The effect of Eco-Label proliferation and consumer confusion

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In the past few decades, keen interests to alleviate the damaging effects of business activities on the environment have given rise to the need to evaluate the environmental influence of business products, starting from production to consumption. Companies have added Eco-labels to products to gain a competitive advantage and enlighten the consumers about the environmental impact of products. Eco-labels make it stress-free for consumers to differentiate between more ecological products and less ecological products.

There have been controversies surrounding the actual effect of ‘green’ product labels in influencing consumers towards Eco-friendly behaviors. While some claim that the proliferation of private business standards are baffling rather than helping Eco-friendly consumers in their green purchasing choices. Others suggest that it has had positive effect in influencing consumer’s behavior towards ‘green’ purchasing.

Eco-labels serve three broad purposes:

  1. Effect consumer behavior towards Eco-friendly consumption.
  2. Assist as a marketing tool for businesses to differentiate their products and attract green consumers.
  3. Persuade businesses to improve the ecological standard of their products.

The impact of consumer behavior on the environment is at stake as the numbers of Eco-labels are increasing; it’s getting harder to tell which ones matter, environmentally speaking. However, they might not actually lead to greener purchasing decisions because the whole labeling system is so complex and opaque. Too many Eco-labels in the market have actually confused consumers about which label to trust. Also, too much generic sustainability information on a label tends to confuse consumers. Given that existing food Eco-labels are still not well defined in consumers’ experience, there is potential for new labels to generate more confusion. Consumers may purchase green products, but if they do not consume and dispose appropriately, it may not produce the desired effect envisioned for reducing the environmental impact of consumption. Since the goal of using Eco-labels to influence consumer behavior is to relieve the environmental effect of consumption on the environment, the contribution of ‘green’ product label standards to sustainable consumption can thus not be concluded only from the available evidence on purchasing behavior. It is therefore critical to also ascertain what impacts ‘green’ product label standards have had on product consumption and disposal thereafter.

Consumers incur fixed costs to learn about a label’s meaning. The Eco-label certifier must respond with information that reduces these costs or lose consumer and producer confidence in the label. Labels certify that a product meets some standard for quality, but often consumers are uncertain of the exact standard that the specific label signifies. Focusing on the case of Eco-labels for environmental quality, even a minor uncertainty can create consumer confusion that reduces or rejects the value to firms of adopting voluntary labels. Consumers are most suspicious of a label when a product with a bad reputation has it, so labels are often unconvincing at presenting that a seemingly bad product is in fact good. Label proliferation intensifies the effect of uncertainty, causing the clarity of labels to decrease rather than increase. Also, uncertainty makes labeling and non-labeling symmetry more likely to coexist as the number of labels increases. As a result, consumers face greater strategic uncertainty over how to interpret the presence or absence of a label. Finally, a label can be endorsed or tainted for other products when a product with a good or bad reputation displays it.  Therefore, companies may adopt labels strategically to manipulate such information spill-overs which could further worsen label confusion.

Major challenges include improving credibility and increasing user-friendliness of the Eco-labels. The abundance of similar labels in the market tends to confuse customers, weakening the trust and credibility of the whole system. Tackling this problem includes limiting the number of labels and regulating and harmonizing the awarding procedures. To make the labeling system effective, governments need to protect the reliability and availability of Eco-labels. Governments need to safeguard that the claims made by Eco-labels are based on genuine environmental benefits and are consistent with recognized and up-to-date scientific findings.