Clorox: When Green Works as an Investment Opportunity

Everyone is jumping into the Green trend. Not everyone is doing it right though. Adopting ecologically friendly initiatives cannot be just a marketing plot. This is what is called “greenwashing” and consumers see right through it. A company needs to be sincere in its approach. It is a fundamental component of the authenticity consumers are looking for in their dealings with a company.

For a Green initiative to be successful -and therefore interesting as an investment opportunity-, we need to look for three key components: a) integrity; b) performance; and c) affordability. Let’s discuss these requirements:

Integrity

There are different levels of features a company can incorporate in a product in order to make it more eco-friendly. Some measures can be limited and represent just a small step in the right direction: for example, a change in packaging, using a little less plastic or incorporating recycled cardboard. Others can represent a radical and thorough re-design of a product or type of products, ensuring that everything in it significantly reduces its impact to the environment. All these steps are good: they all represent progress in the right direction. What is not right, though, is making just a small change and then try to hype it as major breakthrough in ecological responsibility. As indicated, consumers see right through these hypes and judge them as insincere attempts to prey on their genuine concerns. If as a company all you are doing is including 30% recycled post-consumer content in your cardboard boxes, just say it that way, and devote a little corner in you packaging to let consumers know; they will notice it and appreciate it. But don’t suddenly launch a full campaign touting that small change as the new “eco-friendly pack” for your product and thump your chest about how concerned you are about the environment and how seriously you are taking your ecological responsibility. Nah… that does not cut it. It's not authentic. On the other side of the spectrum, the more comprehensive is the change or the innovation, the more evidence consumers can see of a thought-through, purposefully designed product that comprehensively addresses their environmental concerns, then the stronger will be the manufacturer’s grounds to genuinely support the innovation in force and the higher the potential for consumers to pay attention and ultimately adopt the product. This thoroughness in the offer is what we need to look for in considering a potential investment opportunity.

Performance

There is one absolute truth with respect to Green. Consumers are willing to adopt products that are ecologically sound as long as those products perform as well or even better than conventional products. Period. As much as consumers want to do the right thing, they are not willing to wear soiled clothes, or eat tasteless food, or sacrifice aesthetics for the sake of the environment. The brands and products that promise to be environmentally friendly must also provide convincing arguments to make consumers believe they will perform well, and finally, they have to deliver on that promise.

Affordability

Consumers are willing to pay a little more for a more responsible product. But not a whole lot more. The closer the price of the eco-friendly product is to what the consumers are used to pay for that type of product, the higher it is the likelihood that consumers will switch to it. This is no surprise, though. Ultimately, we are playing with the good old value equation. Consumers are willing to pay more for products that have a greater value for them, that is, the ones that solve for a wider range of needs. What is the value of feeling good for fulfilling your responsibility with the planet? Hard to tell, but not that high in the big scheme of things. Yet, at a competitive price, it is a very relevant differentiator, and may tip the market share balance dramatically in favor of the eco-friendly contender. Therefore, look for competitive pricing when gauging a potential investment. The real volume and profit potential will be there.

One company that seems to be doing it right is The Clorox Co. (CLX). A few months ago, Clorox launched a full line of natural cleaning products named GreenWorks. The positioning and messaging around GreenWorks is spot on. Let’s evaluate it based on the model discussed:

Integrity

The sound design of this product line starts with the smart selection of its name. It precisely describes the line’s main promise: products that are ecologically friendly, and most importantly, that are effective. The name for itself directly disarms one of the main prejudices in the mind of potential users: natural products are unlikely to be effective enough. It addresses that preconception head on: green does work –or more specifically, this line was able to make it work!-. In their website, they reinforce that point indicating: "You wanted a natural cleaner that worked. And we listened". In its communications messaging and tone, Clorox makes a point of explaining, in detail, how these products work. They provide abundant, factual information about how the GreenWorks line was designed from the ground up with 99% natural ingredients that minimize its impact to the environment. They disclose its ingredients, and how they interact to achieve the level of cleaning power consumers expect. Finally, the tone of the communication is soothing, reassuring, clean and confident. There is not hype at all. They acknowledge the consumers’ concern with their health and the environment and explain how their products meet that interest.

Performance

Clorox makes sure that the issue of effectiveness is directly addressed in all its communications around GreenWorks. The promise is clear: GreenWorks are as effective as conventional cleaners. Based on my own experience, they deliver. In trying both the general and the glass cleaners, we found that they worked up to standard.

Affordability

GreenWorks are sold at a small premium to conventional cleaners, according to their website. In my experience, the price gap was not significant and therefore, it should not be a deterrent for adoption.

GreenWorks meet all the criteria to become a relevant green product with potential to achieve widespread adoption. And that, in my view, is a great promise of profits to come. The final ingredient to qualify this initiative as a potential blockbuster is support. Clorox is very conscious of the opportunity at hand, and has launched GreenWorks with a vigorous advertising campaign that includes TV, web and, most importantly, a very robust distribution and adequate shelf space and visibility at retail.

Clorox share price closed yesterday at $57.40, still close to its 52-week low of $52.85. This might represent an interesting entry point to start building a position. I think the GreenWorks line will show to be a significant success for Clorox, and naturally, the greenbacks should follow.

Disclosure: none

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[EnergyFinancier]

If you're interested in green investments, you should attend the Renewable Energy Finance Forum-Wall Street (REFFWallStreet.com), held June 18-19 in New York City. One of the official event sessions will feature representatives from VantagePoint Ventures, Hudson Clean Energy Partners, and Technology Partners in a discussion about the role of venture capitalists and investors in promoting clean, renewable sources of energy. The speakers will share their thoughts on where money can be made in the industry, and which technologies are the most promising for the future.