Green Product Design Considering Consumer’s Income and Environmental Awareness

Abstract

With the enhancement of consumer environmental awareness, many companies are paying more attention to developing green products with higher environmental quality. In this paper, we study how the consumer’s valuation towards product’s qualities and consumer demand affect manufacturer’s product design and pricing regimes. Assuming there is a monopolist who manufacture products with traditional and environmental qualities and the market is divided into four segments according to consumer’s income level and environmental awareness, we give the optimal closed form solutions of the qualities and prices of products in mass-market and segment-market strategies. Additionally, we discuss the impacts of consumers’ valuation towards products’ qualities and market segments’ size on the total environmental qualities. We find that (i) various parameters, especially consumers’ valuation towards products’ qualities and market share of each segment affect the firm’s choice on market strategies and consequent environmental performance; (ii) green product development does not always increase and may decrease the degree of environmentally friendliness.