Thesis Marketing of Ecosystem Services in Tropical Forestry

Thesis
Marketing of Ecosystem Services in Tropical Forestry
by Manuela Gähwiler
Supervisors:
Thomas Köllner
Olaf Weber

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

I


II


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.

III


Resumen ejecutivo
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

IV


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.

V


Table of Contents

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
VI

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
VII


7.1.6 Importance of Partners..................................................................................................... 79
7.2

Recommendations................................................................................................................ 79
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

VIII


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

IX


Glossary and Abbreviations

Biodiversity The variety of all life forms (biological diversity). This is a function of diversity within a
single species, between different species, and between ecosystems.
Carbon credits as for carbon offsets, though with added connotations of being used as credits in

companies' or countries' emission accounts to counter debits, for example, emissions, and being
tradable, or at least fungible with the emission permit trading system.
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.

X


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
CDM
CER
COP
CO2
CSA
FAO
FSC
GEF
GHG
NGO
NPO
NTFP
OIMT
PES
PSA
RES
UNCED

UNFCCC
VER

Centro Agronómico Tropical de Investigación y Enseñanza
Clean Development Mechanism
Certified Emission Reductions
Conference of the Parties
Carbon Dioxide
Certificado de Servicios Ambientales
Food and Agriculture Organisation of the United Nations
Forest Stewardship Council
Global Environment Facility
Greenhouse Gas
Non-Governmental Organisation
Non-Profit Organisation
Non Timber Forest Products
Organización internacional de maderas tropicales
Payment for Ecosystem Services
Pago de Servicios Ambientales (equal to PES)
Recreational and Environmental Services
United Nations Conference on Environment and Development
United Nations Framework Convention on Climate Change
Verified Emission Reduction

WTP
WWF

Willingness to Pay
World Wildlife Foundation

XI


Introduction

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 CretaceousTertiary (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.

1


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.

1.1

Who Contributes to this New 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.
2


Introduction

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)

1.2

Justification

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).

3


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
4


Introduction
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.

5

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.

Ecosystem

Marketing

Services

Customer’s

Define
Goals

Biodiversity

tropical forests

Carbon
provide

Sequestration

define

Find
Strategy

influence

Purchase
and
Investment

protect

Watershed
Protection

Find
appropriate
Instruments

give feedback

Figure 2-1 System of Marketing for Ecosystem Services

2.1

Ecosystem Services of Tropical Forests

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
6


Background
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 nongovernmental organisations (NGOs) attended, with 17,000 people at the parallel NGO Forum.
4

The complete contents of the Rio
/>
conventions

are

found

on

the

internet,

for

example

at:

7

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

Typology of Ecosystem Services

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.

8


Background

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
9


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 humaninduced 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
10


Background
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)

11


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

Marketing for ecosystem services

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):

12


Background

Products, Services

Needs, Desires,

Demand

MARKETING

Values, Quality,
Satisfaction of Needs

Existence

Exchange,

of Real Markets

Transaction

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 nonprofit 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.

2.3.2 Marketing of Services
Definition of services
There is no definition of services that applies perfectly to ecosystem services. The following is a very
general one:
Services are immaterial goods that are not storable, not suitable for transport and that are
characterised by the synchrony of production and usage (Brockhaus, 2002).
Classical services boast unique characteristics as compared with material products. The following
outlines some of the attributes of services (Kühn and Fasnacht, 2002; Meffert and Bruhn, 2003;
Wikipedia, 2004 Meffert, 2003 #24, p.51):

7

There is a difference between those two terms but the distinction will not be made in this thesis.

13


•

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.

A) Marketing Objectives: Survival,
Profit, Conservation…

B)

Market

give feedback

Positioning:

Target

clients, Differentiation

C)

Marketing

D) Effects: increased
demand, more clients

Instruments:

influence

Marketing mix (8Ps)

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
14