No More Easy Green for Homeowners

There's a new cold reality for anyone wanting to make their homes more energy efficient--and for retailers, manufacturers, and marketers in this green industry: One of the biggest motivators for homeowners is now out the window.

Starting this year, most of the tax incentives once available to reward Americans for making these upgrades are gone.

The new federal tax law slashes incentives for home energy efficiency improvements from 30 percent to 10 percent of costs for many improvements, generally taking credits back to 2005-2008 levels and reducing the maximum cumulative credit from $1,500 to $500. In addition, there are now lower, project-specific caps like $200 for energy efficient windows, and $300 for central air conditioning systems, compared to $1,500 in credits that were available for these improvements in 2009 and 2010. Finally, if a taxpayer has claimed over $500 for energy efficient home improvements in previous years, he can't claim any new credits this year.

So what's the big deal?

My firm polls Americans four times a year to gauge their shifting attitudes and opinions about energy efficiency and sustainability, and we dig into what actually moves them to choose greener products and shift their behaviors to be more efficient.

In our soon-to-be-published Utility Pulse study, we clearly see that the evaporation of federal tax incentives will have a negative impact on energy efficient home improvement activity, particularly for the two higher-income consumer segments that have the discretionary income to make improvements and are the most likely to use this form of financial incentive: Cautious Conservatives (primarily upper-middle income, educated, middle-aged, Republican-leaning white guys who don't believe global warming is caused by man) and True Believers (primarily middle income+, educated, Northeast liberal Boomer women). In fact, the availability of more generous federal tax incentives has been a primary driver for the increase in energy efficient home improvement activity we've seen over the past year.

Here's how the data breaks out: Almost one quarter (23%) of the respondents in our survey who had undertaken energy efficient retro-fit activities said they'd received a rebate or financial incentive for the activity. When asked to specify the type of rebate they'd received, most said they'd received either a utility rebate (41%) or a federal tax incentive (39%). Exactly one quarter said the incentive was absolutely necessary--they wouldn't have acted without it, and 7% said the incentive encouraged them to pay a slightly higher price for a higher-efficiency model. Thus at a minimum, approximately one third of the population who made their home more energy efficient would likely not have acted or would not have purchased the more efficient unit if it weren't for the incentives offered.

So…utility incentives still exist, but the federal tax incentives mostly do not. That means utilities, manufacturers, retailers and contractors will need to be more innovative and targeted with their marketing, and make utility rebates more prominent and convenient than ever before. Here's our advice:

All consumer segments prefer instant rebates at the point of sale. Few utilities have structured their programs in this way (beyond CFL offers). There is a need to develop partnerships with utilities, retailers, manufacturers and contractors to create more of these kinds of programs. For instance, start offering at-check-out rebates (branded with the Utility's energy efficiency program logo at-shelf and even on package, with stickers) for low cost home sealing items like weather-stripping and spray foam.

And while tax incentives were the second most popular form of incentives for both Cautious Conservatives and True Believers, mail-in rebates were preferred more by Cautious Conservatives than any other group. These older consumers are more patient and willing to "do the work" required for these kinds of rebates and they have the financial wherewithal to bear the up-front costs, without the discount. So get these out there to this segment of the population.

Here's the bottom line: While the reduction in energy efficient tax credits will hamper home improvement activity in the coming year, energy efficient product and program marketers who strategically refine, position and message their programs can still be successful. It will be harder. A market segmentation approach that takes into account segment attitudes, needs, drivers and barriers is needed, along with a strong umbrella campaign to build awareness.

In addition, most utilities have barely scratched the surface when it comes to utilizing existing customer and demographic data for predictive modeling and targeted direct marketing. In short, it's time to stop mass-marketing and start target-marketing energy efficiency programs. That's the only way to overcome the tax credit set-back and say hello to continued energy efficiency sales.

Follow @FastCoLeaders for all of our leadership news, expert bloggers, and book excerpts.

Suzanne Shelton is the CEO of Shelton Group, an advertising agency exclusively focused on motivating mainstream Americans to make more sustainable choices. Suzanne is a guest columnist in multiple publications and a featured speaker at numerous conferences every year on this topic, largely pulling insights from the firm's quarterly polling of Americans and their creative campaign work for some of America's largest brands.