Tag Archives: demand

Market for green premium II

Airlines are in the business of transporting people around. Or maybe it’s about curating and creating the best experience in air travel? Or about building a brand? Or is it about bringing people to places and catalysing activities, businesses for locations that would otherwise be overlooked by travellers? Seen that way, the fuel cost of an airline would always be considered a cost. Therefore, to keep cost low, or deliver the greatest profits, the airline will see their fuel as a commodity.

What if the choice of fuel they use starts impacting the customer segments they are targeting or they can serve? What if using sustainable aviation fuel allows them to attract more premium customers? What if they could sell their air tickets at a higher price when they are demonstrably emitting less carbon dioxide? And what if doing so also help them comply with some ICAO requirements?

The market for green premium turns various cost parameters in businesses into a tool for something else. There’s an opportunity to use these new parameters to disrupt the business. Years ago, the low-cost carrier disrupted some of the most traditional airline businesses. Would a low-carbon carrier do the same? What other elements of the whole airline business can be refashioned to fit the whole sustainable, low-carbon identity?

Demand side perspectives

The modern, capitalist, market economy is powered by demand. Demand for products, goods and services. And what drives these demand? Some would like to say, marketing, advertising. But more fundamentally, social comparison, desire for affliation/connection.

So the idea of market competition gets turned on demand itself. In other words, the seller turns to the buyer and say, “He’s got this, so you have got to get it.” This mechanism is so widespread and so completely ignored by economics that at a macro-level, it overturns more fundamental notions of allocative efficiency. The fact that demand is in itself premised upon the actions and long-term strategies of supply, makes the equilibrium in the market impossible to pin down.

There is no long term convergent points and what development has come to be is simply the ability for supply to generate more and more of its own demand.

Demand response to the future

The market system likes to pretend the consumer is king and producers are just responding to market demand. It is usually an excuse to avoid the responsibility of building a better future. The market system constantly tries to get ahead by shaping demand, through advertising and influencers. The whole system of exchange of influence and money takes place within the market context and that’s enough to refute the claim that consumers reign sovereign.

And that means consumers needs to be more conscious of what stories they are taking in. And more than being passive receivers of goods and services, consumers have more chance than ever to shape them. Demand is usually decentralised but it can respond to so many things beyond price signals. The problem with our economic view of the market is that we only try to capture market power in the form of price-setting and ability to substitute (even this is not so well considered despite the crazy mathematical gymnastics required).

Sustainability cannot depend on corporates championing causes and trying to come up with new products and services. Consumers need to and can respond by requesting to reuse their bottles, avoiding products with too much packaging, reducing gifting of everyday items with expensive packaging.

The easiest criteria to default towards is convenience and costs but we can also think in terms of alignment of values and cost to the future. If we are able to adapt our demand to these dimensions, we can co-create a future we want to be part of.