbenetsofcostsavings,convenience, 1 Themarketissegmentedsuchthatconsumerswithinasegmentarehomogenousintheamountofutilitytheyderivefromthepurchaseofaproduct.2 Followingtheestablishedliterature,thenotionofconsumervaluationisusedtodescribetheutilityderivedbyaconsumer,andconsumer'svaluationofaproductisassumedtobealinearfunctionofitsqualitylevels.3 Forinstance,EnergyStarRratedwashersuse30%lessenergyandatleast50%lesswaterthandotraditionalwashers,whileEnergyStarRrefrigeratorsuseatleast15%lessenergythandostandardmodels.Likewise,CFLbulbsuseabout75%lessenergythanstandardincandescentbulbsandlastsup10timeslonger. 136

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andincreasedhealthandsafetycanresonatewithBrownssegmentconsumervaluesandpropelthemforgreenproductswhileatthesametimepromotingenvironmentalbenets-adualfeatureleadingtoahigherBvalue.Incontrast,becausetheyarenottunedinorturnedontheenvironment,Brownsaremostlikelytobeindifferenttoenvironmentalconsiderationssuchashowaproductismanufactured,whererawmaterialsareprocuredorwhetheraproductanditspackagingcanbesafelydisposedof-keepingBatlowervaluescloseto0. Inlikevein,givenaproduct(qt,qe)offeredatpricep,aGreenssegmentconsumer'sassociatedutilityisgivenbyUG=Gvtqt+veqe)]TJ /F6 11.955 Tf 12.74 0 Td[(p,whereG2(0,1)representstheextentofGreens'approvaloftheproduct'snon-greenattributes.Itcanbearguedthateventhegreenestconsumersnolongerbuygreenproductsjusttoprotecttheenvironmentandmanygreenproductshavefailedbecauseofcompanies'focusontheirproducts'greennessoverthebroaderexpectationsofgreenconsumers 4 .Roper's2002publicopinionsurveyndsthatoneofthetopreasonsgreenconsumersdonotbuyagreenproductisthatthisproductmayrequiresacricesinusersafety.Then,itcanbeunderlinedthateventhoughaltruistically-drivenordeep-greenconsumerswillbuygreenproductsregardlessoftheireaseofaccessibilityorstyle,theymustbeconvincedoftheparticularnon-greenbenetsoftheseproducts(e.g.,safety).ThisinturnshowcasesthatGreenssegmentconsumers,seekingoutproductsthatsynchronizewiththeirdiscerningenvironmentalstandards,favortheproductbasedonitsgreenbenets,buttheyalsodrivepositivevaluesfromthenon-greenattributesofthisproduct,capturedbypositivevaluesofGinthismodel.Fromhereonwards,forthesakeofclarity,Browns 4 See Levitt ( 1960 )wherethecommonpitfallofcompanies'tunnelvisionthatfocusesonmanagingproducts(i.e.,productfeaturesandfunctions)insteadofmeetinggreencustomers'needs(i.e.,adaptingtoconsumerexpectationsanddesires)ischaracterized. 137

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andGreenssegmentsareassumedtobesymmetricwithrespecttotheircalculationofaproduct'svalue,meaningthatB=G= 5 ConsideringthemiddlingsegmentFence-Sitters,recallthatSproutsisakeygroup,sincetheyhaveenvironmentalattitudesthatcancutbothwaysandsoarecapableofgoingeitherway,whileBrownsandGreenssegmentsaremorestaticandlesslikelytoexhibitmovementovertime.Sproutshaveambivalentattitudestowardsbuyinggreenproducts,and GinsbergandBloom ( 2004 )statethattheycanbepersuadedtobuygreenifappealedappropriately.Therefore,theutilityderivedbyaconsumerintheFence-Sitterssegmentfrompurchasingaproductofqualitylevels(qt,qe)canbeexpressedasUF=vtqt+veqe)]TJ /F6 11.955 Tf 12.61 0 Td[(p.TheFence-Sittersegmentconsumers'utilityfunctionconrmsthatshopperspositionedonthefenceusetraditionalandenvironmentalattributesaspartoftheirpersonalformulaforrecognizingthevalueofaproduct,andfullyintegratetwodistinctqualitiesintotheiractualbuyingdecisions.TheutilityfunctionoftheGreenssegmentshowsthattheseconsumersprioritizeenvironmentaboveotherproductfeaturesandmaketheirpurchasingdecisionssolelybasedonenvironmentalconsiderationsinproductdesignwheneverpossible.Onthecontrary,accordingtotheirutilityfunction,theBrownsegmentconsumersrejectenvironmentalconsiderations,andlookforandbuyproductsthatmeettheirnon-greenpurchasingcriteria-andthisnon-greencriteriamightinfactbeanenvironmentalbenetsuchastheenergy-efciencysoughtbycost-consciousconsumers. 5.2.3CostStructure Onthesupplyside,themonopolistrmintendstoserveallthecustomersintargetedmarketsegment(s)witheitherasingle-attributeproduct(i.e.,abrownproductcharacterizedsolelybyatraditionalattributeqtoragreenproductrepresentedsolely 5 Incorporatingthisassumptioninthemodelsimpliestheanalysisbutdoesnotchangethequalitativenatureoftheresults. 138

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byanenvironmentalattributeqe)oratwo-attributeproduct(i.e.,agreened-upproductcomposedofbothtypesofattributes).Basedontheargumentputforwardby Moorthy ( 1984 )thatproductioncostincreasesatafasterratethantheconsumers'willingnesstopay,thecostofsupplyingaproduct-regardlessofwhetheritisabrown,greenorgreened-upproduct-increasesquadraticallywithitsqualitylevel(s) 6 .Morespecically,itisassumedthattheunitcostofsupplyingabrownproduct(qt)andagreenproduct(qe)aregivenbyctq2tandceq2e,respectively,wherectandcearepositivecostcoefcients 7 .Similarly,theunitcostofproductionforthegreened-upproduct(qt,qe)isreectedbycostfunctioncu(qt+qe)2,wherecu>0.Notethatcostcoefcientsct,ceandcuherereectthedifferencesincostofproducingaproductacrossdifferentqualitytypes. Inadditiontotheper-unitvariableproductioncosts,thetotalcostofagreenproductandagreened-upproductcomprisesanotherstrategyspeciccomponent.InimplementingtheGreeningOutstrategy,thermisdestinedtoincurupfrontcostsfromintroducinganewgreenproductintothemarketforprocessR&D,marketresearchandotherrelevantexpenses.Beingconsistentwiththepreviousliteratureonnewproductdevelopment(e.g., Chen ( 2001 )),thepresumedsunkcostsofdevelopingandlaunchingthegreenproductisrepresentedbyaconstantN>0.UnderthestrategyofGreeningUp,thermimprovestheenvironmentalqualityofitsexistingbrownproductbydesigningbadmaterialsoutoftheproductorreplacingitsbadmaterialswithbetterones.SuchR&Drelatedeffortsofthermdirectlytranslatesintoaxedcostofproductredesign(e.g.,costofdevelopingrenewablepackagingmaterial),whichisassumed 6 Giventheassumptionthatbothattributesbehavelikequalities,itisreasonabletofurtherassumethatthecostofofferinganattributeincreaseswiththeattributelevel.7 Notethatthisfunctionalformfortheperunitproductioncostofaproducthasalsobeenusedin Moorthy ( 1984 )and Chen ( 2001 ). 139

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tobeconvexandstrictlyincreasingintheenvironmentalqualityqedesignedintotheexistingbrownproductandgivenbyFq2ewithF>0 8 Basedonthisarticulationofproductrepositioningstrategies,relevantmarketsegments,theindividualconsumerpurchasingdecisionineachsegmentandcoststructureofeachstrategychoice,nextsectioncharacterizesthekeyproductdevelopmentandpricingdecisionsforthemonopolist. 5.3Analysis:ModelFormulation 5.3.1GreeningOffStrategy Underthisstrategy,armthatcurrentlyoffersasinglebrownproduct(qt,p)staysonthetraditionaltrackbyholdingontoitsexistingbrownproductandseekingtobalanceconsumers'needsforperformanceandaffordabilitywithoutanyconcernforenvironmentalconsiderations.Therm'spotentialshopperbaseismadeupofBrowns,Fence-SittersandGreenssegmentconsumers,becauseitsbrownofferingcanmakeitswaytotheseconsumers'shoppinglistsbasedsolelyonitstraditionalattributes.RecallfromSection 5.2.2 thatabrownproduct,ofqualityqt,deliversavalueofvtqttoBrownsandFence-Sitters,whileGreensvaluethesameproductdifferentlyatvtqtwith01.Lookingtocashinonitsexistingbrownproduct,thermcanthentakeadvantageofsuchasegmentedconsumermarketstructure-asitmakesextractingvalueandmoderatingdemandpossible-byusingoneoftwodifferentpricingoptions: i. ThermcantargetitsexistingbrownproductspecicallyatonlyBrownsandFence-Sittersconsumersbysettingasellingpriceequivalenttothesetwosegments'willingnesstopayforaunitoftraditionalquality(i.e.,vtqt)-amovethatenablesthermtoextractallconsumersurplusfromBrownsandFence-Sitterssegments.Nonetheless,askingGreenstoacceptaproductwithoutanyenvironmentalbenetsatfairlyhighpricesislikelytokeepthese 8 Thequadraticstructureofproductredesigncostisanapproximationofageneralconvexcostfunctionwidelyobservedinpractice,andithasbeencommonlyemployedintheresearchliterature(e.g., Lacourbeetal. ( 2009 ). 140

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customersawayfrompurchasingtheproductasthevaluationtheyplaceonthebrownproductwillfallbelowitssellingprice(i.e.,vtqtp 1)]TJ /F6 11.955 Tf 11.96 0 Td[(rG. Proof. Itisobtainedbycomparingtheoptimalprotfunctioni1giveninequation( 5 )withtheoptimalprotfunctionii1giveninequation( 5 ). 141

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ItisseeninProposition 5.1 thattwomaincharacteristicsoftheGreenssegmentaffectstheparametersbywhichthermformulatesthepricingstrategyforitsexistingbrownproduct.ThepricingpolicyundertheGreeningOffstrategyappearstohaveadirectlinktothewaystandardfeaturesofthebrownproductareattributedtoGreenssegmentconsumersandtotherelativesizeofGreensmarketsegment.Atthispoint,thermwoulddowelltoaskitselfthisquestion:AresufcientnumbersofGreensconsumerswillingtopaymoreforthenon-environmentalfeaturesIoffer?IftheprevailingbrownproductislikelytoreceivehighdegreeofacceptancefromtheGreensconsumersandserveableGreenssegmentpopulationismoderatelyhigh,thenseekingtoreachouttoallthreesegmentsinthemarketisverylikelytotranslateintohigherreturninrevenuesandprotsthanthoseearnedbyconcentratingonlyonBrownsandFence-Sitterssegments.Ifthevalueofislow,thermearnssmallerprotmarginsfromitscompletemarketcoveragepricingapproach,andtheincreaseinthenumberofunitssoldmayfailtoturnthoseintogrowthinrevenuesandprots-infact,quitetheoppositecanoccur. 5.3.2GreeningOutStrategy Underthisstrategy,drivenbytheunderlyingfactthattheburgeoning,highlydesirableGreenssegmentshoppershaveunmetneedsandwantsthatareattributedtotheirenvironmentalconcernsandthatawaitasolution,thebrownrmdiscontinuessellingitsbrownproductandembarksuponanentirelynewordifferentproductconcept-i.e.,agreenproductqewithminimal,ifnotzero,environmentalimpact.TheprimaryendgoalofthisradicalchangeistogetanenvironmentallypreferablesubstituteforthetraditionalbrownproductintotheGreensandFence-Sittersconsumers'hands-whoplaceahighpriorityonenvironmentalquality.Nevertheless,thermcanalsoimproveconsumerappealforitsenvironmentally-sensitiveproductbypositioningitsenvironmentalfeaturesintoadvantagesthatresonatedwithBrownssegmentconsumervalues.WhenBrownssegmentconsumersareconvincedofthedesirablenon-green 142

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benetsofanenvironmentallyfriendlyproduct(e.g.,cost-savings),theyaremoreinclinedtoadoptit.Then,therm'snewgreenproductcanappealtomerelyrelativelylucrativeGreensandFence-Sittersmarketsegmentsandcommandapricepremiumorserveoverallconsumermarketbyofferinggreenbenetsthatcrediblyshowcasenon-greenvalueBrownssegmentconsumersdesireatalowerprice.Thetwodistinctpricingstrategiesthatenablethermtocapturethefullpossiblevalueofitsnewgreenofferingbystronglyinuencingconsumerpurchasedecisionscanbedescribedasfollows: i. Thermcanvaryitsgreenproduct'spriceaccordingtoGreensandFence-Sitterssegmentcustomers'latitudeofpriceacceptance,whichisarangeofpossiblepriceswithinwhichpricechangeshavelittleornoimpactontheseconsumers'purchasedecisions,expressedbyveqe.TherelativeimpactofsuchpricingpolicyonBrownsconsumers'purchaseintentionsorperceptionsofpricefairnesswillbeadversethough,unlessenvironmentalbenetsoftheproductappealtotheirself-interest(i.e.,ifisnotequalto1).Bypricinginthismanner,thermmayverywellraiseitsprotmarginspergreenproducttoveqe)]TJ /F6 11.955 Tf 12.4 0 Td[(ceq2e,butsufferfromaguaranteeddecreaseinitssales,ofvalueMrB,duetoexclusionofBrownsfromtheconsumptionactivity.Then,theprotmaximizationproblemofthemonopolistrmgetstheformofi2=M(rG+rF)(veqe)]TJ /F6 11.955 Tf 12.36 0 Td[(ceq2e))]TJ /F6 11.955 Tf 12.36 0 Td[(Nwithqe0,yieldingtheoptimalvaluesforenvironmentalqualityandprotasfollows: qe=ve 2ce (5) i2=M(rG+rF)v2e 4ce)]TJ /F6 11.955 Tf 11.95 0 Td[(N (5) ii. InacontinuingefforttoincreasethecollectivemarketshareofitsnewgreenofferingthroughadditionallycapturingmainstreamBrownssegmentcustomers,thermcanpushthesalesofthegreenproductbyadjustingitspricesaccordingtoBrowns'willingnesstopayfortheenvironmentalbenetsitoffers(i.e.,veqe).PricingbasedonBrowns'valuationongreenproductnotonlyinducesthesecustomerstopurchasethegreenproducttheyotherwisewouldnothaveconsidered,butalsocreatesapositiveconsumersurplusforGreensandFence-Sitterswhoarewillingtopayhigherprices-andsowhowillbenetfromlowerprices.Thisincreasesthenumberofcustomersthatcanbeservedunderthepreviouspricingoption(i.e.,M(rG+rF))toM(rG+rF+rB).Basedonthatthemonopolistrm'sprotmaximizationproblembecomesii2=M(veqe)]TJ /F6 11.955 Tf 12.09 0 Td[(ceq2e))]TJ /F6 11.955 Tf 12.1 0 Td[(Nwithqe0,andtheoptimalvaluesforenvironmentalqualityandprotare 143

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obtainedasfollows: qe=ve 2ce (5) ii2=M2v2e 4ce)]TJ /F6 11.955 Tf 11.96 0 Td[(N (5) Nowtwopricingregimes-onthebasisoftheircorrespondingprots(i.e.,i2andii2)-thermshouldconsiderundertheGreeningOutstrategytotransformitsnewgreenproductintoaprotableofferingcanbecompared,andsowhatfactorsaredrivingeachpricingstrategychoicecanbeidentied. Proposition5.2. UndertheGreeningOutstrategy,thermreapshigherprotswithsettingitsgreenproduct'spricesuchthatitisarepresentativeofwhatBrownssegmentconsumersarewillingtopay,onlywhen>p 1)]TJ /F6 11.955 Tf 11.96 0 Td[(rB. Proof. Itisobtainedbycomparingtheoptimalprotfunctioni2giveninequation( 5 )withtheoptimalprotfunctionii2giveninequation( 5 ). NearlymirroringthendingscorroboratedinProposition 5.1 ,Proposition 5.2 showsthatpricingdecisionsundertheGreeningOutstrategyaredrivenbytwomainconstraints:(1)howmuchBrownssegmentconsumersarewillingtopayforenvironmentalbenets,and(2)howmanyconsumersintheBrownsegmentcanbeservedbyagreenproduct.Then,twomajorcharacteristicsoftheBrownsmarketsegmentchangeboththeprotmarginandmarketsharesideoftheequation.Ontheprotmarginside,rm'sfailuretoaddvalue-addedbenets(e.g.,cost-effectivenessorhealthbenets)intoitsgreenproductimpliesthegreenproductwouldnotbeappealingtoBrownscustomerswhoareindifferentorhostiletogreenattributesingeneral.Whentherm'sgreenproductisperceivedastoogreenbyBrownscustomers,theirwillingnesstopaydropsoffandthermwouldprobablynotbeabletocapitalizeonitseffortstoservemorevariedcustomertastesinmarket.Onthemarketshareside,apotentiallossintherm'sbottomlineduetoBrowns'unresponsivenesstogreennesscanpotentiallybeoffsetbyarelativelyhighersizeoftheBrowns'segmentinoverall 144

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consumermarket.Ifasignicantportionoftherm'scurrentcustomersfallwithintheBrownssegment,thenthermcanstandtogainfrompricingaccordingtoBrowns'valuationandsobroadeningthemainstreamappealeveniftheydonotthinkthegreenproductisrelevanttotheirshoppingneeds. 5.3.3GreeningUpStrategy UndertheGreeningUpstrategy,therm'sexistingbrownproductisstreamlinedtoreducewaste,cutenergyandwateruse,lowercarbon-emissions,minimizeuseofmaterials,andsoforth-inotherwords,thermkeepsdeliveringitsbasicbrownproductwithtraditionalqualityqt,butthatprovidesatleastoneadditionalenvironmentalbenetrepresentedbyqe.Theadditionalenvironmentalbenet(s),properlyconnectedwithtastesandbuyingbehaviorofshoppershavingdifferingenvironmentalattitudes,helpthesecustomersbetterappreciatetheprevailingproduct,whichinturnmerittherm'saskingforhigherpricesforadditionalenvironmentalfeaturesthataddcosttoitsexistingbrownproduct.Then,bydecipheringwhattheaveragecustomerinatargetedsegmentwantsandwhatgreenfeature(s)toaddintothebrownproduct,thermcanextractadditionaleconomicvaluefromitsexistingproduct,whilekeepingitscurrentbusinesshumming.Relatedtothispoint,becauseoverallconsumermarketittargetsisslicedintoBrowns,Fence-SittersandGreenssegments,thermcanchooseamongthreedifferentpricingschemestobetterleveragetheheterogeneityinvaluationthatthesecustomersputonitsgreened-upproduct: i. Thermcanequatethepriceofitsgreened-upproduct(qt,qe)withFence-Sitterssegmentconsumers'willingnesstopaywhichisgivenbyvtqt+veqe.Offeringthesamebrownproductwithadditionalenvironmentalbenetsatsuchpricepoints,however,maycauseBrownsandGreenssegmentconsumersturntheirbackontherm,becausethevaluetheseconsumersaccordtotherm'senvisionedproduct(i.e.,vtqt+veqeandvtqt+veqe,respectively)wouldbemisalignedwithitsrevisedprice-unlessisequalto1.BrownsandGreenswouldresisttheoverpricedenvironmentalbenetsandbasicproductfeaturestheyfoundlessmotivating,respectively,andthermwouldhavetoyieldupthesetwoconsumersegments.Inthiscase,relativepricehikesturnthesizeofaddressablemarketsizedownwardtoMrF,andthermfacestheprot-maximizationproblemstated 145

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byi3=MrF(vtqt+veqe)]TJ /F6 11.955 Tf 12.25 0 Td[(cu(qt+qe)2))]TJ /F6 11.955 Tf 12.26 0 Td[(Fq2ewithqt,qe0.Assumingthatthenecessaryconditionsforoptimalityhold(i.e.,FvtMrF(ve)]TJ /F6 11.955 Tf 11.98 0 Td[(vt)cuandve>vt),theoptimalsolutioncanthenbeobtainedasfollows: qt=vt 2cu)]TJ /F6 11.955 Tf 13.15 8.08 Td[(MrF(ve)]TJ /F6 11.955 Tf 11.96 0 Td[(vt) 2F (5) qe=MrF(ve)]TJ /F6 11.955 Tf 11.96 0 Td[(vt) 2F (5) i3=MrFv2t 4cu+MrF(ve)]TJ /F6 11.955 Tf 11.95 0 Td[(vt)2 4F (5) ii. InsteadofappendingenvironmentalbenetsatraisedpricesthatarebalancedagainstFence-Sitters'willingnesstopay,thermcanchargewhatthecombinationoftraditionalandenvironmentalattributesdesignedintothegreened-upproductisworthtoGreenssegmentconsumerswhoareloathtopayhighpricesfornon-greenattributes-suchthatpu=vtqt+veqe.FromtheFence-Sitters'perspective,suchapricingapproachshouldmeanthattheseFenceSitters'perceivedbenetsfrompurchasingthegreened-upproductwouldoutweighitscosts,andtheywouldbewilling,eveneager,tobuythegreened-upproduct.TheramicationofhowBrownswouldreacttomoderatelysetpricesthatarealignedwithFence-Sitters'willingnesstopayisdependentupontherelativevaluesofveqeandvtqt.Ifvtqtveqe,thenthepriceresonateswithwillingnesstopayoftheBrownssegmentconsumerswhointurngravitatetowardsthegreened-upproductandsothermholdsontotheentireaddressablemarket.Otherwise,theydonotseethepriceasindicativeofwhattheyshouldpayforarefreshedbrownproductwithelevatedenvironmentalperformanceandresisttomakeapurchase.Comparisonofthesetwoscenariosanalyticallyrevealsthatthelatterscenarioisnotaviableoptionandsotheprot-maximizingrmfacestheproblemgivenbyii3=M(vtqt+veqe)]TJ /F6 11.955 Tf 12.01 0 Td[(cu(qt+qe)2))]TJ /F6 11.955 Tf 12.02 0 Td[(Fq2ewithqt,qe0.Then,assumingthatthenecessaryconditionsforoptimalityhold(i.e.,vt
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expressedasiii3=M(vtqt+veqe)]TJ /F6 11.955 Tf 12.22 0 Td[(cu(qt+qe)2))]TJ /F6 11.955 Tf 12.22 0 Td[(Fq2ewhereqt,qe0.Giventhatthenecessaryconditionsforoptimalityholds(i.e.,vt
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Fence-Sitterssegmentconsumers'willingnesstopayvtqt+veqeorwithGreenssegmentconsumers'productvaluationveqe+vtqt,onlyifenvironmentalbenetsofthegreened-upproductareviewedasanewsourceofaddedvalue.Otherwise,therm'spricingstrategyisdependentuponhowtheenvironmentalattributesofthegreened-upproductisperceivedbytheBrownssegmentconsumers.Ifgreenistheonly(orevenmain)benettheenvironmentalattributesprovide,theBrownsconsumerswillbereluctanttopaypremiumsfortheexistingbrownproductwithelevatedenvironmentalperformance.Intheseinstances,premiumpricingneedstobejustiedthroughanotherbenet(e.g.,fuel-efciency)sothatBrownscanbeattractedtotherefreshedbrownproductofferedatahigherprice.Ifhigherpricescannotbebackedupbyoneofthesetwofactors,thermisbetteroffnotchoosingtheGreeningUpstrategy. 5.4ImplementationConsiderations Firmsmaychoosetogreentheirproductsduetoeconomicandnoneconomicpressuresfromtheirconsumers,businesspartners,governments,citizengroupsorotherstakeholders.Thissectionfocusesoneconomicandenvironmentalissuesgermanetogreenproducts,andexamineshowthenuancesofthegreenmarketenvironment(i.e.,relativesizesofgreenconsumersegments,andconsumers'shoppingaspirationsandvaluations)createincentivesforarmtoadoptagreenproductstrategy.Tounderstandwhyandhowthermrespondstotheseincentives,theanalysishereconcentratesonthenetgains(ascomparedtothecurrentbrownproductsettingandascomparedtoothergreenstrategy)ofadoptingeachgreenproductstrategy.Theanalysishereischaracterizedbyamajorchallenge:ananalyticalcomparisonofstrategiesisoutofreachduetothecomplexityassociatedwiththefeasibilityconditionsofeachstrategy.Therefore,theanalysisresortstoanumericalexperimentwithacertainnumberofcasesandwithanextensivesetofparametervaluestoprovidethebasisforthediscussionofimportantinsights(SeeAppendix H fornumericaldataandcompleteresults). 148

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Asisevidentfromtheanalysisofeachstrategychoiceinprecedingsections,thetermsdrivingtheresultsaretherelativesizesofeachmarketsegment(i.e.,rB,rFandrG)andtherelativemarginalvaluationsfortraditionalversusgreenproductattributes(i.e.,vtversusve).Asastartingpointforsettingtheportionofarm'scurrentcustomersfallingwithineachsegment,theresultsofthe2002Ropersurveydatacitedearlierareused.BasedontheguresrepresentedinSection 5.2.1 ,thevaluesofrB,rFandrGaresetat0.52,0.33and0.15,respectively.Itisworthynotingthatthesesegmentsarenotstaticandtheirrelativesizeschangeovertheyears.Forinstance,GfKRoperConsultinghavebeentrackingconsumerattitudessince1990,andacomparisonoftheirdatabetween2005and2007showsthattherearechangesinthepercentagesascribedtoeachofthevesegments:Thenumberofthegreenestconsumers-theTrueBlueGreensandGreenbackGreens-doubleintwoyears,from20%to40%.Thisindicatesthatconsumersgetgreenerovertime,andinordertoincorporatesuchdynamicnatureofgreenmarketsegments,twoadditionalcasesareconsidered:(1)asegmentationdividingthegreenlandscapeintoBrowns,Fence-SittersandGreenssuchthatrB=0.15,rF=0.33andrG=0.52,respectively;and(2)amarketthatisapportionedequallyamongthesethreeconsumersegmentssothatrB=1=3,rF=1=3andrG=1=3.Asfarasthemarginalvaluationontraditionalqualityvtandmarginalvaluationonenvironmentalqualityveareconcerned,itisdifculttodenearangeofplausibleexactvalues.Thus,theirrelativemagnitudesareconsideredbymeansofsettingthevalueofvtat8,andvaryingtheratioofvetovttobe0.5to1.0to2.0.Finally,fortheparameter2(0,1),awiderangeofparametervaluesareconsideredbysettingitsvalueat0.1intervalsfrom0to1.Onthesupplyside,thevaluesofcostcoefcientsct,ceandcuaresetat$4,$6and$5tobeconsistentwithrecentliteratureonproductdesign(e.g., Chen ( 2001 )).Likewise,thevaluesofthexedcostofproductredesignparameterFaresetat$20,$40and$60,whilethevaluesofthexedcostofnewproductintroductionparameterNaresetat$4,$12and$16. 149

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5.4.1EconomicConsequences ThecomputationalresultsrepresentthesubstantialimpactoftheinterplaybetweenmarginalvaluationsoftraditionalandenvironmentalqualitiesontherelativeprotabilityoftheGreeningOff,GreeningOutandGreeningUpstrategies.Forthevaluesofmarginalvaluationonenvironmentalqualityvelessthanorequaltothoseofmarginalvaluationontraditionalqualityvt(i.e.,ve=vt1),theGreeningOffstrategy(i.e.,notincorporatinggreenattributes)isalwaysmoreprotable.ThisistrueevenwhenthexedcostofproductredesignFandxeddevelopmentcostofanewgreenproductNareconsiderablylow,andevenwhentherearesubstantialnumbersconsumersinthemarketwhoarepotentiallyreceptivetoagreenappeal.Forexample,ascanbeseeninTable 5-1 ,theGreeningOffstrategyalwaysdominatestheGreeningOutandGreenUpstrategieswhenve=vt1,regardlessofhowsubstantialtheGreensconsumersegmentisfortherm(e.g.,whenrG=0.33orrG=0.52)andofthecostefciencyofdesigninggreenattributesintoaproduct(i.e.,whenF=20andN=4).Thisimpliesthatwhenenvironmentalattributesareperceivedaslesseffectiveornothavingthesamevalueasthemorefamiliartraditionalattributes,itdetersarmnotonlyfromreplacingitsexistingbrownproductwithanewgreenproductbutalsofromgreeningupitsexistingbrownproductthroughsmalladjustments. Ontheotherhand,whentheseperceptionsdeclineinawaysothatvebecomessuperiortovt(i.e.,ve=vt>1),thermismorelikelytocapitalizeonofferingagreened-upproductorlaunchinganewgreenproduct.Inthiscase,thesetwogreenproductstrategiescanturnouttobeeconomicallyviableoptionseveninthepresenceofconsiderablyhighxedcostsofFandN,andevenwhentheGreenssegmentisnotprominentwithintherm'scurrentcustomerbase.Forexample,Table 5-2 showsthattheGreeningOutstrategydominatestheGreeningOffstrategywhenve=vt>1,eventhough52%oftherm'scurrentcustomersfallwithintheBrownssegmentandthexedcostofgreenproductdevelopmentisconsiderablyhigh(i.e.,N=12).Basedonthatthe 150

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ratiove=vtcanbeconsideredasanindextomeasuretheattractivenessofintegratinggreenattributesintoaproductdesign.Whenthevalueofthisindexislessthanorequalto1,itisnotintherm'sself-interesttoinvestingreenproductstrategiesevenifitscurrentconsumersareveryresponsivetochangesingreennessand/orthesizeoftheGreensmarketsegmentishigh.Bycontrast,whenve=vt>1,thehigherthevalueoftheindex,themoreattractiveitisforarmtoofferaproductwithenvironmentalattributesratherthanofferingabrownproductcharacterizedbyjusttraditionalattributes. ThecomparisonoftheoptimalprotvaluesundertheGreeningUpandGreeningOutstrategies-giventhatve=vt>1-toanswerunderwhatconditionsagreened-upproductiseconomicallymoreattractivetoarmthananewgreenproduct,orviceversa,revealsthatthemanagerialchoicebetweenthesetwostrategiesisoverwhelminglydrivenbytwofactors:(1)howsubstantialtheBrownssegmentiswithinthecurrentconsumerspacefortherm(i.e.,rB),(2)howenvironmentalbenetsofaproductresonatewiththeBrownsegmentconsumers'values(i.e.,),and(3)thexedcostofgreenproductintroduction(i.e.,N).Thenumericalanalysisshowsthatofferingagreened-upproductismorelikelytobeprotablewhenrBandarerelativelylargewhileNisnotverylow.Forinstance,aspresentedinTable 5-3 ,unlessthemajorityoftheconsumermarketisrepresentedbytheBrownssegmentconsumers(e.g.,whenrB=0.15orrB=0.33),thermisalwaysbetteroffusingtheGreeningOutstrategytoeco-innovate,evenifitmeansincurringsubstantialcostsofdevelopinganentirelynewgreenproductconcept(i.e.,N=24).WhenthemajorityofconsumersinthemarketfallintotheBrownssegment,choosingbetweenaGreeningOutandGreeningUpstrategyshouldbeguidedbythexedcostofgreenproductintroductionandbywhetherenvironmentalattributesprovidetangible,directbenetstothismeaningfulnumberofBrownsconsumersbeyondofferingenvironmentalbenets.GiventhatrB=0.52,Table 5-4 pointsoutthattheGreeningOutstrategyisalwaysabetteroptionthantheGreeningUpstrategyifN=4.However,forhighervaluesofN(e.g.,N=12orN=24), 151

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itisobservedtheGreeningUpstrategycandominatetheGreeningOutstrategyincaseswhereenvironmentalattributesappealtotheBrownssegmentconsumer'self-interest(i.e.,0.5<0.7).Inthiscontext,theparametersrBandrepresenthowprominenttheBrownssegmentiswithinthegreenconsumermarketfortherm.WhentheBrownssegmentdecreasesinimportance,addinggreenfeaturesintotheexistingbrownproductforcultivatingadditionalrevenuedoesnotseemworththeeffortandreplacingtheprevailingbrownproductwithanewgreenproductwouldmakemoresense. 5.4.2EnvironmentalConsequences Theprevioussectionpointsoutthatabrownrmcanbenetnanciallyfromanenvironmentallyfriendlyapproachtoproductdesignincertaincircumstances,yetitalsoraisesapivotalissueregardingtherm'senvironmental-nancialperformancecalculus:towhatextentagreenproductdevelopmentstrategycreatesenvironmentalbenetswhileprovidingeconomicpayoffstotherm.Thestrategychoicecannotbejudgedbynancialcriteriaalonesincecreatingenvironmentalbenetsthroughcreatingbottomlinebenetsshouldonlybeonepartofchoosingagreenproductstrategy.Inthiscontext,theenvironmentalproleofarmthatwouldadopteithertheGreeningUpstrategyorGreeningOutstrategycanbecomparednumericallybymeansoftakingtheaggregatesumofenvironmentalqualitysuppliedinthegreened-upproductornewgreenproduct,respectively,andtheissueofunderwhatconditionsthermadoptsastrategynotonlybecause`itisthemostprotablethingtodo'butalsobecause`itistherightthingtodo'canbeaddressed. Beforefocusingonthekeydriversofsatisfyingrm'seconomicandenvironmentalobjectivestogether,therstattempthereistondoutwhichwayofincorporatingenvironmentalfriendlinessintotheproductdesigncanhelpthermachieveahigherenvironmentalperformance-regardlessofitsnancialaspirations.Thereasoningbehindthisquestcanbeexplainedbythefactthatarmhastobenettheenvironment 152

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atacertaindegreewithitsproducttocontinuedoingwellnancially,oritwilleventuallyhitproblemsthatinturncouldcausestruggleswithstayinginthemarket.Forallcombinationsofparametervaluesusedinthenumericalanalysis,itturnsoutthatdevelopinganewgreenproductfromscratchofferssuperiorenvironmentalbenets,eventhoughgreeningupanexistingbrownproductthroughincrementalchangescanofferconsiderableenvironmentalbenets.RegardlessofhowsubstantialtheGreensconsumersegmentisfortherm(i.e.,nomatterwhetherrGisequalto0.15,0.33or0.52),itisobservedthatarmmustjump-shifttoanentirelynewproductconceptinordertoachievesignicant,notjustincremental,reductionsinitsenvironmentalimpact.ThisndingisdemonstratedinTable 5-5 bydifferentvaluesof,andrBandrG.NotethatthisresultholdsevenwhenenvironmentalbenetsdesignedintothenewgreenproductdonotappealtoBrownssegmentconsumers'self-interest(i.e.,forthevaluesofcloseto0). Thisconclusionappearstobecontrarytotheprevailingviewclaimingthatgreeningoutisnotanapproachrmsareespeciallygoodatminimizingtheenvironmentalimpactsoftheirproducts.Accordingto Hopkins ( 2010 ),forinstance,tryingtoeliminateenvironmentalimpactsallatonceisnotthebestoptiontohelptheenvironment:Itistheincrementalchangesthatcarryproductdesignstowardtheno-impactoutcomesandsothatachievecumulativelysignicantenvironmentalbenets.Ournumericalanalysisshowsthatthisisnotnecessarilytrue.Thefactis,undertheGreeningUpstrategy,anexistingproductcanonlybeadjusteduntilatacertaindegreebeforeitbecomesnecessarytoleaptoanentirelynewproductconceptinordertomeetthesamecustomerneedswithsignicantlyreducedenvironmentalimpact.Greeningaproductbymakingadjustments(e.g.,inrawmaterialsorpackaging)leavesarmwiththesameproductconcept,meaningthatthermwillbelimitedbyitsexistingproductconcept. 153

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Itisalsoobservedthatdoinggoodbyincorporatingenvironmentalfriendlinessintoproductdesignanddoingwellnanciallyisnotsupposedtobeaeither-orproposition.Armcanachievebothgoalssimultaneously,yetitmustbebewareoffalsechoiceswhenconsideringthegreenproductstrategies.TheconditionsunderwhichtheGreeningUporGreeningOutstrategyoutperformstheGreeningOffstrategybesidesoutgreeningisoverwhelminglycharacterizedbyconsumers'marginalvaluationontraditionalandenvironmentalqualities,i.e.,vtandve,respectively.Asthedifferencebetweenveandvtincreases(i.e.,thevalueoftheindexve=vtgetshigher),theGreeningOutstrategyrepresentstheopportunitytoatoncesolvepressingenvironmentalissueswhilehelpingthermgrowitsprots-eventhoughthermwouldbeinthefaceofhigherunitcostsofproduction(sincece>ct)andmightbefacingahighxedcostofgreenproductionintroduction(e.g.,N=12).Ontheotherhand,abrownrmcancreatebothbottom-lineandenvironmentalbenetsbyimplementingtheGreeningUpstrategy(evenwhenthexedcostofproductredesignisveryhighsuchthatF=60),onlyifveisconsiderablyhigherthanvt,theBrownssegmentisprominentwithinthecurrentcustomerbase(i.e.,rB=0.52,rF=0.33andrG=0.15)andtheenvironmentalfeaturesdesignedintothebrownproductoffersthepromiseofmorethanwhatisgoodfortheenvironment(i.e.,ifthevalueofislargeenough). 5.5Summary Consumersarewakingup.Theenvironmenthasbecomeaduciaryissueandconsumersarestartingtovotewiththeirpocketbooks,choosingtobuygreenerproductsandsupportingcompaniesperceivedtobegreen.Inresponse,companiesaremovingbeyondenvironment,llingupthepipelineofgreenerproducts.Thefactis,thereismoneytobemadeinnewgreenmarketplaceandmanycompaniesshouldseeaddressingenvironmentalconcernsasapotentialvalue-addratherthanacosttobeminimized.Theyshouldlookfornewwaystoleveragegreenthinkingintotheirproductdesigns.Mostencounteraforkinthisroadtosustainability.Shouldtheyoffer 154

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greenerproductsthatrepresentsmallenhancementstotheirexistingbrownproductsbyreplacingvirginmaterialswithrecycledcontent,designingpackagingtoberelled,andsoforth?Orshouldtheyofferanewgreenproductthatisunabashedlygreen?Manygreenproductsonthemarketnowadaysrepresentsmalltweakstoexistingones.Forexample,washingmachinessavewaterandenergybytumblingclothesonahorizontalaxisasopposedtoaverticalaxis.Althoughtheseareneededtechnicalachievementsaswell,thereductionsinenvironmentalimpacttheyrepresentmaynotbeenoughtomeetfutureconsumerneedsinasustainablefashionasbackedupbythendingsofthischapter.Thechapterpointsoutthatndingsolutionstoenvironmentaldegradationandachievingenvironmentalprotectionrequiresaradicalchangeintheproductdesign.Simplyput,companiesmustleapratherthantweak. Table5-1. ComparisonofGreening-Off,Greening-OutandGreening-Upstrategieswhen=0.4,F=20andN=4 Prots ve=vtrBrFrGGreening-OffGreening-OutGreening-Up 0.50.330.330.3326.70.45.90.50.150.330.5219.21.75.91.00.330.330.3326.713.801.00.150.330.5219.218.70 Table5-2. ComparisonofGreening-OffandGreening-Outstrategieswhenve=vt>1,=0.4andN=12 Prots rBrFrGGreening-OffGreening-Out 0.520.330.1534.039.20.330.330.3326.759.10.150.330.5219.278.7 155

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Table5-3. ComparisonofGreening-OutandGreening-Upstrategieswhenve=vt>1andF=20 Prots rBrFrGGreening-OutGreening-Up 0.40.150.330.5266.719.30.330.330.3347.119.60.60.150.330.5266.735.20.330.330.3347.135.20.80.150.330.5266.719.30.330.330.3347.119.6 Table5-4. ComparisonofGreening-OutandGreening-Upstrategieswhenve=vt>1,rB=0.52,andF=20 Prots NGreening-OutGreening-Up 40.547.219.30.647.235.20.748.344.850.539.219.30.639.235.20.740.344.860.527.219.30.627.235.20.728.344.8 Table5-5. ComparisonofenvironmentalperformanceofGreening-OutandGreening-Upstrategieswhenve=vt>1,N=4andF=20 Totalenvironmentalquality rBrGGreening-OutGreening-Up 0.30.520.156.42.20.330.338.92.20.150.5211.32.20.50.520.156.42.20.330.338.92.20.150.5211.32.20.70.520.159.38.00.330.338.98.00.150.5211.38.0 156

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CHAPTER6CONCLUSIONANDFUTURERESEARCHDIRECTIONS Thematuringofgreeningasaconsumerphenomenonanditsdecidedshiftfromthefringeintothemainstreamarechangingtherulesbywhichcompaniescompeteinthecompetitivelandscape.Itusedtobethatconsumerssimplyexpectedtheproductstheyboughttoworkwell,besoldinanearbystore,sportafamiliarbrandnameandbeaffordable.Theruleshavechanged.Today,meetingconsumers'newheightenedneedsisachallengingtask.Onceseeminglyshortchecklistforachievingmarketsuccessnowincludesminimizingtheenvironmentalimpactsoftheconsumerproductsateveryphaseoftheirlife-cycle.Companieslookingtosustaintheirbusinesseslongintothefuturemustnowbuildlegitimatelysustainablebrandsthatbalanceage-oldbenetsofquality,performance,affordabilityandconveniencewiththelowestimpactpossibleontheenvironment,andwithdueconcernforsocialconsiderations.Thispresentsthebusinessestheneedtojungletraditionalproductconsiderationswithanextremelyvariedandhighlycomplexlistofissuesinvolvingtheentiresupplychain. Designingproductsforminimalenvironmentalimpactcanbetricky.Whatmayappeartobeanenvironmentalbenetmayactuallyresultinlittleornoaddedenvironmentalvalue.Hybridcars,forexample,saveenergybutthebatteriestheycontainrepresentapotentiallysignicantsourceofhazardouswaste.Itcanalsobearguedthatthereisnosuchthingasatrulygreenproduct,becauseeveryproduct,nomatterhowthoughtfullydesigned,usesresourcesandcreateswaste.Thisimpliesthatgreenisarelativeterm,withsomeproductsbeinggreenerforcertainreasonsorincertaincircumstances.Thisdoesnoterectabarriertocompanieswhoarelookingtogrowtheirbusinessesbyreapingthebenetsofexpandinggreenmarkets,though.Tostaycompetitiveandmeetthechallengesofsustainabledevelopment,manycompaniesattempttominimizetheirproducts'environmentalandhealth-relatedrisksbyaddressing 157

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thespecicenvironmentalissuesmostrelevanttotheirconsumers.Onewaytoaddressconsumers'variousenvironment-relatedproductconcernsisthroughinnovation. Innovatingforenvironmentinspiresproductsthataddressthenewrulesofbalancingconsumers'needswithsustainabilityconsiderations.Typically,itcanbecarriedoutattwodifferentlevels,eachcorrespondstoeithertheGreeningUpstrategyorGreeningOutstrategy.TheGreeningUpstrategyinvolvesredesigninganexistingproducttoreduceitsenvironmentalimpactbymakingincrementaladjustmentsinrawmaterials,packaging,andsoforth.TheGreeningOutstrategycanbedenedasdevelopingentirelynewproductscapableofperformingthesamefunctionasexistingonesbutwithsignicantlylessenvironmentalimpact.AscanbeseeninChapter 4 andChapter 5 ,environmentalinnovationrepresentsopportunitiestosolvepressingenvironmentalissuesatdifferentlevelswhilebettermeetingconsumerneeds.Amongitssignicantlyenhancedenvironmentalandconsumerbenets,itbringsexcitingopportunitiesforcompaniestohelpgrowtheirtop-linesalesandevenevolveandtransformtheirbusinessesprotablytobettercompetewithintherulesofamoresustainablefuture. Althoughtherearemanyopportunitiesassociatedwithdesigningandofferinggreenerproducts,challengesaboundandcompanymanagersshouldconsiderthechallengesbeforechoosingandimplementingeithertheGreeningUpstrategyortheGreeningOutstrategy.Forstarters,greenconsumersegmentsarecomplexandselectingtherightconsumertotargetiscriticaltothesuccessofeachgreenproductstrategy.AsdescribedindetailinChapter 1 andChapter 5 ,consumerscanbesegmentedintothevesegments:TrueBlueGreens,GreenbackGreens,Sprouts,GrousersandBasicBrowns.Knowingthattherearemanydifferenttypesofgreenconsumers,itisessentialforcompanymanagerstokeepinmindthattherearemanydifferentkindsofenvironmentalissuesofconcernrangingfromhazardouswastetoenergyefciency-thatconcerneventheBasicBrownsandGrousers.Thefactis,not 158

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allconsumersareconcernedaboutallenvironment-relatedissuesandthisunderlinestheimportanceofpinpointingtheconsumerswhowillbeattractedmosttoagreened-upproductortoanewproductthatisunabashedlygreen. Chapter 5 showsthatappealingtoconsumers'self-interestisafactor,too.Eventhoughenvironmentisimportanttomanyconsumersegments,thenumberonereasonwhyconsumersbuygreenerproductsisnottoprotecttheenvironmentbuttoprotecttheirownhealthortomeettheirbasicneeds.Soitiscriticalnottofocustooheavilyonenvironmentalbenetsattheexpenseofprimarybenetssuchassavingmoney.Inotherwords,companiesshoulddesigntheirgreenerproductsbypositioningtheirenvironmentalbenetsasanimportantplusorbyincorporatingtheenvironmentasadesirableextrabenet.Thisapproachcanhelpthembroadentheappealoftheirgreenerproductswaybeyondthenicheofdeepestgreenconsumersandhelpthemovercomeapremiumpricehurdle.Thebottomlineisitiscrucialtointegrateenvironmentalbenetsintoaproductdesignthatneatlytranslateintosomethingdirectandmeaningfultothecustomers. Whatarethenextstepsthatcanbetakentofurthertheresearchingreenproductdesign?Inthepast,premiumpricing,poorperformance,brandnamesnoonehadeverheardofandvaguelywordedenvironmentalclaimsmadeconsumerssuspectgreenproducts.Theconsumermarkethadanintuitionthatifgreenproductsdonotworkbetterormoreefcientlythantheirbrowncounterparts,thentheyshouldcostless,notmore.Butthisischangingnowadays.Consumers'reluctancetopaypremiumsforgreenproductsissofteningastheybegintocomprehendtheimpactenvironment-relatedissueshavehadontheirlivesoverthelastfewdecades.Fastgrowingsalesofgreenproductsdemonstratethatthegreatertheperceivedthreatofanenvironmentalproblem,themorepreparedtheconsumerstopaypremiumpricesforthegreenproductsofferedinresponsetothatproblem.However,beinglesspricesensitivewhenitcomestogreenproductsisnottheonlyconsumercharacteristicthatmakesgreenconsumers 159

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valuabletargetshoppers.Greenshoppersareavaluablecustomertarget,becausetheyrepresentaconsumersegmentwhobuymoreproductsoneachstorevisit,whovisitthestoremoreregularly,andwhodemonstratemorebrandandretailerloyaltyintheirpurchasingbehavior.Theyareactiveconsumerswhobuymoreandshopmoreoftenasopposedtotheaverageshopper,andtheyaregenerallynotbargainhunters.Moreimportantly,onceagreenproducthascapturedtheseshoppers'attention,ittendstocreatebrandstickinessbyretainingtheirloyaltythroughrepurchase.Inthisresearch,itisassumedthattherearenorepeatpurchasesandthereisonlyonebuyingopportunitygiventotheconsumermarket.However,onthebasisofthediscussionabove,incorporatingrepeatpurchasebehaviorofgreenconsumerintheexistingcontextwouldbeaninterestingextension. Withgreenawarenessnowsquarelymainstream,manycompaniesarenowcateringtonewlygreenconsumersbylaunchingproductswhileadvertisingthemwithenvironmentalclaimsthattheseproductshavegreenerfeaturestoreapthebenetsofexpandinggreenmarkets.Today,thesupermarketshelvesareemblazonedwithallsortsofmessagesabouttheenvironmentalperformanceofvariousproducts.Inlinewithanaverageof79%increaseintheamountofgreenproductsperstoresince2007,greenadvertisinghasincreasedtenfoldoverthepast20yearsandalmosttripledsince2006 1 .TodayonpracticallyeverycompanywebsiteonecanndcorporateenvironmentalresponsibilityreportswithtitlessuchasSustainabilityReportorEnvironmentalHealthandSafety.Asof2009,morethan75%ofS&P100companieshasspecialwebsitesectionsdisclosingtheirenvironmentalpoliciesandperformance 2 .Atthesametime, 1 http://www.theecologist.org/News/news_round_up/274429/greenwash_taints_most_ecofriendly_claims.html ,accessedSeptember7,2012.2 http://www.globalaffairsjournal.com/archive/Winter-Spring2009/Alves.pdf ,accessedSeptember7,2012. 160

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moreandmorecompaniesareengagingingreenwashing,intentionallyornot,andmisleadingconsumersregardingtheenvironmentalbenetsoftheirproduct(s).Over98%ofenvironmentalclaimsmadebyproductssurveyedbyTerraChoiceEnvironmentalMarketingin2009wereguiltyofgreenwashing 3 Therisksofbacklasharehigh.Theskyrocketingprevalenceofgreenwashingcanhaveprofoundnegativeeffectsonconsumercondenceingreenproducts,erodingtheconsumermarketforgreenproducts.Consumersboycottproductsbearingenvironmentalclaimsnowadays.Tocomplicatematters,corporateeffortshintingataspirationstobegreencanattractcritics.Accusationsofgreenwashingcanemanatefrommanysourcesincludinggovernmententities,environmentalists,consumersandcompetitors,anditcanbedetrimentaltoacompany'sreputation.TheU.S.FederalTradeCommission,forinstance,publiclyspankedMobilCorporationthatpromoteditsHeftyplastictrashbagsasphotodegradable.Likewise,companiescanfaceregulatorypunishmentforengaginginenvironmentallyfalseadvertising.Basedonthataninterestingdirectionforfutureresearchwouldbeempiricallydemonstratingtheincidenceofgreenwashing,describingitseffectsongreenconsumermarketandonhowrmsimplementgreenproductdevelopmentstrategiestostaycompetitiveingreenlandscape,anddevelopingaframeworkthatexaminestheorganizationaldriversofeachstrategychoiceunderthethreat/riskofgreenwashing. Itisapparentthatconsumers'perceptionsoftheenvironmentalimpactsofproductsareincreasinglyfactoringintotheirdecisionsofwhat,whereandhowoftentheypurchase.However,consumersoftendonothavetheabilitytoverifyproducts'environmentalbenets(particularlyintheabsenceofinformationonthepackagesorshelvesidentifyingaspecicproductasenvironmentallyresponsibleinonewayor 3 I.Alves,GreenSpinEverywhere:HowGreenwashingRevealstheLimitsoftheCSRParadigm,JournalofGlobalChangeandGovernance,Winter/Spring2009. 161

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another)andthiscaninturncreatemisperceptionsandskepticism.Newlyuncoveredlearningthatisnotcorrectcaninstantlyupendacompany'scredibilityandpublicimage,resultinginacompletecollapseindemandforitsproducts.Thisnecessitatesproducts'environmentalattributesbeingcommunicatedhonestlyandqualiedforbelievability.Relatedtothispoint,eco-certicationsobtainedfromgovernmentagenciesornon-protadvocacyorganizationscanprovidegreenproductendorsementsthathelpclarifyandbolstertheconsumers'understandingofproducts'environmentalbenets.Forexample,theEnergyStarlabelisacommoncerticationthatdistinguishesparticularelectronicproductsasconsumingupto30%lessenergythancomparablealternatives.Similarly,GreenSealandScienticCerticationSystemsemblemscertifyvariousproductcategories,andforagivenfee,companiescanhavetheirproductsevaluatedandmonitoredannuallyforcertication.Basedonthatasecondpossibleextensionwouldbetoincorporateendorsementsandeco-certicationsintotheframeworkforgreenproductdevelopmentstrategychoiceanalyzedinthisresearch.Formingconstructivepartnershipsorcoalitionswithexpertthirdpartieswithrespectedstandardsforenvironmentaltestingcanuncoverwaystocutcosts,improvethevalueofexistingproductsandnewproducts,andenhancepublicimage.Ontheotherhand,companiesmustalsoconsidertheenvironmentalandnancialtrade-offsandcomplexityoftheirproducts,whenseekingendorsementsandeco-certications. Inaheadlongrushtoattractgreen-leaningcustomersthatwouldpayheftypremiumsforgreenproducts,manybrowncompaniesareoftentemptedtoofferthegreenestofmainstreamproducts.Whenitworks,thecombinationofabrownandagreenbrandinthemarketallowsthosecompaniestocalibratethosetwoofferingstotheirownstrategicadvantage.Ontheotherhand,oncelaunched,greenproductshaveagrowingtendencytoalsostealcustomersfromthesecompanies'existingportfolioofbrands.Addtothatthechallengethatnoproductsstandalone.Anewgreenproductcannotbesimplyaddedintoanexistingproductsysteminisolation,andcreatinganew 162

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greenbrandforcesacompanywithapre-existingbrownbrandinitscurrentsystemtodivideitsresourcesratherthanconcentrateitseffortsonthebusinessathand.Therefore,explicitincorporationofthecapacityconstraintsshouldbeanimportantextension.Inordertosurmountallthehurdlescorrespondingtocapacityissuestotheiradvantageandconvertpotentialenemiesintoprotableallies,themanagersofbrandedbrowncompaniesmustnotonlyunderstandindepthhowgreenconsumersandtheirgreenpurchasingmotivationsdiffermarkedlyfrombrownconsumers,butalsocarefullyleveragetheirsysteminwhichbrownandgreenproductsareenvisagedtooperate. Withincreasedawarenessofenvironmentalthreatsposedbyproducts,consumersarenowscrutinizingproducts'entirelife-cyclesandaskingforvisibilityintohowrawmaterialsaresourced,andproductsaremanufacturedandshipped.Workingwithsupplierstomeetconsumerenvironmentaldemandsshouldnotbeunderestimated.Withtheirintimateknowledgeoftheirownmaterials,componentsandtechnologies,supplierscanoffercriticalsupportinreducingenvironmentalimpactsofproducts,resultinginnewproductsandpackagingandgreened-uplife-cyclesthatcanestablishcompetitiveadvantage.Atthispoint,anextensionbytakingintoconsiderationthestrategiesforpartneringwithsupplierscanbevaluable.Suchanextensionshouldalsoconsiderpossiblechallenges.Forexample,acompanycanhaveaplethoraofsuppliers,manyofwhichcanbestretchedoutlongdistancesaroundtheglobe,andtheymaybeloathtodisclosetradesecrets.Inaddition,somesuppliersmaybenewtoenvironmentalmanagementandsobenotcapableofanalyzingtheirmaterials,ingredientsandprocesseffectively. Finally,theproliferationofgreenproductsisrevealingoutawidespreadsupportforandanincreasingunderstandingoftheneedtoreduceenvironmentalimpactoftheexistingproducts.However,thereisamajorchallengefacedbyconsumers,businesses,andgovernments:Whatconstitutesagreenproductandaccordingtowhom?Incurrentliteratureassociatedwithgreenproductdevelopment,anenvironmentallybenign 163

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productisalmostalwayscharacterizedbyasingleenvironmentalattribute,andsoonlyonedimensionofgreen(e.g.,energyefciency,toxicityandrecyclability)istakenintoconsideration.Moreimportantly,environmentalimpactofthetwoproductsarecomparedbasedonthisuniqueattribute.Thissimplegreenmetricmayhidepossibletrade-offs.Forinstance,CPC-themakersofMueller'spasta-foundthatconvertingtorecycledcartonmaterialwouldactuallyaddabout20%tothewidthoftheirpackagematerialandthiswouldpartiallyoffsetsavingstotheenvironment,consideringtheextraenergyneededtoshipnewboxes.Usingasinglegreenmetriccanalsooverlookthefactthatconsumers'preferencesexhibitdifferentordersindifferentenvironmentalattributes.Basedonthatdevelopingastrategychoicemodelthatexplicitlyincorporatesmultipleenvironmentalattributesintothegreenproductdevelopment,alongwiththetrade-offsamongthem,wouldbeinteresting. 164

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APPENDIXAPROOFOFTHEOREM1 TheHessianofAisnegativesemideniteifandonlyifall2leadingprincipalminorsalternatesignsuchthatjH1j0andjH2j0.BasedonthatthejointconcavityofAinpAbandqAeistrueif 22+pAb)]TJ /F4 11.955 Tf 11.96 0 Td[(qAe2)]TJ /F5 11.955 Tf 5.48 -9.69 Td[(1)]TJ /F4 11.955 Tf 11.96 0 Td[(Ab(2qAe)]TJ /F5 11.955 Tf 11.95 0 Td[(1)2. (A) AssumingthattheconditionprovidedaboveissatisedandsoAisstrictlyandjointlyconcaveinpAbandqAe,thenecessaryconditionsaresufcientforoptimalityandgivenbythefollowing: @A @pAb=0)pAb)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4=1+epAb)]TJ /F17 5.978 Tf 10.19 3.26 Td[(1 2)]TJ /F18 7.97 Tf 6.59 0 Td[(qAe epAb)]TJ /F17 5.978 Tf 10.19 3.26 Td[(1 2)]TJ /F18 7.97 Tf 6.59 0 Td[(qAe (A) @A @qAe=0)pAb)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4=qAe1+epAb)]TJ /F17 5.978 Tf 10.18 3.26 Td[(1 2)]TJ /F18 7.97 Tf 6.58 0 Td[(qAe2 epAb)]TJ /F17 5.978 Tf 10.18 3.25 Td[(1 2)]TJ /F18 7.97 Tf 6.58 0 Td[(qAe (A) Combiningthesetwoexpressions,itisobtained: epAb)]TJ /F17 5.978 Tf 10.19 3.26 Td[(1 2)]TJ /F18 7.97 Tf 6.59 0 Td[(qAe= qAe)]TJ /F5 11.955 Tf 11.96 0 Td[(1(A) andsubstitutingthisexpressioninequation( A )resultsin: pAb=1 4+ )]TJ /F4 11.955 Tf 11.96 0 Td[(qAe(A) Combiningequation( A )withequation( A )yields G(qe)e )]TJ /F21 5.978 Tf 5.75 0 Td[(qAe)]TJ /F18 7.97 Tf 6.59 0 Td[(qAe)]TJ /F17 5.978 Tf 10.19 3.26 Td[(1 4)]TJ /F4 11.955 Tf 20.12 8.09 Td[( qAe+1=0,(A) whichconcludestheproofifqAe 2.IfqAe< 2,thentheoptimalvalueofqAethatmaximizesAgetsequalto 2,sinceAisassumedtobeconcaveinqAeforanygivenvalueofpAb.Therefore,themonopolist'sproblemundertheAccentuatestrategysimpliestomaximizingAwithrespecttopAb,basedonwhichtherstorderconditionis 165

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derivedasfollows: @A @pAb=0)pAb)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4=1+e)]TJ /F7 7.97 Tf 6.59 0 Td[(pAb+1+ 2 (A) Itisseenfromequation( A )thattheoptimalvalueofpAbimplicitlysolvestheequationgivenby L)]TJ /F6 11.955 Tf 5.48 -9.68 Td[(pAbpAb)]TJ /F5 11.955 Tf 16.91 8.09 Td[(1 4)]TJ /F5 11.955 Tf 11.95 0 Td[(1epAb)]TJ /F17 5.978 Tf 7.78 3.26 Td[(1+ 2)]TJ /F5 11.955 Tf 11.96 0 Td[(1=0, (A) whichconcludestheproof.2 166

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APPENDIXBPROOFOFTHEOREM2 TheHessianofBisnegativesemideniteifandonlyifall3leadingprincipalminorsalternatesignsuchthatjH1j0,jH2j0andjH3j0.BasedonthatthejointconcavityofBinpBe,qBeandpBbistrueif b2e()]TJ /F5 11.955 Tf 11.96 0 Td[(2qe(1)]TJ /F4 11.955 Tf 11.95 0 Td[(e))2+eb()]TJ /F5 11.955 Tf 11.96 0 Td[(2qe)2)]TJ /F4 11.955 Tf 11.96 0 Td[(2e+1 qe0. (B) AssumingthattheconditiongivenaboveholdsandsoBisstrictlyandjointlyconcaveinpBe,qBeandpBb,thenecessaryconditionsaresufcientforoptimalityandgivenbythefollowing:@B @qBe=0)Be1)]TJ /F24 10.909 Tf 10.91 0 Td[(BepBe)]TJ /F24 10.909 Tf 10.91 0 Td[(qBe2)]TJ /F25 10.909 Tf 10.91 0 Td[(2qBeBe)]TJ /F25 10.909 Tf 10.91 0 Td[((+2)qBe)]TJ /F24 10.909 Tf 10.91 0 Td[(BbBehpBb)]TJ /F24 10.909 Tf 10.91 0 Td[((qb)2i=0 (B)@B @pBe=0)pBe)]TJ /F24 10.909 Tf 10.91 0 Td[(qBe2=1+BepBe)]TJ /F24 10.909 Tf 10.91 0 Td[(qBe2+BbhpBb)]TJ /F24 10.909 Tf 10.91 0 Td[((qb)2i (B)@B @pBb=0)pBb)]TJ /F24 10.909 Tf 10.91 0 Td[((qb)2=1+BepBe)]TJ /F24 10.909 Tf 10.91 0 Td[(qBe2+BbhpBb)]TJ /F24 10.909 Tf 10.91 0 Td[((qb)2i (B) with Be=eqBe)]TJ /F7 7.97 Tf 6.59 0 Td[(pBe 1+eqBe)]TJ /F7 7.97 Tf 6.58 0 Td[(pBe+eqb)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb, (B) Bb=eqb)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb 1+eqBe)]TJ /F7 7.97 Tf 6.58 0 Td[(pBe+eqb)]TJ /F7 7.97 Tf 6.59 0 Td[(pBb,and (B) qb=1 2. (B) Itisobviousfromequations( B )and( B )that pBe)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.68 Td[(qBe2=pBb)]TJ /F4 11.955 Tf 11.96 0 Td[((qb)2,(B) basedonwhichequation( B )canberestatedas BenpBe)]TJ /F4 11.955 Tf 11.95 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe2+1)]TJ /F14 11.955 Tf 11.96 13.27 Td[(1+BehpBe)]TJ /F4 11.955 Tf 11.96 0 Td[()]TJ /F6 11.955 Tf 5.48 -9.69 Td[(qBe2i+BbpBb)]TJ /F4 11.955 Tf 11.96 0 Td[((qb)2o=)]TJ /F5 11.955 Tf 5.48 -9.69 Td[(2Be++2qBe.(B) 167

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Substitutingequation( B )intoequation( B )yields: =qBe2Be++2 Be=qBeh2+(+2)1+epBe)]TJ /F18 7.97 Tf 6.59 0 Td[(qBe+e1 4+(qBe)2)]TJ /F18 7.97 Tf 6.58 0 Td[(qBei (B) andthisconcludestheproofifqBe 2.IfqBe< 2,thentheoptimalvalueofqBethatmaximizesBgetsequalto 2,sinceBisgiventobeconcaveinqBeforanygivenvaluesofpBeandpBb.Then,themonopolist'sproblemundertheArchitectstrategyreducestomaximizingBwithrespecttopBeandpBb,basedonwhichtherstorderconditionsarederivedasfollows: @B @pBe=0)pBe)]TJ /F4 11.955 Tf 11.96 0 Td[(qBe2=1+BepBe)]TJ /F4 11.955 Tf 11.95 0 Td[(qBe2+BbpBb)]TJ /F4 11.955 Tf 11.96 0 Td[((qb)2 (B) @B @pBb=0)pBb)]TJ /F4 11.955 Tf 11.96 0 Td[((qb)2=1+BepBe)]TJ /F4 11.955 Tf 11.95 0 Td[(qBe2+BbpBb)]TJ /F4 11.955 Tf 11.96 0 Td[((qb)2 (B) withqBe= 2andqBb=1 2. Itisobviousfromequations( B )and( B )thatpBb=pBe+1)]TJ /F18 7.97 Tf 6.59 0 Td[(2 4.Substitutingthisexpressionintoequation( B ),theimplicitfunctionofpBecanbederivedsuchthat epBepBe)]TJ /F4 11.955 Tf 14.05 8.08 Td[(2 4)]TJ /F5 11.955 Tf 11.96 0 Td[(1=e 2+e1+2 4, (B) whichconcludestheproof.2 168

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APPENDIXCCOMPLETENUMERICALRESULTSFORTHECURRENT,ACCENTUATEANDARCHITECTSTRATEGIES:MONOPOLYCASE ProtsGreenquality/brownqualityTotalmarketshare BaseAccentuateArchitectBaseAccentuateArchitectBaseAccentuateArchitect 0.220.20.66220.66300.767100.00800.00100.39840.39900.434120.40.66220.66540.767200.01600.00190.39840.40070.434220.60.66220.66940.767300.02420.00290.39840.40360.434220.80.66220.67520.767500.03260.00390.39840.40780.4343210.66220.68280.767700.04130.00490.39840.41320.434540.20.66220.66300.767100.00800.00060.39840.39900.434140.40.66220.66540.767100.01600.00130.39840.40070.434140.60.66220.66940.767200.02420.00190.39840.40360.434240.80.66220.67520.767300.03260.00260.39840.40780.4343410.66220.68280.767500.04130.00320.39840.41320.434360.20.66220.66300.767100.00800.00050.39840.39900.434160.40.66220.66540.767100.01600.00100.39840.40070.434160.60.66220.66940.767200.02420.00140.39840.40360.434260.80.66220.67520.767300.03260.00190.39840.40780.4342610.66220.68280.767400.04130.00240.39840.41320.434380.20.66220.66300.767100.00800.00040.39840.39900.434180.40.66220.66540.767100.01600.00080.39840.40070.434180.60.66220.66940.767200.02420.00120.39840.40360.434280.80.66220.67520.767200.03260.00150.39840.40780.4342810.66220.68280.767300.04130.00190.39840.41320.4342 0.420.20.44180.44230.586800.01230.00250.30640.30690.369820.40.44180.44370.587000.02470.00510.30640.30830.369920.60.44180.44610.587200.03730.00770.30640.31060.370120.80.44180.44950.587500.05020.01030.30640.31380.3703210.44180.45400.587800.06360.01290.30640.31820.370640.20.44180.44230.586800.01230.00170.30640.30690.369840.40.44180.44370.586900.02470.00340.30640.30830.369940.60.44180.44610.587000.03730.00510.30640.31060.370040.80.44180.44950.587200.05020.00690.30640.31380.3701410.44180.45400.587500.06360.00860.30640.31820.370360.20.44180.44230.586800.01230.00130.30640.30690.369860.40.44180.44370.586900.02470.00260.30640.30830.369960.60.44180.44610.587000.03730.00390.30640.31060.369960.80.44180.44950.587100.05020.00510.30640.31380.3701610.44180.45400.587300.06360.00640.30640.31820.370280.20.44180.44230.586800.01230.00100.30640.30690.369880.40.44180.44370.586900.02470.00210.30640.30830.369880.60.44180.44610.586900.03730.00310.30640.31060.369980.80.44180.44950.587100.05020.00410.30640.31380.3700810.44180.45400.587200.06360.00520.30640.31820.3701 0.620.20.38120.38160.539800.01660.00410.27600.27640.350620.40.38120.38270.539900.03330.00820.27600.27760.350720.60.38120.38460.540200.05030.01230.27600.27960.350920.80.38120.38740.540500.06780.01650.27600.28250.3512210.38120.39110.540900.08590.02070.27600.28640.351540.20.38120.38160.539800.01660.00270.27600.27640.350640.40.38120.38270.539900.03330.00550.27600.27760.350640.60.38120.38460.540000.05030.00830.27600.27960.350840.80.38120.38740.540200.06780.01100.27600.28250.3510410.38120.39110.540500.08590.01390.27600.28640.3512 169

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ProtsGreenquality/brownqualityTotalmarketshare BaseAccentuateArchitectBaseAccentuateArchitectBaseAccentuateArchitect 0.660.20.38120.38160.539700.01660.00210.27600.27640.350660.40.38120.38270.539800.03330.00410.27600.27760.350660.60.38120.38460.539900.05030.00620.27600.27960.350760.80.38120.38740.540100.06780.00830.27600.28250.3509610.38120.39110.540300.08590.01040.27600.28640.351080.20.38120.38160.539700.01660.00170.27600.27640.350580.40.38120.38270.539800.03330.00330.27600.27760.350680.60.38120.38460.539900.05030.00500.27600.27960.350780.80.38120.38740.540000.06780.00670.27600.28250.3508810.38120.39110.540200.08590.00830.27600.28640.3509 0.820.20.35320.35350.518500.02090.00560.26100.26140.341520.40.35320.35460.518700.04200.01120.26100.26250.341620.60.35320.35630.518900.06350.01690.26100.26440.341820.80.35320.35880.519300.08550.02260.26100.26710.3421210.35320.36200.519700.10830.02840.26100.27070.342540.20.35320.35350.518500.02090.00380.26100.26140.341540.40.35320.35460.518600.04200.00760.26100.26250.341640.60.35320.35630.518800.06350.01140.26100.26440.341740.80.35320.35880.519000.08550.01520.26100.26710.3419410.35320.36200.519300.10830.01900.26100.27070.342260.20.35320.35350.518500.02090.00280.26100.26140.341560.40.35320.35460.518600.04200.00570.26100.26250.341560.60.35320.35630.518700.06350.00860.26100.26440.341660.80.35320.35880.518900.08550.01140.26100.26710.3418610.35320.36200.519100.10830.01430.26100.27070.342080.20.35320.35350.518500.02090.00230.26100.26140.341580.40.35320.35460.518500.04200.00460.26100.26250.341580.60.35320.35630.518600.06350.00690.26100.26440.341680.80.35320.35880.518800.08550.00920.26100.26710.3417810.35320.36200.519000.10830.01150.26100.27070.3419 1.020.20.33720.33750.506400.02530.00710.25220.25250.336220.40.33720.33840.506600.05070.01420.25220.25360.336320.60.33720.34010.506900.07660.02140.25220.25540.336620.80.33720.34240.507200.10320.02860.25220.25800.3369210.33720.34540.507700.13070.03590.25220.26140.337340.20.33720.33750.506400.02530.00480.25220.25250.336240.40.33720.33840.506500.05070.00960.25220.25360.336340.60.33720.34010.506700.07660.01440.25220.25540.336440.80.33720.34240.507000.10320.01930.25220.25800.3367410.33720.34540.507300.13070.02420.25220.26140.336960.20.33720.33750.506400.02530.00360.25220.25250.336260.40.33720.33840.506500.05070.00720.25220.25360.336360.60.33720.34010.506600.07660.01090.25220.25540.336460.80.33720.34240.506800.10320.01450.25220.25800.3365610.33720.34540.507100.13070.01820.25220.26140.336780.20.33720.33750.506400.02530.00290.25220.25250.336280.40.33720.33840.506500.05070.00580.25220.25360.336280.60.33720.34010.506600.07660.00870.25220.25540.336380.80.33720.34240.506700.10320.01160.25220.25800.3365810.33720.34540.506900.13070.01460.25220.26140.3366 170

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APPENDIXDPROOFOFLEMMA1 Theproofisbycontradiction.Giventhat2(0,1]and>0,supposethevalueofsolvingtheequation =e)]TJ /F21 5.978 Tf 22.55 3.26 Td[(2 (1++2)+1 )]TJ /F13 7.97 Tf 6.58 0 Td[((D) isgreaterthanorequalto1.Initiallyconsiderthecase=1.Substituting=1intotheequation( D ),itisobtainedthat 1=e)]TJ /F21 5.978 Tf 7.81 3.26 Td[(2 3,(D) whichissatisedifandonlyif=0.Thisisacontradiction,since>0.Secondly,suppose>1.Then, )]TJ /F4 11.955 Tf 45.62 8.08 Td[(2 (1++2)+1 )]TJ /F5 11.955 Tf 11.96 0 Td[(<0,(D) meaningthat e)]TJ /F21 5.978 Tf 22.55 3.26 Td[(2 (1++2)+1 )]TJ /F13 7.97 Tf 6.58 0 Td[(<1. (D) Giventhate)]TJ /F21 5.978 Tf 22.55 3.25 Td[(2 (1++2)+1 )]TJ /F13 7.97 Tf 6.59 0 Td[(=and>1,thisisacontradictionandsotheprooffollows.2 171

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APPENDIXECOMPLETENUMERICALRESULTSFORTHECURRENTVSACCENTUATESTRATEGIES:DUOPOLYCASE qAe2^C1^A2 40.200.99890.01670.99891.00060.400.99550.03350.99551.00220.600.98990.05050.98991.00510.800.98210.06790.98211.00911.000.97180.08570.97181.0143 60.200.99930.01110.99931.00040.400.99700.02230.99701.00150.600.99330.03360.99331.00340.800.98810.04500.98811.00601.000.98130.05660.98131.0094 80.200.99940.00830.99941.00030.400.99780.01670.99781.00110.600.99500.02510.99501.00250.800.99110.03360.99111.00451.000.98600.04230.98601.0070 100.200.99960.00670.99961.00020.400.99820.01340.99821.00090.600.99600.02010.99601.00200.800.99290.02690.99291.00361.000.98880.03370.98881.0056 200.200.99980.00330.99981.00010.400.99910.00670.99911.00040.600.99800.01000.99801.00100.800.99640.01340.99641.00181.000.99440.01680.99441.0028 500.200.99990.00130.99991.00000.400.99910.00420.99911.00040.600.99800.00630.99801.00100.800.99640.00850.99641.00181.000.99440.01060.99441.0028 172

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APPENDIXFCOMPLETENUMERICALRESULTSFORTHECURRENTVSARCHITECTSTRATEGIES:DUOPOLYCASE qBe2^C1^B2 20.200.91950.00200.91951.08750.400.91940.00400.91941.08760.600.91930.00600.91931.08770.800.91910.00810.91911.08781.000.91880.01010.91881.0879 40.200.91950.00130.91951.08750.400.91940.00270.91941.08760.600.91930.00400.91931.08760.800.91920.00540.91921.08771.000.91910.00670.91911.0878 60.200.91950.00100.91951.08750.400.91950.00200.91951.08760.600.91940.00300.91941.08760.800.91930.00400.91931.08771.000.91920.00500.91921.0877 80.200.91950.00080.91951.08750.400.91950.00160.91951.08760.600.91940.00240.91941.08760.800.91930.00320.91931.08761.000.91920.00400.91921.0877 100.200.91950.00070.91951.08750.400.91950.00130.91951.08760.600.91940.00200.91941.08760.800.91940.00270.91941.08761.000.91930.00340.91931.0877 200.200.91950.00040.91951.08750.400.91950.00070.91951.08750.600.91950.00110.91951.08760.800.91940.00150.91941.08761.000.91940.00180.91941.0876 173

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APPENDIXGCOMPLETENUMERICALRESULTSFORTHEACCENTUATEANDARCHITECTSTRATEGIES:DUOPOLYCASE qAe1qBe2^A1^B2 420.200.91860.01530.00200.91811.08870.400.91570.03040.00400.91381.09200.600.91100.04540.00600.90691.09760.800.90450.06010.00810.89731.10531.000.89640.07440.01010.88531.1152 440.200.91860.01530.00130.91811.08860.400.91570.03040.00270.91391.09200.600.91110.04540.00400.90691.09750.800.90460.06010.00540.89741.10521.000.89660.07440.00670.88551.1150 460.200.91860.01530.00100.91811.08860.400.91570.03040.00200.91391.09200.600.91110.04540.00300.90701.09750.800.90470.06010.00400.89751.10521.000.89670.07440.00500.88561.1150 480.200.91860.01530.00070.91811.08860.400.91580.03040.00160.91391.09200.600.91110.04540.00240.90701.09750.800.90480.06010.00320.89751.10511.000.89680.07440.00400.88571.1149 4100.200.91860.01530.00200.91811.08870.400.91570.03040.00400.91381.09200.600.91100.04540.00600.90691.09760.800.90450.06010.00810.89731.10531.000.89640.07440.01010.88531.1152 174

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qAe1qBe2^A1^B2 820.200.91900.00760.00130.91881.08810.400.91570.03040.00400.91381.09200.600.91100.04540.00600.90691.09760.800.90450.06010.00810.89731.10531.000.89640.07440.01010.88531.1152 840.200.91900.00760.00100.91881.08810.400.91570.03040.00270.91391.09200.600.91110.04540.00400.90691.09750.800.90460.06010.00540.89741.10521.000.89660.07440.00670.88551.1150 860.200.91900.00760.00080.91881.08810.400.91570.03040.00200.91391.09200.600.91110.04540.00300.90701.09750.800.90470.06010.00400.89751.10521.000.89670.07440.00500.88561.1150 880.200.91900.00760.00070.91881.08810.400.91580.03040.00160.91391.09200.600.91110.04540.00240.90701.09750.800.90480.06010.00320.89751.10521.000.89680.07440.00400.88571.1149 8100.200.91900.00760.00060.91881.08810.400.91580.03040.00130.91391.09200.600.91110.04540.00200.90701.09750.800.90480.06010.00270.89761.10511.000.89680.07440.00340.88571.1149 175

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qAe1qBe2^A1^B2 1220.200.91920.00510.00100.91901.08790.400.91570.03040.00400.91381.09200.600.91100.04540.00600.90691.09760.800.90450.06010.00810.89731.10531.000.89640.07440.01010.88531.1152 1240.200.91900.00760.00080.91871.08810.400.91570.03040.00270.91391.09200.600.91110.04540.00400.90691.09750.800.90460.06010.00540.89741.10521.000.89660.07440.00670.88551.1150 1260.200.91900.00760.00070.91871.08810.400.91570.03040.00200.91391.09200.600.91110.04540.00300.90701.09750.800.90470.06010.00400.89751.10521.000.89670.07440.00500.88561.1150 1280.200.91900.00760.00060.91871.08810.400.91580.03040.00160.91391.09200.600.91110.04540.00240.90701.09750.800.90480.06010.00320.89751.10521.000.89680.07440.00400.88571.1149 12100.200.91900.00760.00050.91871.08810.400.91580.03040.00130.91391.09200.600.91110.04540.00200.90701.09750.800.90480.06010.00270.89761.10511.000.89680.07440.00340.88571.1149 176

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APPENDIXHCOMPLETENUMERICALRESULTSFORTHEGREENINGOFF,GREENINGOUTANDGREENINGOUTSTRATEGIES ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 840.14200.520.330.1534.0-0.80.01.60.0840.24200.520.330.1534.0-0.80.01.60.0840.34200.520.330.1534.0-0.80.01.60.0840.44200.520.330.1534.0-0.85.91.62.0840.54200.520.330.1534.0-0.80.01.60.0840.64200.520.330.1534.0-0.80.01.60.0840.74200.520.330.1534.0-0.70.02.30.0840.84200.520.330.1534.00.30.02.70.0840.94200.520.330.1534.01.40.03.00.08414200.520.330.1540.02.70.03.30.0840.112200.520.330.1534.0-8.80.01.60.0840.212200.520.330.1534.0-8.80.01.60.0840.312200.520.330.1534.0-8.80.01.60.0840.412200.520.330.1534.0-8.85.91.62.0840.512200.520.330.1534.0-8.80.01.60.0840.612200.520.330.1534.0-8.80.01.60.0840.712200.520.330.1534.0-8.70.02.30.0840.812200.520.330.1534.0-7.70.02.70.0840.912200.520.330.1534.0-6.60.03.00.084112200.520.330.1540.0-5.30.03.30.0840.124200.520.330.1534.0-20.80.01.60.0840.224200.520.330.1534.0-20.80.01.60.0840.324200.520.330.1534.0-20.80.01.60.0840.424200.520.330.1534.0-20.85.91.62.0840.524200.520.330.1534.0-20.80.01.60.0840.624200.520.330.1534.0-20.80.01.60.0840.724200.520.330.1534.0-20.70.02.30.0840.824200.520.330.1534.0-19.70.02.70.0840.924200.520.330.1534.0-18.60.03.00.084124200.520.330.1540.0-17.30.03.30.0840.14400.520.330.1534.0-0.80.01.60.0840.24400.520.330.1534.0-0.80.01.60.0840.34400.520.330.1534.0-0.80.01.60.0840.44400.520.330.1534.0-0.85.51.61.0840.54400.520.330.1534.0-0.80.01.60.0840.64400.520.330.1534.0-0.80.01.60.0840.74400.520.330.1534.0-0.70.02.30.0840.84400.520.330.1534.00.30.02.70.0840.94400.520.330.1534.01.40.03.00.08414400.520.330.1540.02.70.03.30.0840.112400.520.330.1534.0-8.80.01.60.0840.212400.520.330.1534.0-8.80.01.60.0840.312400.520.330.1534.0-8.80.01.60.0840.412400.520.330.1534.0-8.85.51.61.0840.512400.520.330.1534.0-8.80.01.60.0840.612400.520.330.1534.0-8.80.01.60.0840.712400.520.330.1534.0-8.70.02.30.0840.812400.520.330.1534.0-7.70.02.70.0840.912400.520.330.1534.0-6.60.03.00.084112400.520.330.1540.0-5.30.03.30.0 177

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 840.124400.520.330.1534.0-20.80.01.60.0840.224400.520.330.1534.0-20.80.01.60.0840.324400.520.330.1534.0-20.80.01.60.0840.424400.520.330.1534.0-20.85.51.61.0840.524400.520.330.1534.0-20.80.01.60.0840.624400.520.330.1534.0-20.80.01.60.0840.724400.520.330.1534.0-20.70.02.30.0840.824400.520.330.1534.0-19.70.02.70.0840.924400.520.330.1534.0-18.60.03.00.084124400.520.330.1540.0-17.30.03.30.0840.14600.520.330.1534.0-0.80.01.60.0840.24600.520.330.1534.0-0.80.01.60.0840.34600.520.330.1534.0-0.83.91.61.3840.44600.520.330.1534.0-0.85.41.60.7840.54600.520.330.1534.0-0.80.01.60.0840.64600.520.330.1534.0-0.80.01.60.0840.74600.520.330.1534.0-0.70.02.30.0840.84600.520.330.1534.00.30.02.70.0840.94600.520.330.1534.01.40.03.00.08414600.520.330.1540.02.70.03.30.0840.112600.520.330.1534.0-8.80.01.60.0840.212600.520.330.1534.0-8.80.01.60.0840.312600.520.330.1534.0-8.83.91.61.3840.412600.520.330.1534.0-8.85.41.60.7840.512600.520.330.1534.0-8.80.01.60.0840.612600.520.330.1534.0-8.80.01.60.0840.712600.520.330.1534.0-8.70.02.30.0840.812600.520.330.1534.0-7.70.02.70.0840.912600.520.330.1534.0-6.60.03.00.084112600.520.330.1540.0-5.30.03.30.0840.124600.520.330.1534.0-20.80.01.60.0840.224600.520.330.1534.0-20.80.01.60.0840.324600.520.330.1534.0-20.83.91.61.3840.424600.520.330.1534.0-20.85.41.60.7840.524600.520.330.1534.0-20.80.01.60.0840.624600.520.330.1534.0-20.80.01.60.0840.724600.520.330.1534.0-20.70.02.30.0840.824600.520.330.1534.0-19.70.02.70.0840.924600.520.330.1534.0-18.60.03.00.084124600.520.330.1540.0-17.30.03.30.0880.14200.520.330.1534.08.80.03.20.0880.24200.520.330.1534.08.80.03.20.0880.34200.520.330.1534.08.80.03.20.0880.44200.520.330.1534.08.80.03.20.0880.54200.520.330.1534.08.80.03.20.0880.64200.520.330.1534.08.80.03.20.0880.74200.520.330.1534.09.10.04.70.0880.84200.520.330.1534.013.10.05.30.0880.94200.520.330.1534.017.626.76.02.08814200.520.330.1540.022.70.06.70.0 178

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 880.112200.520.330.1534.00.80.03.20.0880.212200.520.330.1534.00.80.03.20.0880.312200.520.330.1534.00.80.03.20.0880.412200.520.330.1534.00.80.03.20.0880.512200.520.330.1534.00.80.03.20.0880.612200.520.330.1534.00.80.03.20.0880.712200.520.330.1534.01.10.04.70.0880.812200.520.330.1534.05.10.05.30.0880.912200.520.330.1534.09.626.76.02.088112200.520.330.1540.014.70.06.70.0880.124200.520.330.1534.0-11.20.03.20.0880.224200.520.330.1534.0-11.20.03.20.0880.324200.520.330.1534.0-11.20.03.20.0880.424200.520.330.1534.0-11.20.03.20.0880.524200.520.330.1534.0-11.20.03.20.0880.624200.520.330.1534.0-11.20.03.20.0880.724200.520.330.1534.0-10.90.04.70.0880.824200.520.330.1534.0-6.90.05.30.0880.924200.520.330.1534.0-2.426.76.02.088124200.520.330.1540.02.70.06.70.0880.14400.520.330.1534.08.80.03.20.0880.24400.520.330.1534.08.80.03.20.0880.34400.520.330.1534.08.80.03.20.0880.44400.520.330.1534.08.80.03.20.0880.54400.520.330.1534.08.80.03.20.0880.64400.520.330.1534.08.80.03.20.0880.74400.520.330.1534.09.10.04.70.0880.84400.520.330.1534.013.122.15.32.0880.94400.520.330.1534.017.626.36.01.08814400.520.330.1540.022.70.06.70.0880.112400.520.330.1534.00.80.03.20.0880.212400.520.330.1534.00.80.03.20.0880.312400.520.330.1534.00.80.03.20.0880.412400.520.330.1534.00.80.03.20.0880.512400.520.330.1534.00.80.03.20.0880.612400.520.330.1534.00.80.03.20.0880.712400.520.330.1534.01.10.04.70.0880.812400.520.330.1534.05.122.15.32.0880.912400.520.330.1534.09.626.36.01.088112400.520.330.1540.014.70.06.70.0880.124400.520.330.1534.0-11.20.03.20.0880.224400.520.330.1534.0-11.20.03.20.0880.324400.520.330.1534.0-11.20.03.20.0880.424400.520.330.1534.0-11.20.03.20.0880.524400.520.330.1534.0-11.20.03.20.0880.624400.520.330.1534.0-11.20.03.20.0880.724400.520.330.1534.0-10.90.04.70.0880.824400.520.330.1534.0-6.922.15.32.0880.924400.520.330.1534.0-2.426.36.01.088124400.520.330.1540.02.70.06.70.0 179

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 880.14600.520.330.1534.08.80.03.20.0880.24600.520.330.1534.08.80.03.20.0880.34600.520.330.1534.08.80.03.20.0880.44600.520.330.1534.08.80.03.20.0880.54600.520.330.1534.08.80.03.20.0880.64600.520.330.1534.08.80.03.20.0880.74600.520.330.1534.09.118.14.72.0880.84600.520.330.1534.013.121.55.31.3880.94600.520.330.1534.017.626.26.00.78814600.520.330.1540.022.70.06.70.0880.112600.520.330.1534.00.80.03.20.0880.212600.520.330.1534.00.80.03.20.0880.312600.520.330.1534.00.80.03.20.0880.412600.520.330.1534.00.80.03.20.0880.512600.520.330.1534.00.80.03.20.0880.612600.520.330.1534.00.80.03.20.0880.712600.520.330.1534.01.118.14.72.0880.812600.520.330.1534.05.121.55.31.3880.912600.520.330.1534.09.626.26.00.788112600.520.330.1540.014.70.06.70.0880.124600.520.330.1534.0-11.20.03.20.0880.224600.520.330.1534.0-11.20.03.20.0880.324600.520.330.1534.0-11.20.03.20.0880.424600.520.330.1534.0-11.20.03.20.0880.524600.520.330.1534.0-11.20.03.20.0880.624600.520.330.1534.0-11.20.03.20.0880.724600.520.330.1534.0-10.918.14.72.0880.824600.520.330.1534.0-6.921.55.31.3880.924600.520.330.1534.0-2.426.26.00.788124600.520.330.1540.02.70.06.70.08160.14200.520.330.1534.047.219.36.42.28160.24200.520.330.1534.047.219.36.42.28160.34200.520.330.1534.047.219.36.42.28160.44200.520.330.1534.047.219.36.42.28160.54200.520.330.1534.047.219.36.42.28160.64200.520.330.1534.047.235.26.44.08160.74200.520.330.1534.048.344.89.38.08160.84200.520.330.1534.064.319.310.72.28160.94200.520.330.1534.082.419.312.02.281614200.520.330.1540.0102.719.313.32.28160.112200.520.330.1534.039.219.36.42.28160.212200.520.330.1534.039.219.36.42.28160.312200.520.330.1534.039.219.36.42.28160.412200.520.330.1534.039.219.36.42.28160.512200.520.330.1534.039.219.36.42.28160.612200.520.330.1534.039.235.26.44.08160.712200.520.330.1534.040.344.89.38.08160.812200.520.330.1534.056.319.310.72.28160.912200.520.330.1534.074.419.312.02.2816112200.520.330.1540.094.719.313.32.2 180

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 8160.124200.520.330.1534.027.219.36.42.28160.224200.520.330.1534.027.219.36.42.28160.324200.520.330.1534.027.219.36.42.28160.424200.520.330.1534.027.219.36.42.28160.524200.520.330.1534.027.219.36.42.28160.624200.520.330.1534.027.235.26.44.08160.724200.520.330.1534.028.344.89.38.08160.824200.520.330.1534.044.319.310.72.28160.924200.520.330.1534.062.419.312.02.2816124200.520.330.1540.082.719.313.32.28160.14400.520.330.1534.047.214.96.41.18160.24400.520.330.1534.047.214.96.41.18160.34400.520.330.1534.047.214.96.41.18160.44400.520.330.1534.047.214.96.41.18160.54400.520.330.1534.047.214.96.41.18160.64400.520.330.1534.047.214.96.41.18160.74400.520.330.1534.048.338.49.34.08160.84400.520.330.1534.064.346.410.76.08160.94400.520.330.1534.082.414.912.01.181614400.520.330.1540.0102.714.913.31.18160.112400.520.330.1534.039.214.96.41.18160.212400.520.330.1534.039.214.96.41.18160.312400.520.330.1534.039.214.96.41.18160.412400.520.330.1534.039.214.96.41.18160.512400.520.330.1534.039.214.96.41.18160.612400.520.330.1534.039.214.96.41.18160.712400.520.330.1534.040.338.49.34.08160.812400.520.330.1534.056.346.410.76.08160.912400.520.330.1534.074.414.912.01.1816112400.520.330.1540.094.714.913.31.18160.124400.520.330.1534.027.214.96.41.18160.224400.520.330.1534.027.214.96.41.18160.324400.520.330.1534.027.214.96.41.18160.424400.520.330.1534.027.214.96.41.18160.524400.520.330.1534.027.214.96.41.18160.624400.520.330.1534.027.214.96.41.18160.724400.520.330.1534.028.338.49.34.08160.824400.520.330.1534.044.346.410.76.08160.924400.520.330.1534.062.414.912.01.1816124400.520.330.1540.082.714.913.31.18160.14600.520.330.1534.047.213.56.40.78160.24600.520.330.1534.047.213.56.40.78160.34600.520.330.1534.047.213.56.40.78160.44600.520.330.1534.047.213.56.40.78160.54600.520.330.1534.047.213.56.40.78160.64600.520.330.1534.047.213.56.40.78160.74600.520.330.1534.048.336.39.32.78160.84600.520.330.1534.064.341.610.74.08160.94600.520.330.1534.082.449.112.05.381614600.520.330.1540.0102.758.713.36.7 181

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 8160.112600.520.330.1534.039.213.56.40.78160.212600.520.330.1534.039.213.56.40.78160.312600.520.330.1534.039.213.56.40.78160.412600.520.330.1534.039.213.56.40.78160.512600.520.330.1534.039.213.56.40.78160.612600.520.330.1534.039.213.56.40.78160.712600.520.330.1534.040.336.39.32.78160.812600.520.330.1534.056.341.610.74.08160.912600.520.330.1534.074.449.112.05.3816112600.520.330.1540.094.758.713.36.78160.124600.520.330.1534.027.213.56.40.78160.224600.520.330.1534.027.213.56.40.78160.324600.520.330.1534.027.213.56.40.78160.424600.520.330.1534.027.213.56.40.78160.524600.520.330.1534.027.213.56.40.78160.624600.520.330.1534.027.213.56.40.78160.724600.520.330.1534.028.336.39.32.78160.824600.520.330.1534.044.341.610.74.08160.924600.520.330.1534.062.449.112.05.3816124600.520.330.1540.082.758.713.36.7840.14200.330.330.3326.70.40.02.20.0840.24200.330.330.3326.70.40.02.20.0840.34200.330.330.3326.70.40.02.20.0840.44200.330.330.3326.70.45.92.22.0840.54200.330.330.3326.70.40.02.20.0840.64200.330.330.3326.70.40.02.20.0840.74200.330.330.3326.70.40.02.20.0840.84200.330.330.3326.70.40.02.20.0840.94200.330.330.3332.41.40.03.00.08414200.330.330.3340.02.70.03.30.0840.112200.330.330.3326.7-7.60.02.20.0840.212200.330.330.3326.7-7.60.02.20.0840.312200.330.330.3326.7-7.60.02.20.0840.412200.330.330.3326.7-7.65.92.22.0840.512200.330.330.3326.7-7.60.02.20.0840.612200.330.330.3326.7-7.60.02.20.0840.712200.330.330.3326.7-7.60.02.20.0840.812200.330.330.3326.7-7.60.02.20.0840.912200.330.330.3332.4-6.60.03.00.084112200.330.330.3340.0-5.30.03.30.0840.124200.330.330.3326.7-19.60.02.20.0840.224200.330.330.3326.7-19.60.02.20.0840.324200.330.330.3326.7-19.60.02.20.0840.424200.330.330.3326.7-19.65.92.22.0840.524200.330.330.3326.7-19.60.02.20.0840.624200.330.330.3326.7-19.60.02.20.0840.724200.330.330.3326.7-19.60.02.20.0840.824200.330.330.3326.7-19.60.02.20.0840.924200.330.330.3332.4-18.60.03.00.084124200.330.330.3340.0-17.30.03.30.0 182

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 840.14400.330.330.3326.70.40.02.20.0840.24400.330.330.3326.70.40.02.20.0840.34400.330.330.3326.70.40.02.20.0840.44400.330.330.3326.70.45.52.21.0840.54400.330.330.3326.70.40.02.20.0840.64400.330.330.3326.70.40.02.20.0840.74400.330.330.3326.70.40.02.20.0840.84400.330.330.3326.70.40.02.20.0840.94400.330.330.3332.41.40.03.00.08414400.330.330.3340.02.70.03.30.0840.112400.330.330.3326.7-7.60.02.20.0840.212400.330.330.3326.7-7.60.02.20.0840.312400.330.330.3326.7-7.60.02.20.0840.412400.330.330.3326.7-7.65.52.21.0840.512400.330.330.3326.7-7.60.02.20.0840.612400.330.330.3326.7-7.60.02.20.0840.712400.330.330.3326.7-7.60.02.20.0840.812400.330.330.3326.7-7.60.02.20.0840.912400.330.330.3332.4-6.60.03.00.084112400.330.330.3340.0-5.30.03.30.0840.124400.330.330.3326.7-19.60.02.20.0840.224400.330.330.3326.7-19.60.02.20.0840.324400.330.330.3326.7-19.60.02.20.0840.424400.330.330.3326.7-19.65.52.21.0840.524400.330.330.3326.7-19.60.02.20.0840.624400.330.330.3326.7-19.60.02.20.0840.724400.330.330.3326.7-19.60.02.20.0840.824400.330.330.3326.7-19.60.02.20.0840.924400.330.330.3332.4-18.60.03.00.084124400.330.330.3340.0-17.30.03.30.0840.14600.330.330.3326.70.40.02.20.0840.24600.330.330.3326.70.40.02.20.0840.34600.330.330.3326.70.43.92.21.3840.44600.330.330.3326.70.45.42.20.7840.54600.330.330.3326.70.40.02.20.0840.64600.330.330.3326.70.40.02.20.0840.74600.330.330.3326.70.40.02.20.0840.84600.330.330.3326.70.40.02.20.0840.94600.330.330.3332.41.40.03.00.08414600.330.330.3340.02.70.03.30.0840.112600.330.330.3326.7-7.60.02.20.0840.212600.330.330.3326.7-7.60.02.20.0840.312600.330.330.3326.7-7.63.92.21.3840.412600.330.330.3326.7-7.65.42.20.7840.512600.330.330.3326.7-7.60.02.20.0840.612600.330.330.3326.7-7.60.02.20.0840.712600.330.330.3326.7-7.60.02.20.0840.812600.330.330.3326.7-7.60.02.20.0840.912600.330.330.3332.4-6.60.03.00.084112600.330.330.3340.0-5.30.03.30.0 183

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 840.124600.330.330.3326.7-19.60.02.20.0840.224600.330.330.3326.7-19.60.02.20.0840.324600.330.330.3326.7-19.63.92.21.3840.424600.330.330.3326.7-19.65.42.20.7840.524600.330.330.3326.7-19.60.02.20.0840.624600.330.330.3326.7-19.60.02.20.0840.724600.330.330.3326.7-19.60.02.20.0840.824600.330.330.3326.7-19.60.02.20.0840.924600.330.330.3332.4-18.60.03.00.084124600.330.330.3340.0-17.30.03.30.0880.14200.330.330.3326.713.80.04.40.0880.24200.330.330.3326.713.80.04.40.0880.34200.330.330.3326.713.80.04.40.0880.44200.330.330.3326.713.80.04.40.0880.54200.330.330.3326.713.80.04.40.0880.64200.330.330.3326.713.80.04.40.0880.74200.330.330.3326.713.80.04.40.0880.84200.330.330.3326.713.80.04.40.0880.94200.330.330.3332.417.626.76.02.08814200.330.330.3340.022.70.06.70.0880.112200.330.330.3326.75.80.04.40.0880.212200.330.330.3326.75.80.04.40.0880.312200.330.330.3326.75.80.04.40.0880.412200.330.330.3326.75.80.04.40.0880.512200.330.330.3326.75.80.04.40.0880.612200.330.330.3326.75.80.04.40.0880.712200.330.330.3326.75.80.04.40.0880.812200.330.330.3326.75.80.04.40.0880.912200.330.330.3332.49.626.76.02.088112200.330.330.3340.014.70.06.70.0880.124200.330.330.3326.7-6.20.04.40.0880.224200.330.330.3326.7-6.20.04.40.0880.324200.330.330.3326.7-6.20.04.40.0880.424200.330.330.3326.7-6.20.04.40.0880.524200.330.330.3326.7-6.20.04.40.0880.624200.330.330.3326.7-6.20.04.40.0880.724200.330.330.3326.7-6.20.04.40.0880.824200.330.330.3326.7-6.20.04.40.0880.924200.330.330.3332.4-2.426.76.02.088124200.330.330.3340.02.70.06.70.0880.14400.330.330.3326.713.80.04.40.0880.24400.330.330.3326.713.80.04.40.0880.34400.330.330.3326.713.80.04.40.0880.44400.330.330.3326.713.80.04.40.0880.54400.330.330.3326.713.80.04.40.0880.64400.330.330.3326.713.80.04.40.0880.74400.330.330.3326.713.80.04.40.0880.84400.330.330.3326.713.822.14.42.0880.94400.330.330.3332.417.626.36.01.08814400.330.330.3340.022.70.06.70.0 184

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 880.112400.330.330.3326.75.80.04.40.0880.212400.330.330.3326.75.80.04.40.0880.312400.330.330.3326.75.80.04.40.0880.412400.330.330.3326.75.80.04.40.0880.512400.330.330.3326.75.80.04.40.0880.612400.330.330.3326.75.80.04.40.0880.712400.330.330.3326.75.80.04.40.0880.812400.330.330.3326.75.822.14.42.0880.912400.330.330.3332.49.626.36.01.088112400.330.330.3340.014.70.06.70.0880.124400.330.330.3326.7-6.20.04.40.0880.224400.330.330.3326.7-6.20.04.40.0880.324400.330.330.3326.7-6.20.04.40.0880.424400.330.330.3326.7-6.20.04.40.0880.524400.330.330.3326.7-6.20.04.40.0880.624400.330.330.3326.7-6.20.04.40.0880.724400.330.330.3326.7-6.20.04.40.0880.824400.330.330.3326.7-6.222.14.42.0880.924400.330.330.3332.4-2.426.36.01.088124400.330.330.3340.02.70.06.70.0880.14600.330.330.3326.713.80.04.40.0880.24600.330.330.3326.713.80.04.40.0880.34600.330.330.3326.713.80.04.40.0880.44600.330.330.3326.713.80.04.40.0880.54600.330.330.3326.713.80.04.40.0880.64600.330.330.3326.713.80.04.40.0880.74600.330.330.3326.713.818.14.42.0880.84600.330.330.3326.713.821.54.41.3880.94600.330.330.3332.417.626.26.00.78814600.330.330.3340.022.70.06.70.0880.112600.330.330.3326.75.80.04.40.0880.212600.330.330.3326.75.80.04.40.0880.312600.330.330.3326.75.80.04.40.0880.412600.330.330.3326.75.80.04.40.0880.512600.330.330.3326.75.80.04.40.0880.612600.330.330.3326.75.80.04.40.0880.712600.330.330.3326.75.818.14.42.0880.812600.330.330.3326.75.821.54.41.3880.912600.330.330.3332.49.626.26.00.788112600.330.330.3340.014.70.06.70.0880.124600.330.330.3326.7-6.20.04.40.0880.224600.330.330.3326.7-6.20.04.40.0880.324600.330.330.3326.7-6.20.04.40.0880.424600.330.330.3326.7-6.20.04.40.0880.524600.330.330.3326.7-6.20.04.40.0880.624600.330.330.3326.7-6.20.04.40.0880.724600.330.330.3326.7-6.218.14.42.0880.824600.330.330.3326.7-6.221.54.41.3880.924600.330.330.3332.4-2.426.26.00.788124600.330.330.3340.02.70.06.70.0 185

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 8160.14200.330.330.3326.767.119.68.92.28160.24200.330.330.3326.767.119.68.92.28160.34200.330.330.3326.767.119.68.92.28160.44200.330.330.3326.767.119.68.92.28160.54200.330.330.3326.767.119.68.92.28160.64200.330.330.3326.767.135.28.94.08160.74200.330.330.3326.767.144.88.98.08160.84200.330.330.3326.767.119.68.92.28160.94200.330.330.3332.482.419.612.02.281614200.330.330.3340.0102.719.613.32.28160.112200.330.330.3326.759.119.68.92.28160.212200.330.330.3326.759.119.68.92.28160.312200.330.330.3326.759.119.68.92.28160.412200.330.330.3326.759.119.68.92.28160.512200.330.330.3326.759.119.68.92.28160.612200.330.330.3326.759.135.28.94.08160.712200.330.330.3326.759.144.88.98.08160.812200.330.330.3326.759.119.68.92.28160.912200.330.330.3332.474.419.612.02.2816112200.330.330.3340.094.719.613.32.28160.124200.330.330.3326.747.119.68.92.28160.224200.330.330.3326.747.119.68.92.28160.324200.330.330.3326.747.119.68.92.28160.424200.330.330.3326.747.119.68.92.28160.524200.330.330.3326.747.119.68.92.28160.624200.330.330.3326.747.135.28.94.08160.724200.330.330.3326.747.144.88.98.08160.824200.330.330.3326.747.119.68.92.28160.924200.330.330.3332.462.419.612.02.2816124200.330.330.3340.082.719.613.32.28160.14400.330.330.3326.767.115.18.91.18160.24400.330.330.3326.767.115.18.91.18160.34400.330.330.3326.767.115.18.91.18160.44400.330.330.3326.767.115.18.91.18160.54400.330.330.3326.767.115.18.91.18160.64400.330.330.3326.767.115.18.91.18160.74400.330.330.3326.767.138.48.94.08160.84400.330.330.3326.767.146.48.96.08160.94400.330.330.3332.482.415.112.01.181614400.330.330.3340.0102.715.113.31.18160.112400.330.330.3326.759.115.18.91.18160.212400.330.330.3326.759.115.18.91.18160.312400.330.330.3326.759.115.18.91.18160.412400.330.330.3326.759.115.18.91.18160.512400.330.330.3326.759.115.18.91.18160.612400.330.330.3326.759.115.18.91.18160.712400.330.330.3326.759.138.48.94.08160.812400.330.330.3326.759.146.48.96.08160.912400.330.330.3332.474.415.112.01.1816112400.330.330.3340.094.715.113.31.1 186

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 8160.124400.330.330.3326.747.115.18.91.18160.224400.330.330.3326.747.115.18.91.18160.324400.330.330.3326.747.115.18.91.18160.424400.330.330.3326.747.115.18.91.18160.524400.330.330.3326.747.115.18.91.18160.624400.330.330.3326.747.115.18.91.18160.724400.330.330.3326.747.138.48.94.08160.824400.330.330.3326.747.146.48.96.08160.924400.330.330.3332.462.415.112.01.1816124400.330.330.3340.082.715.113.31.18160.14600.330.330.3326.767.113.68.90.78160.24600.330.330.3326.767.113.68.90.78160.34600.330.330.3326.767.113.68.90.78160.44600.330.330.3326.767.113.68.90.78160.54600.330.330.3326.767.113.68.90.78160.64600.330.330.3326.767.113.68.90.78160.74600.330.330.3326.767.136.38.92.78160.84600.330.330.3326.767.141.68.94.08160.94600.330.330.3332.482.449.112.05.381614600.330.330.3340.0102.758.713.36.78160.112600.330.330.3326.759.113.68.90.78160.212600.330.330.3326.759.113.68.90.78160.312600.330.330.3326.759.113.68.90.78160.412600.330.330.3326.759.113.68.90.78160.512600.330.330.3326.759.113.68.90.78160.612600.330.330.3326.759.113.68.90.78160.712600.330.330.3326.759.136.38.92.78160.812600.330.330.3326.759.141.68.94.08160.912600.330.330.3332.474.449.112.05.3816112600.330.330.3340.094.758.713.36.78160.124600.330.330.3326.747.113.68.90.78160.224600.330.330.3326.747.113.68.90.78160.324600.330.330.3326.747.113.68.90.78160.424600.330.330.3326.747.113.68.90.78160.524600.330.330.3326.747.113.68.90.78160.624600.330.330.3326.747.113.68.90.78160.724600.330.330.3326.747.136.38.92.78160.824600.330.330.3326.747.141.68.94.08160.924600.330.330.3332.462.449.112.05.3816124600.330.330.3340.082.758.713.36.7840.14200.150.330.5219.21.70.02.80.0840.24200.150.330.5219.21.70.02.80.0840.34200.150.330.5219.21.70.02.80.0840.44200.150.330.5219.21.75.92.82.0840.54200.150.330.5219.21.70.02.80.0840.64200.150.330.5219.21.70.02.80.0840.74200.150.330.5219.61.70.02.80.0840.84200.150.330.5225.61.70.02.80.0840.94200.150.330.5232.41.70.02.80.08414200.150.330.5240.02.70.03.30.0 187

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 840.112200.150.330.5219.2-6.30.02.80.0840.212200.150.330.5219.2-6.30.02.80.0840.312200.150.330.5219.2-6.30.02.80.0840.412200.150.330.5219.2-6.35.92.82.0840.512200.150.330.5219.2-6.30.02.80.0840.612200.150.330.5219.2-6.30.02.80.0840.712200.150.330.5219.6-6.30.02.80.0840.812200.150.330.5225.6-6.30.02.80.0840.912200.150.330.5232.4-6.30.02.80.084112200.150.330.5240.0-5.30.03.30.0840.124200.150.330.5219.2-18.30.02.80.0840.224200.150.330.5219.2-18.30.02.80.0840.324200.150.330.5219.2-18.30.02.80.0840.424200.150.330.5219.2-18.35.92.82.0840.524200.150.330.5219.2-18.30.02.80.0840.624200.150.330.5219.2-18.30.02.80.0840.724200.150.330.5219.6-18.30.02.80.0840.824200.150.330.5225.6-18.30.02.80.0840.924200.150.330.5232.4-18.30.02.80.084124200.150.330.5240.0-17.30.03.30.0840.14400.150.330.5219.21.70.02.80.0840.24400.150.330.5219.21.70.02.80.0840.34400.150.330.5219.21.70.02.80.0840.44400.150.330.5219.21.75.52.81.0840.54400.150.330.5219.21.70.02.80.0840.64400.150.330.5219.21.70.02.80.0840.74400.150.330.5219.61.70.02.80.0840.84400.150.330.5225.61.70.02.80.0840.94400.150.330.5232.41.70.02.80.08414400.150.330.5240.02.70.03.30.0840.112400.150.330.5219.2-6.30.02.80.0840.212400.150.330.5219.2-6.30.02.80.0840.312400.150.330.5219.2-6.30.02.80.0840.412400.150.330.5219.2-6.35.52.81.0840.512400.150.330.5219.2-6.30.02.80.0840.612400.150.330.5219.2-6.30.02.80.0840.712400.150.330.5219.6-6.30.02.80.0840.812400.150.330.5225.6-6.30.02.80.0840.912400.150.330.5232.4-6.30.02.80.084112400.150.330.5240.0-5.30.03.30.0840.124400.150.330.5219.2-18.30.02.80.0840.224400.150.330.5219.2-18.30.02.80.0840.324400.150.330.5219.2-18.30.02.80.0840.424400.150.330.5219.2-18.35.52.81.0840.524400.150.330.5219.2-18.30.02.80.0840.624400.150.330.5219.2-18.30.02.80.0840.724400.150.330.5219.6-18.30.02.80.0840.824400.150.330.5225.6-18.30.02.80.0840.924400.150.330.5232.4-18.30.02.80.084124400.150.330.5240.0-17.30.03.30.0 188

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 840.14600.150.330.5219.21.70.02.80.0840.24600.150.330.5219.21.70.02.80.0840.34600.150.330.5219.21.73.92.81.3840.44600.150.330.5219.21.75.42.80.7840.54600.150.330.5219.21.70.02.80.0840.64600.150.330.5219.21.70.02.80.0840.74600.150.330.5219.61.70.02.80.0840.84600.150.330.5225.61.70.02.80.0840.94600.150.330.5232.41.70.02.80.08414600.150.330.5240.02.70.03.30.0840.112600.150.330.5219.2-6.30.02.80.0840.212600.150.330.5219.2-6.30.02.80.0840.312600.150.330.5219.2-6.33.92.81.3840.412600.150.330.5219.2-6.35.42.80.7840.512600.150.330.5219.2-6.30.02.80.0840.612600.150.330.5219.2-6.30.02.80.0840.712600.150.330.5219.6-6.30.02.80.0840.812600.150.330.5225.6-6.30.02.80.0840.912600.150.330.5232.4-6.30.02.80.084112600.150.330.5240.0-5.30.03.30.0840.124600.150.330.5219.2-18.30.02.80.0840.224600.150.330.5219.2-18.30.02.80.0840.324600.150.330.5219.2-18.33.92.81.3840.424600.150.330.5219.2-18.35.42.80.7840.524600.150.330.5219.2-18.30.02.80.0840.624600.150.330.5219.2-18.30.02.80.0840.724600.150.330.5219.6-18.30.02.80.0840.824600.150.330.5225.6-18.30.02.80.0840.924600.150.330.5232.4-18.30.02.80.084124600.150.330.5240.0-17.30.03.30.0880.14200.150.330.5219.218.70.05.70.0880.24200.150.330.5219.218.70.05.70.0880.34200.150.330.5219.218.70.05.70.0880.44200.150.330.5219.218.70.05.70.0880.54200.150.330.5219.218.70.05.70.0880.64200.150.330.5219.218.70.05.70.0880.74200.150.330.5219.618.70.05.70.0880.84200.150.330.5225.618.70.05.70.0880.94200.150.330.5232.418.726.75.72.08814200.150.330.5240.022.70.06.70.0880.112200.150.330.5219.210.70.05.70.0880.212200.150.330.5219.210.70.05.70.0880.312200.150.330.5219.210.70.05.70.0880.412200.150.330.5219.210.70.05.70.0880.512200.150.330.5219.210.70.05.70.0880.612200.150.330.5219.210.70.05.70.0880.712200.150.330.5219.610.70.05.70.0880.812200.150.330.5225.610.70.05.70.0880.912200.150.330.5232.410.726.75.72.088112200.150.330.5240.014.70.06.70.0 189

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 880.124200.150.330.5219.2-1.30.05.70.0880.224200.150.330.5219.2-1.30.05.70.0880.324200.150.330.5219.2-1.30.05.70.0880.424200.150.330.5219.2-1.30.05.70.0880.524200.150.330.5219.2-1.30.05.70.0880.624200.150.330.5219.2-1.30.05.70.0880.724200.150.330.5219.6-1.30.05.70.0880.824200.150.330.5225.6-1.30.05.70.0880.924200.150.330.5232.4-1.326.75.72.088124200.150.330.5240.02.70.06.70.0880.14400.150.330.5219.218.70.05.70.0880.24400.150.330.5219.218.70.05.70.0880.34400.150.330.5219.218.70.05.70.0880.44400.150.330.5219.218.70.05.70.0880.54400.150.330.5219.218.70.05.70.0880.64400.150.330.5219.218.70.05.70.0880.74400.150.330.5219.618.70.05.70.0880.84400.150.330.5225.618.722.15.72.0880.94400.150.330.5232.418.726.35.71.08814400.150.330.5240.022.70.06.70.0880.112400.150.330.5219.210.70.05.70.0880.212400.150.330.5219.210.70.05.70.0880.312400.150.330.5219.210.70.05.70.0880.412400.150.330.5219.210.70.05.70.0880.512400.150.330.5219.210.70.05.70.0880.612400.150.330.5219.210.70.05.70.0880.712400.150.330.5219.610.70.05.70.0880.812400.150.330.5225.610.722.15.72.0880.912400.150.330.5232.410.726.35.71.088112400.150.330.5240.014.70.06.70.0880.124400.150.330.5219.2-1.30.05.70.0880.224400.150.330.5219.2-1.30.05.70.0880.324400.150.330.5219.2-1.30.05.70.0880.424400.150.330.5219.2-1.30.05.70.0880.524400.150.330.5219.2-1.30.05.70.0880.624400.150.330.5219.2-1.30.05.70.0880.724400.150.330.5219.6-1.30.05.70.0880.824400.150.330.5225.6-1.322.15.72.0880.924400.150.330.5232.4-1.326.35.71.088124400.150.330.5240.02.70.06.70.0880.14600.150.330.5219.218.70.05.70.0880.24600.150.330.5219.218.70.05.70.0880.34600.150.330.5219.218.70.05.70.0880.44600.150.330.5219.218.70.05.70.0880.54600.150.330.5219.218.70.05.70.0880.64600.150.330.5219.218.70.05.70.0880.74600.150.330.5219.618.718.15.72.0880.84600.150.330.5225.618.721.55.71.3880.94600.150.330.5232.418.726.25.70.78814600.150.330.5240.022.70.06.70.0 190

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 880.112600.150.330.5219.210.70.05.70.0880.212600.150.330.5219.210.70.05.70.0880.312600.150.330.5219.210.70.05.70.0880.412600.150.330.5219.210.70.05.70.0880.512600.150.330.5219.210.70.05.70.0880.612600.150.330.5219.210.70.05.70.0880.712600.150.330.5219.610.718.15.72.0880.812600.150.330.5225.610.721.55.71.3880.912600.150.330.5232.410.726.25.70.788112600.150.330.5240.014.70.06.70.0880.124600.150.330.5219.2-1.30.05.70.0880.224600.150.330.5219.2-1.30.05.70.0880.324600.150.330.5219.2-1.30.05.70.0880.424600.150.330.5219.2-1.30.05.70.0880.524600.150.330.5219.2-1.30.05.70.0880.624600.150.330.5219.2-1.30.05.70.0880.724600.150.330.5219.6-1.318.15.72.0880.824600.150.330.5225.6-1.321.55.71.3880.924600.150.330.5232.4-1.326.25.70.788124600.150.330.5240.02.70.06.70.08160.14200.150.330.5219.286.719.311.32.28160.24200.150.330.5219.286.719.311.32.28160.34200.150.330.5219.286.719.311.32.28160.44200.150.330.5219.286.719.311.32.28160.54200.150.330.5219.286.719.311.32.28160.64200.150.330.5219.286.735.211.34.08160.74200.150.330.5219.686.744.811.38.08160.84200.150.330.5225.686.719.311.32.28160.94200.150.330.5232.486.719.311.32.281614200.150.330.5240.0102.719.313.32.28160.112200.150.330.5219.278.719.311.32.28160.212200.150.330.5219.278.719.311.32.28160.312200.150.330.5219.278.719.311.32.28160.412200.150.330.5219.278.719.311.32.28160.512200.150.330.5219.278.719.311.32.28160.612200.150.330.5219.278.735.211.34.08160.712200.150.330.5219.678.744.811.38.08160.812200.150.330.5225.678.719.311.32.28160.912200.150.330.5232.478.719.311.32.2816112200.150.330.5240.094.719.313.32.28160.124200.150.330.5219.266.719.311.32.28160.224200.150.330.5219.266.719.311.32.28160.324200.150.330.5219.266.719.311.32.28160.424200.150.330.5219.266.719.311.32.28160.524200.150.330.5219.266.719.311.32.28160.624200.150.330.5219.266.735.211.34.08160.724200.150.330.5219.666.744.811.38.08160.824200.150.330.5225.666.719.311.32.28160.924200.150.330.5232.466.719.311.32.2816124200.150.330.5240.082.719.313.32.2 191

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 8160.14400.150.330.5219.286.714.911.31.18160.24400.150.330.5219.286.714.911.31.18160.34400.150.330.5219.286.714.911.31.18160.44400.150.330.5219.286.714.911.31.18160.54400.150.330.5219.286.714.911.31.18160.64400.150.330.5219.286.714.911.31.18160.74400.150.330.5219.686.738.411.34.08160.84400.150.330.5225.686.746.411.36.08160.94400.150.330.5232.486.714.911.31.181614400.150.330.5240.0102.714.913.31.18160.112400.150.330.5219.278.714.911.31.18160.212400.150.330.5219.278.714.911.31.18160.312400.150.330.5219.278.714.911.31.18160.412400.150.330.5219.278.714.911.31.18160.512400.150.330.5219.278.714.911.31.18160.612400.150.330.5219.278.714.911.31.18160.712400.150.330.5219.678.738.411.34.08160.812400.150.330.5225.678.746.411.36.08160.912400.150.330.5232.478.714.911.31.1816112400.150.330.5240.094.714.913.31.18160.124400.150.330.5219.266.714.911.31.18160.224400.150.330.5219.266.714.911.31.18160.324400.150.330.5219.266.714.911.31.18160.424400.150.330.5219.266.714.911.31.18160.524400.150.330.5219.266.714.911.31.18160.624400.150.330.5219.266.714.911.31.18160.724400.150.330.5219.666.738.411.34.08160.824400.150.330.5225.666.746.411.36.08160.924400.150.330.5232.466.714.911.31.1816124400.150.330.5240.082.714.913.31.18160.14600.150.330.5219.286.713.511.30.78160.24600.150.330.5219.286.713.511.30.78160.34600.150.330.5219.286.713.511.30.78160.44600.150.330.5219.286.713.511.30.78160.54600.150.330.5219.286.713.511.30.78160.64600.150.330.5219.286.713.511.30.78160.74600.150.330.5219.686.736.311.32.78160.84600.150.330.5225.686.741.611.34.08160.94600.150.330.5232.486.749.111.35.381614600.150.330.5240.0102.758.713.36.78160.112600.150.330.5219.278.713.511.30.78160.212600.150.330.5219.278.713.511.30.78160.312600.150.330.5219.278.713.511.30.78160.412600.150.330.5219.278.713.511.30.78160.512600.150.330.5219.278.713.511.30.78160.612600.150.330.5219.278.713.511.30.78160.712600.150.330.5219.678.736.311.32.78160.812600.150.330.5225.678.741.611.34.08160.912600.150.330.5232.478.749.111.35.3816112600.150.330.5240.094.758.713.36.7 192

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ProtsTEQ vtveNFrBrFrGGreening-OffGreening-OutGreening-UpGreening-OutGreening-Up 8160.124600.150.330.5219.266.713.511.30.78160.224600.150.330.5219.266.713.511.30.78160.324600.150.330.5219.266.713.511.30.78160.424600.150.330.5219.266.713.511.30.78160.524600.150.330.5219.266.713.511.30.78160.624600.150.330.5219.266.713.511.30.78160.724600.150.330.5219.666.736.311.32.78160.824600.150.330.5225.666.741.611.34.08160.924600.150.330.5232.466.749.111.35.3816124600.150.330.5240.082.758.713.36.7 193

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BIOGRAPHICALSKETCH ArdaYenipazarliisanAssistantProfessorofOperationsManagementintheDepartmentofManagementatGeorgiaSouthernUniversityinStatesboro,Georgia.HereceivedhisPh.D.degreeinBusinessAdministrationwithaconcentrationinInformationSystemsandOperationsManagementfromtheUniversityofFlorida.Hisprimaryresearchinterestsareintheareasofnewproductdevelopment,greensupplychainmanagement,sustainabletechnologies,andinventorymanagementandtheory.HisrecentresearchhasbeenpublishedinFoundationsandTrendsintheTechnology,InformationandOperationsManagement,andSpringershandbookofNewsvendorProblems:Models,ExtensionsandApplications.HehasservedasareviewerforjournalssuchasIIETransactions,EuropeanJournalofOperationalResearch,OptimizationMethods&Software,JournalofGlobalOptimizationandOptimizationLetters.HeisalsoamemberoftheInstituteforOperationsResearchandtheManagementSciences(INFORMS),Manufacturing&ServiceOperationsManagementSociety(MSOM),andProductionandOperationsManagementSociety(POMS). 198