Product innovation in response to environmental standards and competitive advantage: a hedonic analysis of refrigerators in the Japanese retail market

The purpose of this study is to determine whether environmentally friendly attributes that are innovated in response to environmental standards contribute to creating a competitive advantage. Because manufacturers of products with only commoditized value cannot achieve a competitive advantage, they need to add differentiated value including environmentally friendly attributes through product innovation. In this situation, environmental standards have a potential to encourage them to undertake product innovation. Thus, this study analyzes not only whether a product with environmentally friendly attributes that reflect environmental standards receives a price premium, but also whether product commoditization that is associated with drastic price declines has occurred for the product. The methodology for these analyses is a hedonic price regression using data for refrigerators sold in the Japanese retail market during 1998-2012. The main findings are as follows. First, the fundamental value of “refrigerating” has been drastically commoditized in the last 15 years. Second, products that are chlorofluorocarbon-free and energy-consumption efficient reflecting environmental standards have a price premium. Third, the price premium for each attribute has specific trends during the period. These findings support the view that a product's environmentally friendly attributes that reflect environmental standards more or less compensate for the commoditized value through the price premium; therefore, product innovation in response to environmental standards helps create a competitive advantage, especially where product commoditization has occurred.