—by Jason Voiovich, Principal and Co-Founder of Ecra Creative Group
I know I looked for it.
A little over a year ago, I spent my normal morning shower in about 45 degree water. Needless to say, it was time for a new water heater. Undeterred by the cold for a day or two (my wife was out of town with the kids), I studied up on all the key features – capacity, recharge time, and energy use. I read Consumer Reports. I was ready to go.
At my local Sears, I selected a 40-gallon model sporting the government’s "Energy Star" rating. It was about $50 more than the comparable model without one, but when I did the math on the promised energy savings, I had a payoff on my investment in about three years.
Or so I thought.
As we all know by know, the vaunted Energy Star label has lost a bit of its luster. With a combination of some investigative journalism, long-term testing by Consumer Reports, and a report by the Government Accountability Office (GAO), we come to find out manufacturers faced lax standards.
In some cases, manufacturers received ratings for products that didn’t exist. In other cases, manufacturers used the logo on its entire line, even though only some of the products actually met the standards.
If we looked from a legal perspective, there could even be a case for consumer fraud (at worst) – deceptive advertising (at best).
But the details of the case aren’t really the point.
I think the problem with the Energy Star brand is much, much worse than that.
The government’s published materials on Energy Star claim you should expect to pay a price premium of between $30 and $50 on a typical appliance (that fit with my experience). Your payoff should be three to five years on smaller ticket items, perhaps up to seven years on larger buys. Again, makes sense.
But what if you don’t trust the Energy Star label?
What happens to the ability of the brand to command a premium price?
This is really all about brand valuation, and that’s why this is such a big deal.
Let’s do a little math, shall we? And let’s just pick one example: Air Conditioners.
Industry reports put the number of AC units sold last year at 23.2 million. Let’s also say about 44% of those units qualified for the Energy Star label and could command the price premium:
(23.2M units x 44%) x $40 price premium = $408.3 million
That’s a very rough estimate of the value of the Energy Star brand, to the AC industry, in one year.
Now let’s say that a decrease in trust / believability in the brand has its predicted negative affect. In other words, it cannot command the same price premium. Instead of a $40 average, let’s now say it can only command a $20 up-charge.
The result: A loss of over $200 million per year. In only one industry segment.
And that’s assuming people will trust the Energy Star brand at all.
Here’s the rub: The industry did this to themselves. Instead of understanding how fair and honest play with the US Department of Energy would be good for everyone, they shot themselves in the foot. Not every manufacturer, of course, but I didn’t hear the others complaining so long as they could grab another $40 per purchase.
Good luck fooling us again.
We’re double-checking next time.