Engineered Wood Journal: Two Front Challenge
Preservationist Campaigns and Product Substitution Threaten to Erode Wood Inustry Markets
Editor's Note: The following article is excerpted from a report entitled Ensuring Market Access for Wood Products prepared for the Canadian Wood Council by Earnscliffe Research and Communications. The conclusions and recommendations in the full report, together with the results of consumer research conducted by the Wood Products Council (WPC) last year, led to a decision by WPC to develop a strategic plan to address preservationist and product substitution threats to wood product market share. That plan is now being prepared under the guidance of a Wood Products Council task group consisting of North American wood product manufacturer and association representatives.
The Wood Products Council--comprised of APA - The Engineered Wood Association, Canadian Wood Council, and Southern Forest Products Association--coordinates joint industry activities of mutual benefit to each organization's membership. For more information about WPC or the strategic plan now in development, contact Dennis Hardman, APA-The Engineered Wood Association; John Burrows, Canadian Wood Council; or Jeff Easterling, Southern Pine Council.
The combined effect of product promotion by competing industries and anti-wood campaigns by environmental advocates is threatening to cause significant harm to the wood products industry.
Environmental groups are aggressively casting wood in a negative light and key publics are starting to believe that wood use should be curtailed. It seems clear that these efforts are going to increase, rather than abate, over the next few years.
1) Competing industries are reinforcing this negative message of wood use and successfully positioning themselves as the environmentally friendly alternative.
2) The historic price advantage of wood over competing products is likely to erode as wood producer costs increase and steel and other competitors try to win share. As the "installed price" advantage weakens, "customer loyalty" for wood will be revealed to be more habit than real preference, and market share will be lost.
3) If these pressures mount and failing a vigorous response, retailers, builders, and large buyers will act in their self interest, and alter their purchasing decisions. This may include selective purchasing, demanding certified products, and using wood substitutes. Although the public will not initiate, there is clear evidence they will be comfortable following such a lead.
4) Industry fragmentation has made it difficult to address these issues in an effective manner and the lack of action leads to public policy losses where wins should occur. Government support will be lukewarm as long as the issues are defined by competitors and environmental groups and as long as the industry lacks a strong, single point of view.
Industry must be aggressive in responding to these combined threats before the critical mass of change is reached. The objective must be to reduce the business risk resulting from the combined effects of product promotion by competing industries and anti-wood campaign by environmental advocates.
A WPC task force has been working to analyze and synthesize the information available regarding the assertions listed. The following is a summary of that information.
1) A wide array of ENGOs (Environmental Non-Government Organizations, e.g. Rainforest Action Network, Greenpeace, Natural Resources Defense Council) have made forests central to their fundraising and lobbying campaigns. Their focus ranges from fighting old growth and clear-cut logging, to pushing for a reduction in consumption, more recycling, more protected spaces, and rigorous certification. Recently, their tactics have shifted to targeting large, high profile buyers of wood and paper products, hoping to cause them enough embarrassment that they in turn put pressure on wood companies.
2) One environmental coalition has recently bought expensive advertising in the New York Times, and listed many leading corporations, (Kinko's, Starbucks, Hallmark, Hewlett Packard, IBM, McGraw Hill, 3M and Nike) which it says signed agreements to survey suppliers and make sure that they are not purchasing products made from old growth forests. The coalition also highlights companies that are lagging (Home Depot, WalMart, and others).
3) Wood industry executives believe that these efforts will have a modest to substantive impact on sales and forest policy, and in the future the level of pressure will be even higher.
4) Media coverage of environmental and product substitution issues has trended upwards during the past few years and for every story generated in the market place by ENGO's, between 10-15 times as many stories are generated back home.
Competing industries are reinforcing this negative message of wood use and successfully positioning themselves as the environmentally friendly alternative.
1) The steel industry has launched a five-year, $100 million campaign to promote steel, and has set a target of 25% of the residential market by the year 2002. The Steel Alliance tells consumers that they can choose to build a house out of six used cars, or an acre of trees. Other messages note that "when builders construct a wood-framed house, they. re killing trees." Research shows that The Steel Alliance campaign has improved consumer impressions of steel.
2) Virtually all wood industry executives surveyed believe competing industries are likely to succeed in gaining market share. Reasons cited include price, price stability, quality, product performance and perceived environmental advantages. In addition, most believe steel manufacturers would not have invested as much as they have if they did not intend to persevere.
3)The Portland Cement Association has a budget of $1 million aimed at growing share in the residential construction market, and is reportedly forming an alliance similar to that developed by the steel industry. Key messages include "wood is just too valuable a resource to be used as a building material."
4) The American Plastics Council has spent approximately $25 million annually for seven years to improve the perceptions of their products. Key messages include "no trees will die because of this packaging" and "save a tree, use PVC." In addition to increasing market share, the campaign is viewed as having contributed to reducing regulatory initiatives against the industry.
5) Experience with window frames and doors has made it clear that customs can change, to the detriment of wood products. This serves to encourage plastics, concrete and steel manufacturers.
The historic price advantage of wood over competing products is likely to erode as wood producers seek to improve profitability and steel and other competitors try to win share. As the "installed price" advantage weakens, "customer loyalty" will be revealed to be more habit than real preference, and market share will be lost.
1) Builder groups (such as NAHB) have made clear that they are committed to developing alternatives to wood, as they feel they need more leverage. In addition, more than half of the builders surveyed believe that the future supply of trees and wood products will not be adequate to meet their needs. For the past several years considerable monies have been invested to develop alternatives and to transfer these new technologies to the marketplace.
2) Steel already has a price advantage for interior partitions and if they capitalize on this opportunity alone, they will capture 16% of the residential market. Steel's current share of the US market is estimated at 4% (1.5% to 6% depending on the source and definition).
3) The Steel Alliance campaign has begun to focus directly on identifying and overcoming the technical and training barriers to switching among builders and specifiers.
4) Surveys among builders reveal a preference for continuing to use wood, but a willingness to switch if the economics of a switch are clear. Both internal industry and external research findings suggest that once a builder invests in the tools and training for steel construction, the wood industry will face great difficulty trying to regain lost share.
If these pressures mount and failing a vigorous response, retailers, builders, and large buyers will act in their self interest, and alter their purchasing decisions. This may include selective purchasing, demanding certified products, and using wood substitutes. Although the public will not initiate, there is clear evidence that they will be comfortable following such a lead.
1) Interviews among retailers show a desire to respond to the pressure of environmentalists. While many may acknowledge that the concept of certification is not clear, and they are fearful that it is a "slippery slope," they sense that momentum is on the side of environmental groups. The bottom line for retailers is to avoid looking bad to consumers, or making consumers feel bad about buying their products. Retailers in Europe have already moved to form buyers groups and apply pressure for certified products. In North America, Home Depot has made clear that it is susceptible to pressure in this direction.
2) Builders groups have made clear that they are committed to developing alternatives to wood, as they feel that they need more leverage. Builders and contractors are the primary targets of The Steel Alliance and concrete industry efforts today.
3) Consumer research shows that people see steel and concrete as virtually equal to wood when it comes to residential construction qualities. This despite the historically dominant position of wood in the marketplace.
4) Although consumers are not usually involved in choosing a framing material for their house, when asked which material they would select for "structural uses such as framing," a bare majority (52%) picked wood. With the steel industry targeting a 25% share, 31% of consumers say that they would pick steel today.
5) When it comes to the environmental impact of building materials, consumers tend to believe that using either concrete or steel is easier on the environment than using wood. Today, 58% say "reliance on materials other than wood will have a positive impact on the environment." Most critically, when presented with the assertion "our supply of wood is nearly exhausted and we could run out in my lifetime," 44% agree, only 16% disagree and 42% are uncertain.
6) One in two consumers say that they have heard the term "certified forest" or "certified forest product." When told it means "products that come from a forest that has been certified as being managed in an environmentally sound manner, ensuring long term supply," 91% support the idea of requiring certified wood products. Two thirds of consumers have heard of the term clear-cutting, and by a 59%-24% margin say they would support a ban on all clear-cutting in all forests.
Industry fragmentation has made it difficult to address these issues in an effective manner and the lack of action leads to public policy losses where wins should occur. Government support will be lukewarm as long as the issues are defined by competitors and environmental groups and as long as the industry lacks a strong, single point of view.
1)When contrasted with competing industries, the wood products industry is highly fragmented. Some companies are integrated while others are not, some operate in one region while others are in many, etc. There are also numerous associations operating with legitimately different mandates at the regional, national and international level.
2) Recent research among government policymakers has shown a decided and growing unwillingness to stand up in defense of the forest products industry. There is a feeling that the movement towards certification is legitimate, and that a responsible industry should move to accept this fact of life and to shape the debate more actively.
3) The same research showed that political and bureaucratic stakeholders continue to exhort the industry to tell its story to the public. For some, the political costs of defending an industry, which could do more to defend itself, seem too high, or an unreasonable request.
4) Should the momentum among retailers and large corporate buyers accelerate in the direction noted above, political support will likely be even harder to find. Taking a position in support of a major industry is one thing, putting yourself in the situation where you look "less green" than dozens of major corporations is another matter altogether.
5) Finally, the problem of winning or sustaining political and governmental support becomes more difficult if it appears that the industry is not united in its position. Politicians will worry that the industry position they will support today may be abandoned by the industry tomorrow, creating political embarrassment.
In the face of these pressures, wood products companies have a difficult choice. On the one hand, it could be argued that wood products have had a long history and that current pressures will erode, leaving markets essentially unchanged. This argument would suggest that the industry need not invest additional resources to directly respond to the threats.
On the other hand, it could be argued that the threats will not subside, and that they will have an increasing impact over time. This argument would call for a vigorous response. In the view of the Task Force, and based on the market research and industry interviews done to date, the consensus is that "there is a need to respond before it is too late." The remainder of this document provides a strategic framework for such a response.
The Environmental Attack
The fact that environmental advocates have been attacking forest products companies is hardly new. Moreover, most public opinion studies have shown that the public is not becoming more militant in its views about the environment. However, what is new is the choice by ENGO's to target presumed "weak links" in the distribution chain, in particular retailers and large, high profile buyers. Their clear hope is that when consumers see leading corporate citizens such as Nike, Levi Strauss, and Starbucks committing to change their practices, consumers will become more convinced that:
Equally, they are hoping that when consumers see large buyers such as Home Depot, McGraw Hill, Xerox, and 3M say that they can commit to changing their buying habits, consumers will become more convinced that:
In the opinion of the Task Force, ENGOs have correctly surmised that they would not succeed through a direct appeal to consumers, since their legitimacy has become somewhat eroded over the years. As a consequence, they decided to substitute the legitimacy of major corporations, making it appear that there is a strong consensus, rather than a "greens versus business" framework to the debate.
By putting pressure on major visible buyers, they are giving these companies a choice: some "reputation upside" from getting on board their campaign, or some "reputation downside" by being cast as part of the problem that is leading to the destruction of forests.
In addition to this type of indirect pressure on the forest products sector, the ENGOs are also expecting that this will create pressure on politicians and public sector officials, as well as the news media, to side with them on future policy matters. The assumption would be that few government stakeholders would want to fight a position embraced by both a wide array of environmental groups and a growing number of Fortune 500 companies.
For the forest products industry, this battle to protect markets against the environmental attack must be waged on the same battlegrounds. Business buyers must be brought clearly on side, and must be given the arguments and the tools to help them resist these pressures. Government stakeholders must see that the fight is not one sided, and that there are strong arguments that can and will be used by those who manage forests and market forest products. The public must again see ENGO activity as somewhat misleading, impractical, and excessive in nature. They must feel secure that the forests are not disappearing and that forest management practices are always improving.
The Product Substitution Attack
While the environmental attack is being waged by a wide variety of groups, with a wide variety of specific aims, the product substitution attack is more concentrated in nature. The Steel Alliance is by a considerable margin the most organized and the best financed, but the concrete industry, through the Portland Cement Association, is also a source of concern.
It is likely that cement manufacturers believe that if the appeal of wood is diminished by the efforts of steel manufacturers, that they can pick off market share as a consequence, even if their own product positioning efforts are more modest in scope. In effect, they appear to be "slipstreaming" behind the efforts of The Steel Alliance.
For the steel manufacturers, the challenge is also being pursued at a level one step removed from the general public or homebuyers. They have understood what the WPC research shows, which is that consumers are not inclined to get involved in helping select the materials used to frame their houses. They have also understood that it would be useful to create a situation where consumers were at least indifferent, if their builder recommended steel or concrete, instead of the more traditional wood. Ideally, they would want consumers to feel a little bit better than indifferent, having bought into the notion that steel or concrete are more environmentally friendly products than wood.
So while there is a segment of the communications effort around steel which is aimed at consumers, the bulk of their efforts are targeted instead at the builder, engineer, architect and regulatory communities. The approach is to overcome product usage obstacles, enhance, cost effectiveness, and add an environmental upside argument.
They want builders, contractors, engineers and architects to feel that:
They want the public to feel that:
As part of their effort to add legitimacy to this campaign, steel manufacturers have found some degree of common cause with the National Association of Home Builders. The Association sees it in their interests to promote choices, so that their members are not so often put in the position of being "price takers." Despite the fact that this may be their central motivation, they are willing to portray the competition between wood and steel as one relating to "green values" as well.
To date, the users of wood in construction have been slow to switch, at least when it comes to framing. At the same time, it bears noting that The Steel Alliance is putting more and more of its effort into "refusal busting," diagnosing and solving the particular points of resistance.
For the wood products industry, the fight to protect and enhance markets must be waged on essentially the same battlegrounds. Builders, contractors, architects and engineers must believe that wood will fight to remain a better building choice, that they will not run out of supply, that the environmental arguments of steel manufacturers won. t hold up under more scrutiny, and that wood is a better environmental choice. They must also believe that the public will be convinced to feel the same way.
Also See From Engineered Wood Journal Spring 1999:
Engineered Wood Systems
Stepping into the Same River Twice
Industry Watch Spring 1999
Housing Outlook: Good, But No Repeat
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