Thesis Marketing of Ecosystem Services in Tropical Forestry

Having obtained those results, a marketing guideline for providers of ecosystem services was developed that summarises typical problems and provides possible solutions... 74 6.5.1 Summar

The Heart of the Tree

What does he plant who plants a tree?

He plants the friend of sun and sky;

He plants the flag of breezes free;

The shaft of beauty, towering high;

He plants a home to heaven anigh

For song and mother-croon of bird

In hushed and happy twilight heard -

The treble of heaven's harmony

These things he plants who plants a tree Henry Cuyler Bunner

Abstract

The increased public awareness of the problems deriving from biodiversity loss and climate change gave rise to the development of a type of service The idea is that ecosystem services of forests such as biodiversity conservation, watershed protection and the sequestration of carbon dioxide become tradable goods The main driving factors are the selling and the trade of certificates and bundles of services combined with material products However, this new kind of market is still small and little developed and the benefits of the services are not obvious at first sight The goal of this thesis is to show how marketing measures can be used to improve the sales of these services By means of literary research, an interview and a questionnaire, the status quo of marketing for ecosystem services was investigated and using those results a marketing strategy was developed Nine different organisations providing ecosystem services in Latin America responded to the questionnaire Most of them act as intermediaries The geographic restriction made to avoid additional biases deriving from cultural differences and to set limits to the size of the survey The results of the survey showed that marketing

is still poorly developed in most cases Products are often not clearly specified nor are they adjusted to customer needs; distribution channels are not fully developed and sometimes a good intermediary is missing; promotional measures are farthest developed within the marketing instruments, but still not well applied Especially publicity is not used effectively and many other promotion measures could contribute to a growth of the market and an increase of sales Additionally, the survey showed that many organisations are dependent on some kind of donations or subsidies from the government or the World Bank Only few of them are independent and finance themselves Having obtained those results, a marketing guideline for providers of ecosystem services was developed that summarises typical problems and provides possible solutions

IV

Puesto que una creciente cantidad de gente está preocupada por el desarrollo del medio ambiente y de los bosques en especial, un nuevo mercado está desarrollándose Este mercado brinda servicios ambientales como la protección de la biodiversidad, protección de aguas u el secuestro de carbono Certificados y otras medidas para manifestar estos servicios fueron creados para soportar este desarrollo Todavía no es un mercado grande y necesita mucho tiempo para crecer El objetivo de esta tesis es encontrar y mostrar métodos de marketing que pueden ayudar al crecimiento del mercado de servicios ambientales Por medio de la literatura existente, de una entrevista y de un cuestionario, el nivel de marketing de organizaciones de servicios ambientales fue investigado Con los resultados obtenidos) una estrategia de marketing fue elaborada y mandada por correo electrónico a unas cincuenta organizaciones de todo Latinoamérica Nueve organizaciones que brindan diferentes servicios ambientales participaron en la encuesta Los resultados del cuestionario muestran que, en la mayoría de los casos, el marketing de estas organizaciones todavía no está muy desarrollado Los productos no están definidos muy claramente y con frecuencia falta la adaptación a las necesidades de los clientes En algunos casos, falta un intermediario potente y la distribución no llega al cliente Las medidas de promoción son normalmente más o menos desarrolladas pero también necesitan mejoramiento Especialmente la publicidad podría contribuir al crecimiento de la familiaridad con los servicios ambientales Otra observación es la dependencia de muchas organizaciones de subvenciones gubernamentales u otros tipos de donaciones públicas Muy pocas son independientes Con estos resultados fue construida una guía de marketing que presenta problemas típicos y sus soluciones posibles

Acknowledgements

There are many people I would like to thank for a variety of reasons:

First of all I would like to thank my supervisors Dr Thomas Köllner and Dr Olaf Weber, for coaching

me so well and for their valuable feedbacks and advice as well as for the regular inputs and the review

of the questionnaire

I want to thank Achim Sell and Dr Herster Barres for answering all my questions patiently and Ronald Guerrero Aguilar for reviewing the questionnaire and for being a good friend of mine Also I would like to thank Ruedi Schläpfer for the interview He opened my eyes to many new problems and different points of view

Many thanks go to Susan White and my mother, whose editing suggestions and precise sense of language contributed to the final copy

I am indebted to my fellow students who wrote their thesis at the ETH-UNS We spent many cheerful breaks and lunch times together They sweetened my time at the institute and cheered me up when things went wrong

A special thank goes to my beloved Oliver, who always put me back onto my feet when I was desperate and who managed to make me believe in myself

I want to dedicate this thesis to my parents who have always supported me I want to thank them for their confidence in me, the endless patience and the love I receive

VI

Abstract III Resumen ejecutivo IV Acknowledgements V Table of Contents VI Table of Figures and Tables IX Glossary and Abbreviations X

Chapter 1: Introduction 1

1.1 Who Contributes to this New Market? 2

1.2 Justification 3

Chapter 2: Background 6

2.1 Ecosystem Services of Tropical Forests 6

2.1.1 The Earth Summit 7

2.2 Typology of Ecosystem Services 8

2.2.1 Biodiversity 8

2.2.2 Sequestration of Carbon Dioxide 10

2.2.3 Protecting Watersheds 11

2.3 Marketing for ecosystem services 12

2.3.1 What is Marketing? 12

2.3.2 Marketing of Services 13

2.3.3 Why Do Ecosystem Services Need Marketing? 18

2.3.4 Valuating Ecosystem Services 19

2.3.5 Difficulties Selling Ecosystem Services 21

Chapter 3: Methodology 23

3.1 Literature Research 23

3.2 Interview with an Expert 23

3.3 The Survey – an easy method to collect information 23

3.3.1 Advantages of surveys 23

3.3.2 Questionnaires, one way to conduct a survey 24

3.4 Conducting the Survey 24

3.4.1 Selection of Samples 24

3.4.2 The Questionnaire 24

3.4.3 Distribution 26

Chapter 4: Results 27

4.1 General Information 27

4.1.1 Commercial Model 30

4.2 Marketing Strategy and Instruments 32

4.2.1 Marketing Knowledge 32

4.2.2 Product 32

4.2.3 Price 35

4.2.4 Placement 35

4.2.5 Promotion 36

4.3 Important Statements from the Survey and the Interview 38

Chapter 5: Discussion 39

5.1 General information 39

5.1.1 Finance 40

5.2 Marketing Strategy and Instruments 41

5.2.1 Marketing Knowledge 41

5.2.2 Product 41

5.2.3 Price 42

5.2.4 Placement 42

5.2.5 Promotion 43

5.3 Discussion of the Methodology 44

5.3.1 Reliability and Validity 44

5.3.2 Factors of Limitation 44

Chapter 6: Guideline for Marketing 47

6.1 Defining a Marketing-Strategy for Ecosystem Services 47

6.2 Marketing Objectives 48

6.2.1 Mission and Vision 49

6.2.2 Marketing Objectives 49

6.3 Market Positioning 50

6.3.1 Target Group of Potential Customers: 50

6.3.2 Segmentation and Differentiated Marketing 54

6.4 Marketing Instruments 55

6.4.1 Products 55

6.4.2 Placement 63

6.4.3 Price 67

6.4.4 Promotion 69

6.4.5 People 72

6.4.6 Physical Evidence 73

6.4.7 Process Management 73

6.4.8 Politics 73

6.5 Effects 74

6.5.1 Summary of Specific Problems of Ecosystem Services and Possible Solutions provided by Marketing 75

Chapter 7: Conclusion 77

7.1 Most Important Results 77

7.1.1 Unexpected Composition of Respondents 77

7.1.2 Importance of Intermediaries 77

7.1.3 Missing Link between Ecology and Economy 78

7.1.4 Understanding of Marketing 78

7.1.5 Product Design 78

VIII

7.3 Subsequent Studies 80

Chapter 8: References 81

Chapter 9: Appendix 85

Annex A: The Questionnaire 86

Annex B: Complete list of answers 94

Annex C: Interview from May, 19th 2004 98

Table of Figures and Tables

Figure 1-1 World Forest Cover Map 1

Figure 1-2 Market-Scheme for Ecosystem Services 3

Figure 2-1 System of Marketing for Ecosystem Services 6

Figure 2-2 Marketing System 13

Figure 2-3 Marketing-Strategy Scheme 14

Figure 2-4 Marketing-Mix Scheme 16

Figure 2-5 Timeline of customers’ perception 18

Figure 2-6 Categories of economic values attributed to environmental assets 19

Figure 2-7 Maslow’s Hierarchy of Needs 20

Figure 2-8 Life-Cycle Phases of a Product 21

Figure 4-1 Provided Services from Nine Participants 29

Figure 4-2 Distribution of Financing Mechanisms 30

Figure 4-3 Ratings of Marketing Knowledge 32

Figure 4-4 Methods to Investigate the Customers’ Needs 34

Figure 5-1 Map of Finca Garza 39

Figure 6-1 Influences on Marketing Strategy 48

Figure 6-2 Distribution of Investments on an Extended Risk-Return Diagram 53

Figure 6-3 Influences of Benefits and Needs 55

Figure 6-4 Distribution of Benefits 56

Figure 6-5 Direct Distribution 64

Figure 6-6 Indirect distribution 65

Figure 6-7 Fragmentation 66

Figure 6-8 Possible Ways to Set the Price of a Service 68

Table 4-1 Rate of Return 27

Table 4-2 Characteristics of Participating Organisations 28

Table 4-3 Services and Their Products 29

Table 4-4 Partners of the Participants 31

Table 4-5 Partners of the Participants 31

Table 4-6 Description of Buyers 33

Table 4-7 Needs for and Benefits of Services 33

Table 4-8 Measures Taken to Ensure Quality 34

Table 4-9 Price setting measures 35

Table 4-10 Sales Types 35

Table 4-11 Rating and Ranking of Promotion Measures Taken by Participants 37

Table 6-1 Possible Customers and their Needs 57

Table 6-2 Needs of Customers of Carbon Sequestration 58

Table 6-3 Possible Products for Ecosystem Services 62

Carbon offsets used in a variety of contexts, most commonly either to mean the output of carbon sequestration projects in the forestry sector, or to refer to the output of any climate change mitigation project more generally

Certified Emission Reduction (CER) the technical term for a unit of greenhouse gas reduction generated by a CDM project, as defined by the Kyoto Protocol

Carbon sequestration A process that removes carbon dioxide from the atmosphere through the absorption and storage of carbon in vegetation or other matter

Ecosystem A community of organisms and the physical environment with which they interact

Ecosystem services The functions performed by ecosystems that lead to desirable environmental outcomes, such as air and water purification or climate stabilisation

Externality A product or action whose creation by one party affects the wellbeing of others without being reflected in market prices Externalities can be negative or positive

Free-rider Someone who benefits from a good or service without contributing to the cost of its provision

Marketing The process of planning and executing conception, pricing, promotion and distribution of ideas, goods and services in order to create exchanges that satisfy individual and organizational objectives

Non-excludable consumption A party cannot be excluded from the consumption of a good or service once it has been supplied to another party

Offset arrangement A policy that allows a party to undertake an action that reduces ecosystem services if they also undertake (or purchase from another) a separate action that increases ecosystem services by at least the same amount e.g carbon offset certificates

Payment for Ecosystem Services (PES) Forest owners providing ecosystem services are paid a certain sum per area to compensate the benefits they offer

Property rights An entitlement to use a particular good or service in a certain way This entitlement may be restricted to specific aspects of the good or service

Service Immaterial goods that are not storable, not suitable for transport and that are characterised by the synchrony of production and usage

Sink A mechanism, process or activity (such as vegetation growth) which removes a greenhouse gas,

an aerosol or a precursor of a greenhouse gas from the atmosphere

Verified Emission Reduction (VER) Traded emission reductions in over-the-counter markets They are not a standardized commodity They may eventually become CERs, but many of these reductions have no secondary market benefits outside of their embedded ‘green image value’ or speculative value

Abbreviations

CATIE Centro Agronómico Tropical de Investigación y Enseñanza

CSA Certificado de Servicios Ambientales

FAO Food and Agriculture Organisation of the United Nations

OIMT Organización internacional de maderas tropicales

PSA Pago de Servicios Ambientales (equal to PES)

RES Recreational and Environmental Services

UNCED United Nations Conference on Environment and Development

UNFCCC United Nations Framework Convention on Climate Change

Chapter 1: Introduction

Forests, especially tropical forests, are the most diverse terrestrial habitat on earth They are inhabited

by more different species of plants and animals than any other location (UNCED, 1992) many of them still remain undiscovered Half of all vertebrates and vascular plant species occur in tropical forests and if the tremendous richness of arthropods species in this habitat is any indication, at least 50 percent and possibly as much as 90 percent of the world's total species are found in tropical forests (Reid and Miller, 1989) According to the Food and Agriculture Organisation of the United Nations, FAO, about 45 percent of the original world’s forests have disappeared (FAO Forestry Department, 2001) They were logged mainly during the 20th century It is estimated that the net annual disappearance in 1990 accounted for 9.4 Mio hectares This number includes a deforestation rate of 14.6 Mio hectares and a forest area increase of 5.2 Mio hectares.1 The following figure 1-1 shows a comparison between the original and the current forest cover

Figure 1-1 World Forest Cover Map

Source: (UNEP-WCMC, 2000)

Deforestation in the tropics is of special concern It has been and will be responsible for the loss of an estimated 5-15% of the world’s species between 1990 and 2020 This rate of extinction has not been topped in modern history since the last big event of mass extinction at the Cretaceous-Tertiary (K-T) boundary about 65 million years ago, when about 76% of all life forms on earth died out (Raup, 1994)

1

According to the FAO, forests cover about 3 870 million ha, or 30 percent of the earth’s land area Tropical and subtropical forests comprise 56 percent of the world’s forests, while temperate and boreal forests account for 44 percent Forest plantations make up only about 5 percent of all forests; the rest is still natural.

Economic growth has been the main driver for environmental damage Industry and agriculture exert high pressures on forests worldwide because non-timber forest services and products still have little monetary value to the local residents whereas the land cleared from trees can be used as cropland, pasture, urban settlements or for industrial sites Sometimes, not even the valuable timber is extracted but the still intact forest simply gets burned to the ground Additionally, traditional industrial logging and road construction have a negative impact on biodiversity as they too contribute to the destruction of habitats and the elimination of species

The goods considered valuable are usually only timber and some non-timber forest products (NTFP) Important ecosystem services provided by forests are not yet considered valuable by the majority of people(Whitten, Salzman et al., 2003 p.1) Those services include purification of water and air, sequestration and detoxification of human and industrial wastes and emissions and maintenance of soil fertility, amongst many others (FAO Forestry Department, 2001; Moles, 2001; Landell-Mills and Porras, 2002)

In recent years, many non-governmental organisations (NGOs) expressed growing concern about the state of rainforests and have been pressuring societies and governments of the industrialised world to pay more attention to deforestation in the tropics Subsequently, western society demands more environmental and social responsibility from the timber industry It will be encouraged to switch from traditional logging to low impact timber harvesting methods that acknowledge the value of ecosystems, and to the maintenance of plantations that reduce pressure upon native forests Additionally pressure on governments in developing countries, where tropical forests are in great danger, rises They are requested to apply stronger laws against logging companies and to restrict illegal logging by rural people

However, chronic lack of money to pay for it is one of the major constraints on effective conservation in most developing countries It is of international concern to secure the funding of national projects One approach to financing such projects can be found in the emerging market of ecosystem services Marketed effectively, these services could have an even larger economic value than timber Costanza et al estimated the global contribution of ecosystem services to be US$33 trillion per year, whereas the global gross national product total is around US$ 18 trillion per year (Costanza, d'Arge et al., 1997) The selling of those services can be bundled with the production and sale of timber and NTFP or can be sold on a separate market

Usually there are three to four parties involved in trading: A provider of the service, a transaction manager and a buyer or an investor

On one hand there are the suppliers: To create a market for environmental services new forest projects have to be established and existing timber companies have to widen their focus to include this new type of service On the other hand there are the buyers Possible customers are, for example, western industries or states that need to reduce carbon dioxide-emissions or communities or local industries that support the protection of watersheds to get access to clean water and also lower flooding risk

In many cases a third party, a transaction manager, is involved This could be a governmental

or non-governmental organisation or a broker Its task is to mediate between providers and buyers He has to establish a connection and to organise the actual trade The whole transaction is often supervised by an external organisation which is not directly involved in the trade but may provide elemental basics such as rights or certificates (Figure 1-2)

Figure 1-2 Market-Scheme for Ecosystem Services

Source: (Köllner, 2004)

Reasons why such markets should be created, and in what ways their development can be enhanced by providers, demanders and intermediates, are described in several publications The different types of ecosystem services are in a different stage of development Biodiversity markets for examples are still

in their development phase There are several authors that deal with possible characteristics of such markets Moles for example delivers a detailed description of the biodiversity-linked markets and their main actors (Moles, 2001) whereas Barrington outlines the increasing importance of standards concerning biodiversity in business (Barrington, 2001) A more clearly developed field in biodiversity markets is bioprospecting The authors though that deal bioprospecting are rather sceptical Macilwan writes about the growing discrepancy of what third world countries expect from bioprospecting and what western industries are ready to invest He gets a similar rather negative view on the future development as does Firn when writing about the future potential of bioprospecting (Firn, 2003, Macilwain, 1998 #65)

Carbon sequestration is a more mature service that is already in the introduction stage of the product life cycle Greenhouse gas (GHG) reduction is probably the most promising service There are numerous publications that deal with the valuation of carbon stored by forests Black Solís presents an investigation of the viability of projects under various conditions He investigates two different payment schemes and focuses on small projects (Black Solís, 2003) Nelson and de Jong present such

a project in detail, the “Fondo Bioclimatico” in Mexico They observed its development over seven years and present a critical but still confident picture of a carbon mitigation project that is also directed

at sustainable development of the region (Nelson and de Jong, 2003) Ramirez presents a method to predict the economic value of carbon storage services over time under a variety of scenarios He also addresses key issues in the international discussion about cross- and within-country compensation with

a focus on Costa Rica (Ramirez, Carpio et al., 2001) The time of writing of an article about carbon sequestration is of great importance as the withdrawal of the United States from the Kyoto protocol in

2001 had large negative impacts on the development of GHG-markets An author that deals with those impacts on GHG-markets is Jotzo He describes the possible development of Clean Development Mechanisms (CDM) and their restrictions under the Marrakech accords (Jotzo and Michaelowa, 2002)

Many publications deal with the whole variety of possible ecosystem services Interesting publications of this kind are the books “Selling Ecosystem Services” and “Nature’s Services” The first is a compilation of different case studies, the second a description of different services and their valuation again using case studies as examples Both are edited books, written by different authors The books show possible ways of creating markets for ecosystem services and difficulties that were recognised when doing so(Daily, 1997; Pagiola, Bishop et al., 2002) In Australia, Whitten et al published a report about possible means by which Market Based Instruments may encourage protection of ecosystem services and ways to build the capacity of regional communities to initiate markets for ecosystem services (Whitten, Salzman et al., 2003) Another Australian publication about market mechanisms and investment in ecosystem services was written by Brand He describes different mechanisms and ways to sell ecosystem services focusing on financial aspects (Brand, 2003) Pagiola and Pagais as well as Chomitz et al write about the implementation of Payments for Ecosystem Services (PES) and about the experiences made in Costa Rica with this model(Chomitz, Brenes et al., 1999; Pagiola and Platais, 2002) Whereas most authors write about the ecosystem services provided by plantations, Fearnside talks about those of the Amazon He tries to find a strategy

of sustainable development of the area using ecosystem services as a financial driver (Fearnside, 1997) Finally, there are two groups of authors that deal with the creation of markets for ecosystem services Murtough et al investigated possible kinds of markets in Australia and the United States Their paper describes some already existing markets and ideas for their creation Additionally it shows possible restrictions to the formation of new markets (Murtough, Aretino et al., 2002) Landell-Mills who also is one of the editors of “Selling Forest Environmental Services” and Porras reviewed the global markets for ecosystem services deriving from tropical forests and their impact on the poor This report provides a huge lot of general information about different ecosystem services and possible threats and opportunities (Landell-Mills and Porras, 2002)

Until now only a few authors, basically only the group around Mantau, have dealt with the actual marketing of services provided by forests He published a detailed investigation of marketing

aspects of recreational environmental services in Europe (Mantau, Merlo et al., 2001).No literature though was found dealing with the marketing of non-recreational and non-material services provided

by tropical forests This thesis tries to contribute some information to fill this gap

The goal of this study is to develop a framework of a marketing strategy for ecosystem services It is to be expected that a single strategy is not sufficient as the different services vary significantly with respect to target groups, availability of markets and other important features Therefore, different strategies will be named for different types of products

In a first step, a framework of services marketing was laid out by the means of professional literature and was adjusted to ecosystem services The basics of services marketing were used to develop a questionnaire whose aim was to recognise points of consideration for the marketing of ecosystem services By the means of this questionnaire, measures that were already taken and considered efficient have been compared and integrated into the marketing strategy Additionally, the survey has uncovered weak spots and aspects where good marketing can contribute to strengthen the market position The results from the inquiry have confirmed and complemented information gathered from literature Together with the information gained from an interview with a marketing expert, all results were gathered to compose a marketing guideline

Chapter 2: Background

This chapter gives the theoretical background that is needed to understand the following chapters The first part defines the terms ‘ecosystem services of tropical forests’ and its subcomponents biodiversity, watershed protection and carbon sequestration The second part deals with the basics of marketing, especially the marketing of services

Figure 2-1 System of Marketing for Ecosystem Services

Tropical forests provide a wide range of products Not all of them are material like timber, medical plants, food or raw materials for handcrafts They provide food and habitats for animals, protect and clean water sheds, serve as erosion-protection, provide nutrient cycling and serve as a storage room for carbon dioxide These functions referred to as ‘ecosystem services’

However, timber is in economic terms the most valuable product of tropical forests Unfortunately, the extraction of timber is still often linked with complete destruction of the forest because it is a widespread opinion that the forest is worthless as soon as valuable wood is extracted After logging, the remaining forest is burnt down to create free space which can be transformed into agricultural land.To combat this development it is crucial to give forests a value other than that of mere timber One way to preserve the forest is to manage it on a sustainable basis, logging only a small amount of trees per area to give the forest the opportunity to recover This way of logging is called low impact harvesting Additionally, NTFP such as fruit, medical plants or flowers can be sold

Watershed Protection

Purchase and Investment

Define Goals

Find Strategy

Find appropriate Instruments

Customer’s

give feedback protect

on international markets to give an income to people living near the forest to give them alternatives to logging Nowadays, there is a new market developing in which the services provided by ecosystems are sold Many projects that were founded to achieve preservation of forests are selling services such

as conservation of biodiversity, sequestration of carbon and watershed protection

Typically, those who supply ecosystem services are not rewarded for all the benefits they provide to others, and those who reduce ecosystem services do not bear all the costs they impose on others (Murtough, Aretino et al., 2002).2 The goal of creating a market of ecosystem services is to internalise such external effects In the case of carbon sequestration for example, emitters of greenhouse gases would have to compensate for their damage done to the environment The legal base for a market for many of those services was laid out in 1992 at the Earth Summit in Rio de Janeiro

2.1.1 The Earth Summit

In 1992 the United Nations Conference on Environment and Development (UNCED), better known as

the Earth Summit, took place in Rio de Janeiro (Brazil)3 At this conference the world’s leaders agreed

on a comprehensive strategy for ‘sustainable development’: meeting our needs while ensuring that we leave a healthy and viable world for future generations To achieve this aim, five important documents were composed Three of which are an important base for this thesis and are going to be presented on the following pages.4

a) The Convention on Biological Diversity

This convention is a commitment on behalf of the majority of governments to maintain the world’s ecological foundations while following economical development It contains three main goals:

• the conservation of biological diversity

• the sustainable use of its components

• the equitable sharing of benefits from genetic resources

The convention recognises that the conservation of biodiversity is a common concern for mankind and needs to be considered in any kind of development processes The agreement covers all ecosystems, species, and genetic resources The economic goal of using resources sustainably is combined with traditional conservation efforts The social aspect is considered in principles for fair sharing of benefits generated by genetic resources which are commercially used In contrast to the

2

This fact is called an ‘external effect’ An example of an external effect is the situation along a river with a community living upstream and another living downstream The upstream community can pollute the river and use large amounts of water without having to care, whereas the downstream community gets little and dirty water before they even have the chance to influence the river themselves In this case the external effect is a negative one

The example of the river could also be reversed If the upstream people plant or protect a forest bordering the river and therefore clean the water and prevent it from evaporation, the downstream people get clean drinking water without spending additional money This would be a positive external effect

The introduction of a cost-by-cause principle helps to thwart the negative external effects

3 172 governments participated with 108 at level of heads of State or Government Some 2,400 representatives of governmental organisations (NGOs) attended, with 17,000 people at the parallel NGO Forum

non-4 The complete contents of the Rio conventions are found on the internet, for example at: http://www.ecouncil.ac.cr/about/ftp/riodoc.htm

forest principles described in the next paragraph, the convention on biodiversity is legally binding Ratifying countries are obliged to follow its principles(United Nations, 1992)

b) Framework Convention on Climate Change

The United Nations Framework Convention on Climate Change (UNFCCC) was adopted as a consequence of worldwide concern about global warming and was signed by 154 countries Its goal is

to stabilize the concentration of greenhouse gases in the atmosphere which are thought to be responsible for global warming and other human induced changes in climate Industrialized countries and transitional countries that are parties to the FCCC have committed themselves to working towards voluntary goals in the reduction of emissions(United Nations, 1992)

c) The Forest Principles

The Forest Principles is the informal name given to the ‘Non-Legally Binding Authoritative Statement

of Principles for a Global Consensus on the Management, Conservation and Sustainable Development

of All Types of Forests’ It is non-legally binding, and it makes several recommendations for forestry(United Nations, 1992) Unfortunately, developing and industrial countries did not find a complete consensus for the financing of forest reserves and therefore the final document is a compromise

Sustainable Timber Production

In response to public concern about deforestation and in order to establish an international label of sustainable forest management, some timber certifying labels were established; for example the Forest Stewardship Counsil (FSC) in 1993 The FSC-Label is on a global scale the second largest label for timber with 28.8 Million hectares of forest land being certified with its label The largest label, Pan European Forest Certification Counsil (PEFC), certifies 41 Million hectares (PEFC and FSC, 2002) FSC is a label which certifies different stages of timber processing all over the world, including Latin America.5 FSC certified timber companies are committed to using the forest and its products in a sustainable way Some of them are reforesting or afforesting areas formerly used as pasture or cropland Others capitalise on existing forests by applying low impact harvesting methods Nowadays more and more companies produce certified timber and a growing number of large furniture producers

in western countries process only certified timber

2.2.1 Biodiversity

Definition:

“Biodiversity is the totality of genes, species, and ecosystems in a region Biodiversity can be divided into three hierarchical categories genes, species, and ecosystems that describe quite different aspects of living systems and that scientists measure in different ways

5

PEFC operates initially only in Europe and now as well in Canada and the United States

Genetic Diversity refers to the variation of genes within species This covers distinct populations of the same species (such as the thousands of traditional rice varieties in India) or genetic variation within populations (high among Indian rhinos and very low among cheetahs)

Species Diversity refers to the variety of species within a region Such diversity can be measured in many ways, and scientists have not settled on a single best method The species ‘richness’ is one often-used measure, but a more precise measurement, ‘taxonomic diversity’, also considers the relationship of species to each other For example, an island with two species of birds and one species

of lizard has a greater taxonomic diversity than an island with three species of birds but no lizards

Ecosystem Diversity is harder to measure than species or genetic diversity because the ‘boundaries’

of communities associations of species and ecosystems are elusive Nevertheless, as long as a consistent set of criteria is used to define communities and ecosystems, their numbers and distribution can be measured ”

(World Resources Institute (WRI), 1992)

The massive deforestation of recent years has induced a mass extinction of species that has not been topped for millions of years This loss of biodiversity reduces the productivity of ecosystems and, with it, the possibilities to extract benefits from it It also destabilises ecosystems and their ability to prevent disasters such as floods, droughts, landslides and even hurricanes which bring misery to usually already poor people in affected areas Additionally, it reduces the ecosystem’s natural ability

to respond to stresses such as climate changes or pollution

Payment for Biodiversity

It is not easy to describe the actual benefit that protection of biodiversity provides to a potential customer The market is still limited Until now, funding has been almost entirely public, either through direct payments or tax benefits (Best and Jenkins, 1999) Still, there are three ways to raise money from private customers:

A relatively easy way to raise money for biodiversity conservation from individuals is indirect through ecotourism projects National parks, for example, often finance their conservation programs not only through public monies but also through entrance fees and guided tours Due to the crucial need for easy access, the opportunity to provide ecotourism is dependent on location Market access is relatively high for the recreational use of forests within 1 - 2 hours of urban areas In this study, ecotourism projects are not going to be investigated because their marketing is quite similar to

‘ordinary’ tourism Marketing of tourist attractions is an old business and well investigated Strategies can basically be transferred onto ecotourism without problem

A second way is bioprospection: Before 1992, biological resources were widely considered the common heritage of humankind Scientists could take samples from anywhere in the world without any specific permission There were no international rules as to how to handle the public good of biodiversity On national levels, there are environmental laws but they differ from country to country Nowadays, a new possibility to finance the conservation of forests is developing, based on a restricted access to biodiversity: It is based on a system of contracts between conservation projects or

governments and pharmaceutical companies or universities which grant the company the right for bioprospection in a specific area Bioprospection is the collecting of biological samples and indigenous knowledge to help discover genetic or biochemical resources (Wikipedia, 2004) In return, companies pay for this right and share the benefits arising from new discoveries A famous symbiosis

in bioprospection was established between the National Biodiversity Institute (INBio) of Costa Rica and the pharmaceutical company Merck of the U.S.: In October, 1991, the INBio, a private, non-profit, scientific organization, and Merck, a multi-national pharmaceutical corporation, signed a two year agreement Under the terms of the agreement, the INBio provides 10,000 samples of plants, animals, and soil to Merck Merck has the exclusive rights to study these samples for two years, and will retain the patents to any drugs developed using the samples In return, Merck paid INBio $1 million up front Additionally Merck promised to pay royalties to INBio for any drugs developed from the biological samples provided (Merck, 2004)

The third way is to raise money directly for conservation Many people and institutions are willing to donate for reliable conservation projects But these types of organisations face high competition There are innumerable projects that want to conserve nature Private and public, local and international organisations, some with hundreds and some with only two employees compete for the same type of customer

2.2.2 Sequestration of Carbon Dioxide

During the 20th century, the mean global surface temperature increased by 0.6 degrees on average It is very likely that the 1990s was the warmest decade, and 1998 the warmest year on instrumental record This observed warming is unlikely to be of pure natural origin but attributable to human activities During the same time, greenhouse gases (GHG) such as carbon dioxide reached their highest recorded levels and continue to increase Atmospheric greenhouse gases have varied substantially during glacial-interglacial cycles over the past 420,000 years, but even the largest of these earlier values is much lower than the current atmospheric concentrations Considering the evidence and taking into account remaining uncertainties, it is likely that global warming has been due to the increase in GHGs (IPCC, 2001)

At the third conference of the UNFCCC-Parties (COP3) held in Kyoto, Japan, in December

1997, more action against global warming has been taken and an additional legally binding instrument was added to the original agreement: the Kyoto Protocol to the Framework Convention on Climate Change Thirty-nine developed countries (Annex B countries) committed themselves to reducing their greenhouse gas emissions between 2008 and 2012 by at least 5 percent compared with 1990 levels Parties can meet this commitment by using new technology that substitute high emission technologies

or by protecting or enhancing sinks of greenhouse gases (UNFCCC, 1997)

Forests may contribute to the future development of the global climate Generally it is thought that they serve as sinks for greenhouse gases Avoiding deforestation, reforestation and afforestation would therefore help to sequester carbon, as the growing trees store large amounts of organic carbon The Kyoto Protocol foresees the inclusion of changes in CO2 emissions resulting from direct human-induced land use change and forest activities limited to afforestation, reforestation and avoidance of deforestation With the signing of the Marrakech Accord at the seventh Conference of the Parties (COP-7) in November 2001, the parties acknowledged the four major roles of forests in climate

change: as a source of carbon dioxide when destroyed or degraded6; as a sensitive indicator of a changing climate; as a source of biofuels to replace fossil fuels; and as a carbon sink, when managed sustainably As yet, the Kyoto Protocol has not entered into force because the ratifications of important emitters such as Russia and the United States are still missing (FAO Forestry Department, 2001; FAO Forestry Department, 2003)

Payment for Carbon Sequestration

The emission credits deriving from those forestry activities, the so called certified emission reductions (CER), will be tradable between participating parties This is a promising new market and is widely seen as the ecosystem service with the greatest potential as a source of return After the first estimations, the price per ton of carbon was hoped to be as high as 10 to 20 US$ In 1996, Costa Rica sold its first 200,000 tons of carbon emission reduction credits to Norway for us$10 per ton However,

in late 1997, when it tried to auction an additional 1,000,000 tons of carbon credits with a floor price

of us$20 per ton, it received no bids (Castro-Salazar, Cordero Pinchansky et al., 2000) Today, after the withdrawal of the United States from Kyoto, it looks as if the price per ton carbon will be set at around 4 US$ for CER and lower for the voluntary reduction, the verified emission reduction (VER) (Jotzo and Michaelowa, 2002).But prices are anything but set!

The Kyoto Protocol foresees the inclusion of changes resulting from direct human-induced land use change and forest activities, limited to afforestation, reforestation and avoidance of deforestation Although the Kyoto Protocol has not entered into force and it is as yet undecided whether forests will be included as sinks, the role of forests in the context of climate change merits a close look because of the impact that the outcome of related decisions could have (FAO Forestry Department, 2001, p.60ff.)

2.2.3 Protecting Watersheds

Forests serve as natural buffers against impacts of nature and men They are able to filter water to clean it from pollution and regulate sedimentation and run-off If a forest bordering a watershed is logged, communities living downstream of the river or lake may face severe problems:

• Due to lowered natural capacity to buffer climatic impacts such as heavy rainfalls or dry periods, the risk of flooding and drought damage increases

• Drinking water is not filtered anymore and needs artificial cleaning

• Sedimentation increases and rivers need to be canalised to continue being navigable

• Natural beauty of rivers and lakes is lost along with their value

The protection of forested watersheds to preserve high quality water supplies is not new, but its importance is increasing because the world’s population increases while water supplies and quality are diminishing The increasing costs of building new reservoir systems, as well as filtering polluted water make forest protection correspondingly more financially attractive: In Switzerland for example 1’000 million cubic-meters of drinking-water are consumed per year Groundwater makes up 83% of this, the rest is treated water taken out of lakes Forty percent of the water used does not need additional

6

Deforestation is after fossil fuel combustion the second largest source of GHGs (Castro-Salazar, 2000)

treatment The usage of this natural water, cleaned mostly by soils of forests, saves production costs of about 80 million Swiss francs per year (Best and Jenkins, 1999; BUWAL, 2004)

Payment for the Protection of Watersheds

Watershed protection can be valued directly by calculating production costs New York City, for example, has sought the use of natural water regulation services of largely undeveloped watersheds, through purchase or easements to deliver safe water and has thus avoided a $6 billion water filtration plant This implies those watersheds are worth up to $6 billion to New York City To finance the protection, users can be charged Every cubic meter of water that derives from sustainably cleaned sources is charged with an additional fee Proceeds from this fee then flow back into conservation projects along the watershed and to the provider of clean water (de Groot, Wilson et al., 2002)

2.3.1 What is Marketing?

There are many different definitions of marketing which are continually developing in the course of time In this study, the definition of Mantau has been chosen It summarizes different definitions in the following statement:

“The term ‘marketing’ describes all business activities concerning planning, execution and control which are directed towards optimal exchange conditions on the basis of systematically gained knowledge of the market and consequent customer orientation by means of sales political instruments (product design, distribution, price design and promotion) for the products offered in present and potential markets Marketing, therefore, is the expression of a comprehensive philosophy and conceptualization of management strategies and a process within socio-economic structures.”

(Mantau, Merlo et al., 2001 p.152-153)

If someone mentions the term marketing, the first common thought is ‘selling’ and

‘advertising’ But marketing is more than that Marketing is directed at the satisfaction of desires of customers It builds a product around the needs of a customer and satisfies a demand It comprises the description of a target customer group, price settings, product design, distribution and promotion Kotler divides marketing into several different steps and presents the following figure to describe marketing (Kotler, Armstrong et al., 2003):

Figure 2-2 Marketing System

Marketing for Non-Profit Organisations

The principles of marketing exist for companies working for profit as non-profit or not for profit organisations (NPOs)7 Many non-profit organisations though do not see a necessity for spending time and money on marketing They think demand generates itself if service is provided on the market without being promoted However, a well conceived marketing plan has two main advantages for non-profit organisations (Kotler, 1978) p.11:

A marketing plan requires the establishment of the needs and wants of target customers If those needs are not accurately investigated, it is likely that the service does not match demand Customers might change the provider or even stop buying the service and financial support for the project shrinks With an appropriate product, the contentment of the customers rises and it is easier to raise money

The second advantage is that a marketing plan forces its user to focus in detail on product design, price policy, communication and distribution Many non-profit organisations neglect those facts or rely on uncertain facts and loose time and money Especially because non-profit organisations have little financial resources, it important to avoid those losses connected with an efficient marketing strategy

Existence

of Real Markets

Values, Quality, Satisfaction of Needs

Exchange, Transaction MARKETING

• Services are the non material equivalent of a good

• The possibilities to legally protect new services are limited

• Services are not suitable for storage or transportation

• Production and usage are not separable

• The human factor is often the key success factor

• It is difficult to estimate demand Demand can vary by season, trends, business cycle etc

• Most service provision requires a high degree of interaction between client and service provider

• The external factor is important: The consumer of the service is actively or passively involved

in the production of the service

Marketing Strategy

Every organisation needs a strategy to survive in the market There is no ideal strategy that applies to every type of organisation A marketing plan is an important factor within this strategy It defines the objectives and it is a resource needed to achieve the goals set A marketing strategy consists of four steps that influence one another as shown in figure 2-3 Those steps are outlined in the following paragraphs

Figure 2-3 Marketing-Strategy Scheme

Source: after (Kühn and Fasnacht, 2002)

A) Marketing Objectives

Defining the marketing goals is an essential part of the initial phase of developing a strategy They help to subsequently control the success of the strategy and to coordinate marketing with other strategies of the business A clearly defined goal always strengthens the motivation of the staff (Meffert and Bruhn, 2003)

No matter if the organisation is oriented to profit or not, a certain idea of financial goals is needed to create an effective marketing strategy The estimated values and targets of sales, market shares, business volume and gains have to be defined Gains are of no interest for non-profit organisations For them it is important to know the amount of money they will need to finance their

A) Marketing Objectives: Survival,

project Only if the amount is known, professional fundraising can be undertaken effectively To determine these goals it is helpful to find an indicator, which defines the amount of sales This indicator could be, for example, the number of certificates or the amount of cubic meters of water sold According to this indicator, the business can identify its position within the market and define its goals

B) Market Positioning

A Marketing strategy is developed in two main parts Firstly, possible future customers have to be identified and described This is essential, as the product has to be designed to satisfy the needs of this special group of customers The clearer the image of the client is, the easier it is to develop a marketing mix that addresses exactly this type of client The needs of future customers have to be defined and the benefits deriving from the provided service need to be made consistent with those needs A customer will purchase the service that offers the best quality for a certain amount of money (Kotler, Armstrong et al., 2003, p.490ff.)

In the second part, a niche has to be found that can be filled by a differentiated service or bundle of services This bundle has to meet the needs of the customers that were defined in the previous part There are many ways to differentiate a product or service The service itself can be designed to meet some expectations and the way services are bundled makes a difference between different providers of the same basic service The equilibrium of quality and price of the service makes another difference Differentiation is a way of outlining the special quality of an organisation and its services

C) Marketing Instruments

Marketing-Mix for Services: The Concept of the 8P’s

In order to transfer the basic strategic targets into specific measures for action, a plan of marketing measures is needed This plan of measures is called the marketing mix The marketing mix consists of the four main instruments, the 4P’s: Product, placement (or distribution), price and promotion

Especially for the marketing of services , Booms and Bitner add three additional instruments: people, physical evidence and process (Booms and Bitner, 1981) Sometimes even another P is mentioned by some authors: politics Considering those eight elected factors, the optimal marketing mix for every project has to be evaluated Thereby it has to be made sure that there are no inconsistencies within the mix It is, for example, impossible to combine a high quality product with a low-price strategy

Traditional 4P’s of Marketing Possible Additional 4P’s for Services Marketing

Figure 2-4 Marketing-Mix Scheme

i) Product

Two stonecutters were working on the reconstruction of St.Paul’s

in London when Sir Christopher Wren asked each what he was doing

The first replied „I am cutting stone.“ The second answered, “I am

building a cathedral”.(Kotler, 1978, p.163)

The product mix is the entire range of products offered to the customer for sale Products should be designed to fulfil the needs of potential customers Often they are a bundle of material and non-material attributes The products examined in this study are generated by the transformation of recreational and environmental services naturally provided by a forest into a marketable product, for which customers are willing to pay Ways to turn those functional services into products have been found with the help of marketing strategies A core feature of a successful marketing strategy is the design of a product The goal of a successful product design is to make a customer buy exactly this product rather than that of a competitor

ii) Placement

The term placement comprises all activities and decisions that are related to the movement of a product from its generation to the consumer Usually products and services are distributed via at least one marketing stage To evaluate the distribution of a product, distributors and customers of every stage have to be clearly identified and described Regarding distribution, services are unique in that they are not material and therefore not storable nor transportable and the external factors need to be considered Additionally, the supplier has to be able to provide the service constantly (Meffert and Bruhn, 2003, p.551f.)

iii) Price

Every service has its price The price is the total sum of money that is demanded for the service or, from the buyer’s point of view, the sum he is willing to spend for a certain service Historically, prices

Marketing - Mix

were established between the buyer and the seller Usually, they agreed on a price which was acceptable to both of them Nowadays, prices in industrialised areas are generally standardised Often, the price is the most important factor that influences the decision whether a product or service should

be bought or not (Kotler, Armstrong et al., 2003, p.762)

There are different factors that influence the setting of a price A lot depends on goals set by the company First of all, it has to be made sure that survival of the project is guaranteed Additionally, goals such as larger profit, increased market share or high quality products may influence the setting

of the price According to those goals, internal and external influences need to be considered Such influences are, for example, production costs, willingness to pay, competency or international markets

iv) Promotion

If the circus is coming to town and you paint a sign saying, "Circus is coming to Fairgrounds Sunday," that's Advertising If you put the sign on the back of an elephant and walk him through town, that's a Promotion If the elephant walks through the Mayor's flower bed, that's Publicity If you can get the Mayor to laugh about it, that's Public Relations And, if you planned the whole thing, that's Marketing! Author Unknown after (Washko, 2003)

Though not exactly precise for marketing, this definition includes all aspects of promotion Promotion is planning, organisation, implementation and control of measures that create short term stimulation in customers to buy a certain product (Meffert and Bruhn, 2003) The term promotion used

as an element of the marketing mix includes advertising, publicity and public relations To promote a project successfully it is wise to consider all of these aspects To advertise is to call public attention to

a business by emphasizing desirable services and qualities with the intention of arousing customer desire Publicity is an act or device designed to attract public interest Unfortunately, publicity is not something that can be controlled by the organisation in question because it is dependent on the media that publishes the article or the documentary broadcast However, publicity is often the only way for non-profit organisations with a low budget to promote their services Articles in newspapers and similar publicity does not have to be paid for by the organisation itself and does not generate additional costs (Kotler, 1978), p.213) Public Relations is the business of inducing the public to have understanding for a company and its ideas and to encourage goodwill Public relations ensure that the company has a strong public image (Washko, 2003)

v) Politics

Political issues play an important role for ecosystem services Many countries that have the opportunity to provide ecosystem services have a relatively weak political system Corruption, poverty and a weak legal situation enhance illegal logging and the abuse of natural resources Only a stable background can ensure the development of a functioning market for ecosystem services What use is there to buy a certificate that guarantees carbon sequestration from a plantation that gets abandoned or logged after a change in political circumstances? To set up a new business providing ecosystem services it is crucial to know possible opportunities and threats deriving from the political environment

of the country in question

vi) People

Services usually need to be consumed immediately and cannot be stored Often, direct contact between the provider itself or an intermediary and the customer is necessary Therefore employees influence

the customer’s perception of the service and its quality The quality of the service is inseparable from the quality of the provider In services where the customer meets the provider personally, employees need to be trained to ensure this service quality

vii) Process Management

Process management is the manner in which the service is delivered to the customer The process of delivering or serving has to be appropriate for the image of the company For example: something called ‘first class’ has to be first class in all respects Process management is making sure that this happens effectively and efficiently

viii) Physical Evidence or Physical Environment

Physical environment is the environment in which the service is delivered It also includes tangible goods that help to communicate and perform the service It is what influences the customer’s perction

of the quality of the service It is kind of materialisation of the service Physical evidence could be, for example, a brochure about a project or the arrangement of an office

D) Effects

Effects are the visible results of the marketing strategy They should reflect the fulfilment of the goals postulated at the beginning of the design of a strategy of marketing Investigating the effects provides feedback on the efficiency of positioning and instrumental decisions Those results can be used to improve the whole marketing strategy Examples for these effects could be: an increased demand for the service, measurably more and happier customers, increased sales or income…

2.3.3 Why Do Ecosystem Services Need Marketing?

Ecosystem services are a new type of product which are not yet widely known To sell those products efficiently, bridges to possible customers have to be built; marketing raises awareness and knowledge about a service and finally convinces the customer to buy the service Using marketing methods, services can be adjusted to satisfy the customers’ needs Marketing measures accompany the customer the whole way from the first contact with a service to the actual purchase, a process shown on the following timeline

Figure 2-5 Timeline of customers’ perception

Source: Adopted from (Kotler, Armstrong et al., 2003, p.324f.)

As ecosystem services are still located at the beginning of this timeline in many minds, marketing is very important to increase the recognition of those new services Another reason why ecosystem services need marketing is that in many cases providers are not oriented towards profit and often depend on donations To persuade people to join this group of donors, professional marketing is very useful

Awareness Knowledge Sympathy Preference Persuasion Decision to buy

Time

2.3.4 Valuating Ecosystem Services

Ecosystem services can be divided into different categories of economic value The total economic value is composed of use values and non-use values Those again can be sub-divided into different categories Figure 2-6 shows the category tree:

Figure 2-6 Categories of economic values attributed to environmental assets

Source: (Pearce and Moran, 1994)

Services on the left hand side have an obvious value that is fairly easy to define The further they are located on the right side of the tree, the more difficult it is to define the value of services, and

to sell them Usually, they are public goods that are not or only hardly excludable and that have no direct value Existence value is also something that accrues mostly to populations who are either very close to the forest, such as indigenous peoples, or who are far removed from it, such as urban dwellers elsewhere (Fearnside, 1997) Until now, anyone could use and diminish them without being charged

A main problem is that hardly anyone is able to recognise the consequences and the dimension of the loss of existence or bequest values As those losses often are not directly visible, no one can be accused of diminishing the existence value of an ecosystem

This is a major problem in the introduction of a payment system for ecosystem services Establishing a market for ecosystem services tries to introduce such a payment system for this kind of services Usage should become excludable and the cost-by-cause principle should support the process

of charging the ones that are responsible for the loss of non-use values The introduction of those payments is to support the conservation of those values for future generations The following sections provide more detailed descriptions of the two main types of values dealt with in this thesis

Services with use-values

On one hand there are the services that have a concrete market value and therefore are traded as certificates or permissions For certificates for carbon sequestration for instance, a market is evolving

Total Economic Values

Bequest Values Direct Use

Non-use Values Use Values

Use and Non-Use Value of Environ- mental Legacy

Habitats, Prevention

of Irreversible Change

Functional Benefits

Flood Control, Storm

Protection, Nutrient Cycles

Future Direct and Indirect Values

Biodiversity, Conserved Habitats

Value from Know-ledge of Continued Existence

Habitats, Species, Genetic,

that allows trading The value is still difficult to define as it is a non-use value Some states and international confederations, such as the European Union (EU) have enacted laws and guidelines for emission reduction trading with the price to be defined by the market There are some emitters that have already bought certificates on a compulsory or voluntary base Clean water, which is a functional benefit, belongs to this market based pool of services, as well as, CER and permission for bioprospecting All these types can rely on an actual (or near future) law which ensures a base for trading Acquiring new customers for these kinds of services can be done using ‘normal’ services marketing Some customers will look for good prices, others will care about quality The organisations need to decide what type of customer should buy their service The challenge for the provider of use value services is to find a marketing strategy that addresses the requirements of its target clients

Services with Non-Use Value

On the other hand, there are services without direct material but ethical or non-use value They are more difficult to sell because their benefit for the customer is more difficult to be recognised It may

be true that nowadays people in industrialised countries have more ‘spare’ money they can spend on products of their personal choice rather than on products needed for survival But for a provider of ecosystem services, such as scenic beauty or biodiversity it is hard to convince those people to spend their money on his project

Today people can afford to spend money to cover the need for self-actualisation, a term which

is going to be explained in the following excursion about the hierarchy of needs postulated by (Maslow, 1943).Although Maslow’s theory is not proved, it is still widely accepted According to Abraham Maslow, an American psychologist who lived from 1908 to 1970, there are five levels of needs:

Self-Actualisation Esteem needs Social needs Safety and Security Physiological needs

Figure 2-7 Maslow’s Hierarchy of Needs

On the first level we find the physiological needs, such as the need for sleep, nutrition and reproduction If they are supplied, the second level needs gain importance Those are the security needs which include needs for a secure job, a safe neighbourhood or insurance On the third level there are the social needs: needs for love and belonging This is the need for friends, children and a partner Being tolerated and integrated, the need that corresponds with the next and fourth level is the search for self-esteem It can be increased by recognition and attention that come from one’s surroundings

On these first four levels of needs we do not find the need to participate in a charity event or to support environmental projects What is missing and included in the fifth and last level of the pyramid

is the need for self-actualisation Self-actualisation is not a basic need anymore but emerges in every person if the basic needs are covered Only people that have covered their basic needs are potential customers of non-profit organisations whose financing system is based on donations from private

people However, Maslow’s theory only applies for individuals but not for organisations Organisations have other reasons to donate large sums Probably the most important ones are image and reputation

2.3.5 Difficulties Selling Ecosystem Services

The selling of ecosystem services brings quite a lot of difficulties The market is quite new and still in the process of evolution Therefore, there are only a few established and well-known products that can

be traded on common markets Figure 2-8 shows the typical life-cycle of a product or service (Kotler, Armstrong et al., 2003) Ecosystem services are still in the phase of introduction or development Popularity and sales are on a low level and the service needs publicity and innovative marketing to enter the growth phase Of course it is difficult to acquire new customers or investors for a service that

is not even fully developed and its consequences of the introduction on the market are unknown The risk of investment in ecosystem services is probably high and the return uncertain

Figure 2-8 Life-Cycle Phases of a Product

Source(Kotler, Armstrong et al., 2003)

of charge or cheaper (eg scenic beauty in national parks) This fact excludes competency and does not encourage the user of paying for the service A good example are pharmaceutical companies that still collect the knowledge of native people as well as new samples of plants to develop new drugs without caring about compensation for communities or the country As the cost-by-cause principle is not

everywhere based in law, timber companies, mining companies and other industries can pollute and use water and emit CO2 free of charge Compensation for damage done by industries is dependent on goodwill and concern for reputation

Another big problem for the selling of ecosystem services is that the benefits of ecosystem are not always obvious for a potential customer as they are not always directly visible nor are they easily understandable Unlike benefits of ordinary services such as a haircut or a stay in a hotel, the benefits

of ecosystem services are complex and long term The consequences of the absence of those services are not entirely clear and proofs are often missing Many people do not even know about some problems deriving from ecosystem degradation An understanding for complex, ill-defined matters is necessary to see the importance of ecosystems and their services This ability and the interest for environmental issues are often missing

Often, the providers of ecosystem services are small or medium sized organisations operating more or less on their own Single providers of an ecosystem service do not have enough power to provoke an effect on the ecosystem itself Neither do they have enough know-how about the market nor the connections to address important customers As they have no reputation and as there are not many stories about successful introduction of ecosystem services on the markets, credibility is rather low, a fact that prevents investors of supporting such kind of projects

Finally, forest projects sometimes have a bad image A common opinion in western countries

is that if forests should be protected they should remain completely untouched Low impact harvesting methods are not accepted by some environmental groups They do not believe in the positive effect of sustainable logging Instead they try to prevent any kind of timber harvest The other kind of forest management, the monocultural plantation too is considered unsustainable and not beneficial for the environment Fact is that many monocultural plantations indeed are unsustainable and only have one single species which often is not native In many regions the native forest is logged to establish plantations Of course this is ecological nonsense The worst example is the palm tree whose oil is used all over the world To obtain land for those plantations huge areas of native forest is logged or burned Another example is Teak-wood Monocultural plantations of teak permit only little vegetation

on the ground, they are comparable to dense spruce-plantations in mid-height regions in Europe To address this problem it is important to outline the difference between the organisations Not all plantations are bad, there are many good examples But only sensible forest management allows sustainable plantations

Sources: (Schweppe-Kraft, 1998; Mantau, Merlo et al., 2001; Whitten, Salzman et al., 2003)

Chapter 3: Methodology

To gain insight into the world of marketing, the book of Philip Kotler, “Grundlagen des Marketing”,

as well as other books about the marketing of services were studied Scientific papers about valuation, forestry markets, biodiversity markets and bioprospecting among others provided information about ecosystem services and their emerging markets Most of these papers were taken from scientific journals such as “Ecological Economics “or “Climate Policy” As a third resource, the internet was a valuable source of information Although one has to be very careful about the reliability of the different websites, it still provides a lot of background information which can be used as a basic for further investigation If internet pages are cited, they belong to international organisations to maximise the reliability of the cited content

On the 19th of May 2004 a one-on-one interview with Mr Ruedi Schläpfer, marketing expert of the World Wildlife Fund Switzerland (WWF) was conducted Goal of the interview was to gather general information about fundraising methods and marketing strategies of not-for profit organisations Some questions were prepared in advance but it was not planned as a standardised interview Its duration was 75 minutes

Having studied some basic literature about marketing it became clear what aspects have to be taken into considerations to develop a sensible marketing strategy It is of interest to know, what kind of measures already are taken by projects that provide ecosystem services and how effective they are The easiest way to get information about this topic is to conduct a survey Surveys as a method to get information about a certain topic have some advantages over other ways to collect data

3.3.1 Advantages of surveys

The survey as an investigation method has the following three main advantages (Schutt, 2001):

Versatility: Surveys are extremely flexible Especially in social sciences there is almost no issue that has never been investigated by surveys Surveys can be conducted by different kinds of institutions to investigate their topic of interest

Efficiency: Another advantage of surveys is that they are relatively cheap and results are generated quickly Telephone surveys generate results directly while mail surveys need some time to get responses Nowadays the e-mail is another option of distributing questionnaires E-mails don’t generate costs for being delivered and they reach their target much faster than common mail

Generalisability: Surveys can generate overview pictures from characteristics of large populations

3.3.2 Questionnaires, one way to conduct a survey

There are different ways to conduct a survey One form is the personal interview, another is the telephone survey and the form that was chosen in this thesis is a written one, a word-form that was distributed by e-mail

The advantages of e-mail questionnaires are:

• They are free of charge in distribution

• Large amounts of possible respondents can be reached

• E-mail is a very fast media

Disadvantages of e-mail questionnaires are:

• Only people connected to the web are reachable, a fact that distorts the sample, as not all kinds

of projects are evenly connected with the web

• E-mail-addresses vary more frequently than normal addresses and therefore many questionnaires never reach their target

• Much spam circulates nowadays and chances are that mails from unknown senders are not even opened

to provide grants to smaller projects that provide ecosystem services; on the other hand the receivers

of those grants are investigated Of course the provided services differ as well Best would have been

to get a similar number of participants of every kind of project and service Unfortunately, there are not enough cases that could be investigated and therefore the sample is not representative As an additional bias, only projects with connection to the internet were chosen as the questionnaire was distributed by e-mail

Many of the projects that were requested to participate were chosen from a list provided by the

“Centro Agronómico Tropical de Investigación y Enseñanza” (CATIE) de Costa Rica This list includes most environmental projects and governmental departments of Central and South America Other projects were found on the internet using the search engine www.google.ch The questionnaire was sent to 49 companies operating in Latin America

3.4.2 The Questionnaire

Structure

The questionnaire was divided into two parts: a general part and a part dealing with marketing instruments They were not clearly separated The first one deals with the overall description of the organisation and their services Goal of the first part was to get a general view of the participating

organisations In a first step, the organisation presents itself Name, size, visions and locations are indicators to recognise it Then, they were asked about the type of organisation This information would be needed to categorise them Information such as type of forest, provided services, profit or non-profit or private or public was collected to get an idea of the structure of those organisations The third paragraph of the first part was directed at the commercial model of the organisations Goal of this part was to get an idea of the main financing methods, distribution of donations, partners and other aspects of finance Additionally the possible products that are sold were to be presented The information of this part was written to be able to recognise tendencies of preferences in finance The second part consists of questions about marketing strategies and different marketing instruments Not all of the marketing instruments were included in the questionnaire The survey was restricted on the four “classical” Ps, whereas the four additional Ps were omitted The reason for this restriction lies in the amount of obtained information about the four additional Ps When the questionnaire was developed, the mere existence of those Ps was known to the author but no further information about them This was not sufficient to formulate appropriate questions The intention of the second part was to investigate the level of marketing knowledge and the effectiveness of the applied measures It showed which instruments are used and what experiences were made with them The second part again was subdivided into four parts, each of them dealing with one of the four Ps Every subpart delivered information about the instrument in question In some cases, they showed trends and could be compared with the information from the first part Others were mainly used to provide a general view of the distribution of different marketing systems and methods The obtained results should suggest how possible improvements might look like In this survey two types of questions are applied:

Open format questions

Open format questions ask for unprompted opinions There is no predefined answer and the empty line can be filled in freely Open format questions are good for soliciting subjective data or if the range of responses is not exactly defined In this case, they are mainly used to supplement multiple choice questions and for descriptions

Closed-format questions

The main type of question that is applied in this survey is the closed format question Three different types of multiple-choice or closed-format questions are used:

Yes/No-Answers, Multiple choice, Rating – and agreement scales

Review and Pre-test

The questionnaire was reviewed by a marketing-expert from WWF At this occasion, the questionnaire was shortened and some confusing questions were changed into more understandable ones In a second step it was sent to Costa Rica where the first sample was taken by representatives of Precious Woods Costa Rica S.A Some grammatical errors in Spanish were corrected and some elements of style changed In this first run it became clear where there were difficulties and misunderstandings Two different individuals from the same company filled in the questionnaire and the results were not exactly the same Therefore some questions had to be adjusted in cases where this was possible

3.4.3 Distribution

The distributed e-mail contained two different forms to fill out the questionnaire:

Word-form-Attachment: The questionnaire is written in Microsoft Word It is a locked word form with open lines to be filled in and boxes to be checked The completed form had to be returned as an attachment by e-mail

Online questionnaire: A link in the e-mails redirected the user to an online-questionnaire which was locked by a password This online questionnaire was compiled online on an online program created by Tydalwave™ (www.tydalwave.com) This software can be used free of charge and the questionnaire was stored on a local server belonging to this company

Chapter 4: Results

In chapter 3, the methodology of surveys and its advantages was introduced Chapter 4 presents the results of the conducted survey It describes the samples of the survey and the most important answers given by the participants Because the number of samples is small, a quantitative evaluation of the survey is not possible There are sufficient answers, though, to provide a general view of different types of services, their providers and marketing solutions Not all of the results are presented in this chapter because some questions did not produce useful responses The complete table of answers can

be found in Annex 2

Of the 49 companies addressed, nine replied with a completed form This is a response rate of 18.4% Four of the used e-mail addresses were not in use anymore and the e-mail was returned to the sender Especially the larger organisations did not have a personal contact address They were not contacted directly but rather through the form on their webpage Five of them never responded, two did Of the remaining forty that were contacted directly, 13 replied Four of the responding companies did not see themselves as providers of ecosystem services or the questions did not match their field and therefore they did not complete the questionnaire These cases are still interesting as their perception of what they are doing does not correspond with the author’s point of view

Nine useful samples remain This rather small number of samples does not provide statistically significant information but the answers of the participants will be used qualitatively as a description of the status quo

Table 4-1 Rate of Return

Absolute Number of Samples

Rate of Return

Total Number of Questionnaires Sent 49

Description of the Organisations and Their Location

The samples include a sustainable forestry company, a funding company attached to the World Bank,

a regional agricultural project, a water supply-company, a reforestation organisation that provides carbon sequestration, an international agricultural organisation, a semi-governmental organisation that pays for ecosystem services provided by smaller organisations and an international company that tries

to enhance sustainable timber production in Latin-America They are located in different areas of Latin-America The most common location of replying organisations is Costa Rica which adds up to five of the respondents, which equals more than half of them Table 4-2 shows a compilation of the different organisations and their characteristics

Table 4-2 Characteristics of Participating Organisations

Size

Private reforestation plantations are much smaller than areas of governmental organisations that include many different forestry projects The large areas belong to organisations that do not manage their own forests but certify or sustain several smaller projects and forest owners The average area of independent organisation is 3490 hectares

X X X

4 Water supply company on a

sustainable base Costa Rica 850 3

Watershed Protection X X X

Inter-Biodiversity

6 Payment for ecosystem

services Costa Rica

350000 (supported projects) 48

Carbon Storage Biodiversity Watershed Protection Scenic Beauty

8 Sustainable

forestry Costa Rica, Nicaragua 8410

68+X (seasonal variation)

Carbon Storage Biodiversity Watershed Protection Scenic Beauty

X X

9 Sustainable

development Columbia, Switzerland 72000 -

Carbon Storage Biodiversity Watershed Protection

X X X

Forest-Types

Table 4-2 shows the distribution of forest types Most of the responding companies possess more than one type of forests The most common one is monocultural reforestation which is provided by eight of the companies

Services

The organisations provide different services Sometimes only one, sometimes all investigated kinds There is no clearly dominating combination of services The following figure shows the distribution of provided services What is not visible in figure 4-1but shown in table 4-3 is the fact that the most common service provided is the sequestration of CO2

Provided Services

3

1 1

Figure 4-1 Provided Services from Nine Participants

The following table shows possible products that are sold by providers of a certain service

Table 4-3 Services and Their Products

that Provide this Type

of Product

Percentage of Providers

Because the respondents usually have more than one service and more than one product, the amounts

do not add up to nine The table shows that every organisation that provides a certain service offers a corresponding product Watershed protection for example is mentioned five times although only one