On the introduction of green product to a market with environmentally conscious consumers

Abstract

Facing environment-concern consumers, a conventional manufacturer who produces only brown product and sells the product through a downstream retailer is confronted with the problem of whether to introduce green product into the market and how to distribute the product. By analyzing the production cost and the launching cost of green product, we provide the optimal product choice and the dominant channel strategy for the manufacturer. We find that a high consumer environmental awareness will induce the manufacturer to produce green product, but a higher consumer environmental awareness does not guarantee a higher profit for the manufacturer. If the manufacturer distributes both brown and green products through the same retailer, the total market coverage will not change, which means that green product will cannibalize the market of brown product. However, if the manufacturer distributes different products through different retailers, the market cannibalization may disappear. Furthermore, the manufacturer can obtain a higher profit through strategic pricing without changing the product portfolio. In addition, managerial insights to promote the production of green product are provided from the perspective of the manufacturer and the government, respectively, based on the theoretical results.