recreational and environmental markets for forest enterprises · a new approach towards...

Recreational and Environmental Markets for Forest Enterprises

Recreational and Environmental Marketsfor Forest Enterprises

A New Approach Towards Marketability of Public Goods

U. MantauInstitute of World ForestryDepartment of Economics

University of HamburgGermany

M. MerloDepartment of Land and Agro-Forestry Systems

University of PaduaItaly

W. SekotInstitute of Forest Sector Policy and Economics

University for Agricultural SciencesAustria

and

B. WelckerInstitute of World ForestryDepartment of Economics

University of HamburgGermany

CABI Publishing

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A catalogue record for this book is available from the British Library, London,UK.

Library of Congress Cataloging-in-Publication DataRecreational and environmental markets for forest enterprises: a new approachtowards marketability of public goods / edited by U. Mantau … [et al.].

p. cm.Includes bibliographical references (p. ).ISBN 0-85199-480-6 (alk. paper)

1. Forests and forestry--Economic aspects--Europe. 2. Forests andforestry--Multiple use--Europe. 3. Forest products--Europe--Marketing.I. Mantau, U. (Udo).

SD177 .R43 2001333.75�13�094--dc21 00–063018

ISBN 0 85199 480 6

Typeset by Columns Design Ltd, Reading.Printed and bound in the UK by Biddles Ltd, Guildford and King’s Lynn.

Contents

The RES Team x

Preface xi

1 The RES Project – Introduction and Conclusion 11.1 Leading Ideas and Basic Assumptions of the RES Project 1

1.1.1 The economic situation of forestry 11.1.2 The RES project 21.1.3 Product economics – the complex structure of products 31.1.4 Non-material values in the marketing process 71.1.5 Active market development – the role of law,

contracts and organizations 91.1.6 Behaviour – ability and willingness to act 11

1.2 Summary and Recommendations 121.2.1 Economic strategies for transformation and product development 121.2.2 Marketing tools for the development of RES products 141.2.3 Contracts and organizations as a basis for market development 171.2.4 Management of multifunctional forests 191.2.5 Delimitation of property rights 221.2.6 Public acceptance 24

1.3 Note 261.4 References 27

2 Case-study Analysis 292.1 The Theoretical Approach in the RES Project 292.2 The Empirical Basis 302.3 The General Typology of the RES Case-studies 312.4 Case-studies – Germany 322.5 Case-studies – Italy 512.6 Case-studies – Austria 682.7 Case-studies – The Netherlands 802.8 Notes 932.9 References 93

3 Economic Strategies for Transformation and Product Development 953.1 Introduction 95

3.2 ERGS and RES Product Characterization 963.2.1 The development of the theory of public goods 973.2.2 Excludability and rivalry criteria for defining public

and private goods 1003.2.3 The continuum from public to private goods: mixed cases 101

3.3 The ERGS Provided by Forestry as a Case of Public Goods/Externalities 1043.3.1 Possible relationship between timber production and ERGS 1043.3.2 From systematic to dynamic aspects of public goods 1063.3.3 The complementarity between ERGS and RES products 107

3.4 Diverse Aspects of the Case-studies 1103.4.1 Ownership and management 1103.4.2 New and existing RES products 1123.4.3 Ideas, know-how, personnel, training courses and facilities 1143.4.4 Provision of additional services and means of payment 116

3.5 Empirical Evidence of Transformation/Development Strategies andTechniques: Institutional Changes and/or Marketing Tools 1173.5.1 Quantification of excludability and rivalry 1173.5.2 The state of ERGS (and potential RES products) before

transformation/development 1193.5.3 The state of RES products (previously ERGS) after

transformation/development 1213.5.4 Transformation/development success factors and failures 1233.5.5 Mechanisms of transformation/development 125

3.6 Transformation/Development Paths: RES Products Relationshipwith Forest-site Conditions 1293.6.1 Reference to country case-studies 1293.6.2 Towards a synthesis of transformation/development paths 130

3.7 Conclusions: Perspectives for Remuneration of ERGS throughTransformation/Development of RES Products 133

3.8 RES Product Typology for Marketing and Contracting Analysis 1353.8.1 Need and definition for a system of RES case-studies 1353.8.2 Basic approaches of product typologies 1353.8.3 Parameters of the typology model used 1363.8.4 Typology of RES case-studies according to product groups 141

3.9 Notes 1433.10 References 145

4 Marketing Tools for the Development of RES Products 1494.1 Introduction 1494.2 The Strategy of Marketing 149

4.2.1 Basic significance of marketing for RES products 1494.2.2 Strategic principles of the RES business 158

4.3 The Operative Marketing Mix 1634.3.1 Product policy 1644.3.2 Distribution policy 1774.3.3 Price policy 1914.3.4 Communication policy 202

4.4 Summarizing Conclusions 2184.4.1 General basics of successful RES marketing 2184.4.2 Securing success by the survey and use of internal

and external influences suitable for the targeted objective 219

vi Contents

4.4.3 The formation of success factors by the marketing mix 2224.4.4 Concluding remarks 229


5 Contracts and Organizations as a Basis of Market Development 2395.1 The Reason for Analysing Economic Institutions and How to Do It 239

5.1.1 Targets of the study 2395.1.2 Institutional economics and niche markets for RES products 2405.1.3 Transaction costs theory 242

5.2 Contracts as Important Formal Institutions 2455.2.1 Contract management 2455.2.2 Contract negotiation 2465.2.3 Contract law 247

5.3 Product Structures, Distribution Channels and ContractualCooperation in Different Niche Markets 2505.3.1 Tangible products and tangible products with non-material

components 2505.3.2 Accommodation possibilities in the forest 2515.3.3 Seminars in the forest 2545.3.4 Environmental sponsoring 2615.3.5 Use contracts with organizations 2655.3.6 Offer of recreational facilities 275

5.4 Transaction Costs and their Sources when Offering RES Products 2765.4.1 Examples of initiation costs 2775.4.2 Example of controlling costs 286

5.5 Transaction Qualities and their Influence on Contract Design 2885.5.1 Example: accommodation possibilities 2905.5.2 Example: cooperation with offerers of seminars 2915.5.3 Example: environmental sponsoring 293

5.6 General Conclusions 2955.6.1 Influence of product structure and transaction qualities on

contract design and arising transaction costs 2955.6.2 Suggestions from a contractual point of view for

diminishing transaction costs of forest landowners tosupport the development of niche markets for RES products 303

5.7 Summary 3045.8 Notes 3045.9 References 306

6 Multifunctional Forest Management 3096.1 Project Management for RES Projects 309

6.1.1 Introduction 3096.1.2 Projects and project management 3106.1.3 Project organization for RES activities 3156.1.4 PM planning tools relevant for RES projects 3236.1.5 An example – the project handbook of the Hebalm

beach volleyball camp 3316.2 Potential Analysis – a Multifunctional Forest Management Tool 334

6.2.1 Introduction 3346.2.2 Strategic management 337

Contents vii

6.2.3 Tasks and methods of PA 3446.2.4 Operational and environmental analysis related to RES activities 3466.2.5 Aspects of the acquisition and assessment of RES 3486.2.6 RES-related potential analysis: practical examples 354

6.3 Land-use Potential Evaluation and Multiple Land-use Planning 3636.3.1 General principles 3636.3.2 One landscape, many images – land-use potential evaluations 3646.3.3 Principles of land-use conflict solution 3666.3.4 Practical examples of land-use potential evaluation and

multiple land-use planning 3676.3.5 Conclusions 381

6.4 Business Organization and Accounting 3826.4.1 Introduction 3826.4.2 Formal delimitation of forestry and the RES business 3826.4.3 Financing and taxation of RES activities 3876.4.4 Dealing with RES in managerial accounting 3926.4.5 Summary 403


7 Delimitation of Property Rights 4097.1 Basic Rights Relevant for Forest Land Use in Germany 409

7.1.1 Public rights of forest use 4097.1.2 Property right 413

7.2 Relevance of Forest Law for RES Products in Germany 4177.2.1 Main structure of German forest law 4177.2.2 Access to forests in Germany 4187.2.3 Restrictions on specific forest uses by German state law 4227.2.4 Afforestation 4337.2.5 Conversion of forest areas according to German forest law 4337.2.6 Construction of recreational facilities according to German

planning law 4377.2.7 Restrictions on protected areas 4417.2.8 Intrusions in nature and landscape by German nature

conservation law 4457.2.9 Identification of relevant legal provisions in Germany 447

7.3 Comparative Study of Access Rights in Different Countries 4497.3.1 Austrian right of access 4507.3.2 Access to forests in Italy 4527.3.3 Access to forests in the Netherlands 4557.3.4 Comparative reflections 458

7.4 Final Reflections and Recommendations for German Legislation 4597.5 Summary 4607.6 Glossary 4627.7 References 462

8 Forest Policy Analysis – Evaluation Studies of Public Acceptance 4658.1 Public Acceptance of RES Products in the Netherlands 465

8.1.1 Motivation 4658.1.2 Literature research and conceptual framework 4668.1.3 On-site and household surveys 471

viii Contents

8.1.4 Attitude dependencies 4838.1.5 Conclusions 486

8.2 Public Acceptance of RES Products in Germany 4908.2.1 Introduction 4908.2.2 Material and methods 4908.2.3 Forest visit behaviour in Germany 4918.2.4 Acceptance of forest offers the user is liable to pay for 5028.2.5 An RES example product – market chances of a ‘forest backpack‘ 5118.2.6 Summary 515


Index 521

Contents ix

The RES Team

Germany

Prof. Dr Udo Mantau, Project Co-ordinator. Institute of World Forestry, Dept. of ForestEconomics, University of HamburgBerthold Mertens, Master of Forestry, Research Assistant Borris Welcker, Master of Forestry, Research Assistant

Prof. Dr Ulrich Ramsauer, Associated Partner. Institute of Public Law, Dept. ofEnvironmental Law, University of HamburgBirgit Malzburg, Master of Biology, Research Assistant

Italy

Prof. Dr Maurizio Merlo, Project Co-operator. Department of Land and Agro-ForestrySystems, University of PaduaErica Milocco, Master of Forestry, Research Assistant Paula Virgilietti, Master of Forestry, Ph.D., Research Assistant Richard Panting, Bachelor of Forestry, Research Assistant

Austria

Prof. Dr Walter Sekot, Project Co-operator. Institute of Forest Sector Policy andEconomics, University for Agricultural Sciences ViennaPeter Plaimer, Master of Forestry, Research Assistant Andreas Ottitsch, Master of Forestry, Contributing Author

The Netherlands

Ir. Kees Van Vliet, Project Co-operator. ALTERRA, Green World ResearchEdwin Wiemann, Master of Forestry, Research Assistant Arno Segeren, Master of Forestry, Contributing Author

Preface

The project ‘Niche Markets for Recreationaland Environmental Services from MultipleForest Production Systems’ (RES project)started long before it became a EuropeanUnion (EU) project. Mantau, Merlo andSekot have been working separately on dif-ferent aspects to develop market solutionsand strategies for various forest outputs,which are considered to be not or hardlymarketable. Peter Glück knew about theirefforts and initiated a meeting. It was thestarting-point of the RES project.

The project was funded by the EuropeanCommission for 3 years, starting in March1996. It was carried out by Udo Mantau(coordinator), Universität Hamburg,Germany, Maurizio Merlo, Università degliStudi di Padova, Italy, Walter Sekot,Universität für Bodenkultur, Austria, andKees Van Vliet, ALTERRA (IBN – DLO), theNetherlands. The authors take sole respon-sibility for the content of the publication,which does not represent the views of theEuropean Commission or its services.However, we would like to express ourthanks to the EU for funding that made itpossible to intensify the original ideas andto carry them out on an international level.

Within the application process, it wasplanned to document five cases in eachcountry. After the project was started, the

group found many more cases than origi-nally expected. It was probably the mostimportant decision in the project to com-mit ourselves to document a minimum of20 cases in each country. We learned a lotfrom these innovative forest enterprisesand we are thankful for the time and thevaluable information they gave us.

The project was almost completed at theend of 1999 in several project reports. Itwas a big effort to select, summarize andharmonize each single report for this com-mon publication. It would not have beenpossible to achieve this high standardwithout the outstanding commitment ofBorris Welcker, who planned and carriedout all the major and minor tasks of thechallenges.

Since the basic idea of the RES project isto transform recreational and environmen-tal forest functions into forest products, wehad to transform the RES project into anRES product. We hope that thisproduct/publication will help many forestenterprises to extend their options of eco-nomic actions and thereby extend the eco-nomic basis for sustainable forestry.

Udo MantauHamburg,June 2000

1.1 Leading Ideas and BasicAssumptions of the RES Project

1.1.1 The economic situation of forestryIn many countries worldwide, the incomereceived from forestry is insufficient(Mantau, 1999). On the one hand, free uti-lization of facilities in the areas of environ-ment and recreation causes higher costs forthe forest enterprises, while, on the otherhand, timber prices are said to be too low.Furthermore, both issues are reinforced bythe need to distribute an increasing numberof cost-effective facilities and charges to becovered by proceeds from less and less mar-ketable cubic metres of timber. The situationis additionally aggravated by politicalrestrictions, as the economic freedom ofchoice of the forest enterprises is increas-ingly restricted.

The following, long-term, profoundtrends lead to the assumption that thisdevelopment will continue:

● Products with a low degree of process-ing will increasingly lose their marketshare in favour of less developed coun-tries (Ollmann, 2000).

● The trend towards economic cyclesincreases substitution processes and inparticular affects small-sized wood(Umweltministerium Baden-Württemberg,1995).

● Throughout Europe, timber growthincrements are higher than cutting rates(Spieker et al., 1996).

● Approximately from the beginning of

the 1970s onwards, there has been agrowing demand for recreational andenvironmental facilities (Ammer andPröbstl, 1991).

Most of the proposals for a solution tothe problem (e.g. job reduction, privatiza-tion) try to find a way out of the crisis bylowering costs and by increasing effective-ness. This can achieve the target, but theproblem is both an issue of costs and aproblem of offers. An economic entity doesnot provide products to meet a growingdemand of society, or which supplies thesefacilities as forest functions free of charge toa larger extent than stipulated legally orcovers demand only insofar as it occurs inthe framework of joint productionprocesses, not only abandons its economicfuture but will also be increasingly deniedthe right to act to the full range of its prod-uct potential, as others will make better useof production possibilities for covering thedemand (Mantau, 1995).

Even worse is a policy which transfersthe costs of infrastructural facilities of theforest on to timber prices. From the eco-nomic point of view, this not only pro-motes substitutive processes concerningraw timber, but also weakens competitive-ness in subsequent markets (semi-manufac-tured and ready-made timber products).This leads to lower growth in these mar-kets or even shrinkage, which means thatincreasing infrastructural costs will becharged to decreasing cubic metres ofwood (Mantau, 1995).

1The RES Project – Introduction and

Conclusion

© CAB International 2001. Recreational and Environmental Marketsfor Forest Enterprises (U. Mantau, M. Merlo, W. Sekot and B. Welcker) 1

At present, this situation develops spi-rally, causing the well-known problems inthe financial standing of the forest enter-prises and the forest economic situation ofmany countries worldwide. When an entirebranch is shrinking to a healthy level, therespective companies lose part of theirinfluence on the markets in which theywere rooted and have failed to enter newmarkets.

1.1.2 The RES projectThis is the starting-point of the EuropeanUnion (EU) project ‘Niche Markets forRecreational and Environmental Goods andServices from Multiple Forest ProductionSystems’ (RES project; FAIR1 CT95-0743).In their application, the project partners1

formulated the objective of the project, asfollows.

The main objective of the research pro-ject is to develop market solutions andstrategies for various forest outputs, whichare considered to be not or hardly mar-ketable. The phenomenon of ‘public goods’(recreational and environmental goods andservices of forest) is considered underdynamic conditions, in which marketabil-ity is rather a matter of product and frame-work development than of objectivecircumstances. The analytical framework isdivided into five tasks:

● Strategies for product design and strate-gies for market transformation.

● Marketing strategies and trainingcourses.

● Contracts, institutions and legal aspects(property rights).

● Management of multifunctional forests.● Policy analysis and implication.

The development of new products andnew markets requires quite differentmodes of action. Above all, practical solu-tions are demanded and, therefore, aninterdisciplinary investigation approach ismore or less compulsory. The developmentof a new product requires economicalknow-how, good planning abilities, the set-ting up of contract relationships within thegiven framework of action, etc. Although

specific theories and abilities can be devel-oped by partial approaches, practical suc-cess generally demands a heuristic modeof action.

In the present case, there is anotherproblem to be borne in mind: in practice,the problem of marketability – namely, thelack of marketing of the recreational andenvironmental services (RES) of the forest– can be analysed, whilst marketingsuccesses are observed quite rarely.Therefore, it is not surprising that the lit-erature mainly deals with the determina-tion of the quantitative extent of marketfailure. The RES project assumes that theRES of the forest could be marketed to afar greater extent if the instruments andthe framework of action for this problemwere developed more adequately. For theempirical work, this results in the neces-sity for a qualitative mode of action (case-studies).

Based on the theoretical knowledge ofspecific disciplines (economic theory, busi-ness administation, law, policy) and theavailable knowledge of specific successfulcase-studies, the instruments and theframework of action are progressivelydeveloped with a focus on the improve-ment of marketing possibilities. With agiven low state of knowledge, progress isonly possible with the invention of newhypotheses. Because of the state of the art,these hypotheses cannot (yet) be assuredquantitatively. Nevertheless, their signifi-cance is not delimited by a few individualcases, but rests both on a broad empiricalbasis (98 case-studies) and on the logicalcombination of adequate problem solutionsfrom literature deriving from other fields ofapplication.

Within the task of ‘strategies for productdesign and strategies for market transfor-mation’, the RES project connects withrecent discussion in the economic litera-ture. Present approaches are extended bythe dynamic aspects of the projectapproach.

As aspects of active development ofmarkets are seen as an important basis for abroader marketing of the recreational andenvironmental products of the forest, the

2 Chapter 1

task of ‘marketing strategies and documen-tation/training of instruments’ plays a sig-nificant role. Various instruments for theimprovement of the marketing success areshown. At the same time it becomes obvi-ous that success cannot be realized by justone solution but comes from the interac-tion of different economic and socialframework conditions.

The task of ‘contracts, institutions andlegal aspects (property rights)’ deals withthe social framework conditions. Anyexchange of goods postulates an action thatis combined with a contract. Standard con-tracts are developed, the relationshipsbetween the contract partners are pre-sented and analysed by the use of the the-ory of transaction costs. The influence ofproperty rights is analysed on the basis ofthe German judicial system. As far as theright to access the forest is concerned, thecomparison between the international judi-cial systems shows big differences.

The task of ‘management of multifunc-tional forests’ deals with the integration ofnew products into the existing companyenvironment. The integration of a projectwithin the business organization could beseen as a success factor (project manage-ment). Identification of the strengths andweaknesses of a forest company is a funda-mental step in product development(potential analysis). Efficiency is a keyissue of any RES activity, whereas account-ing provides a framework for evaluatingthe profitability of different activities (busi-ness organization and accounting).

Finally, the task of ‘policy analysis andimplication’ analyses the public accep-tance of recreational and environmentalforest products (RES) as well as the influ-ential factors with regard to acceptance.

The RES project starts from the princi-ple of an interdisciplinary investigationapproach. Therefore, action opportunitiesare developed for the marketing of recre-ational and environmental forest productson the basis of qualitative case studies,along with a broad integration of theoriesand instruments as described in the litera-ture. Furthermore, the investigation possi-bilities in an area of science characterized

by a low state of knowledge are hypotheti-cally extended.

The following outline reflects the lead-ing ideas and basic concepts of the project.It does not claim to solve all of the market-ing problems of public goods provided bythe forest, though it can facilitate mar-ketability by a far larger share of forestfacilities than is assumed at present. Thebasic components for the expansion ofmarketability are product economics, mar-ket development, value transfer and behav-ioural changes.

1.1.3 Product economics – the complexstructure of products

Goods display an inner structure of prod-uct elements and additional values. In theconcept of the structure of a product as ahomogeneous unit (black-box approach),many products do not seem to be mar-ketable. Via the composition of productelements on various utility levels, exclu-siveness and competition of goods and ser-vices can be considerably influenced.

● The feature of exclusiveness depends onthe level of benefit of a product. In gen-eral, exclusiveness increases with thelevel of benefit. Therefore, exclusivenesscannot be defined for a complex productbut only for its elements.

● Products are generated from a variety ofelements. The product character (exclu-siveness, competition) of these elementsis different. From the variety of elements,marketing possibilities can be developedwith the corresponding strategy.

● The value and marketability of a prod-uct to a large extent depend on dynamicchanges due to changes in activities andenvironment.

These hypotheses and assumptions canbe illustrated by the following example. Inorder to clearly illustrate the central idea, itmay be indicated that the economic good‘hotel’ on a higher level of benefit does notdiffer from the public good ‘forest road’ inits general economic value. For this aim,first the concept of benefit levels has to bedefined.

The RES Project 3

A product is not solely a product initself, but consists of several levels of bene-fit. The concept of benefit levels of a prod-uct is well known as a strategic concept inmarketing literature (Kotler and Bliemel,1992).

In general, the main benefit of a productis abstract in nature. When booking a hotelroom, one expects to find sleep and rest atnight. However, these features cannot bebought in this way. Only the generic prod-uct is marketable – in the case of the hotel,this will be represented by at least a bedand a receptionist’s desk (Fig. 1.1).

When turning to the forest road, itbecomes obvious that the main benefit forthe hiker is recreation. In general, in thecase of the forest, this can only be obtainedif the hiker can have access to forest roads.In the case of the forest road, this genericproduct is not saleable, as it has become apublic good by legal change because of theregulations of the German Federal ForestLaw. As further reflections show, however,this does not exclude marketability. Thetheory of forest functions and the passiveconcept of joint products theoretically endon the level of the generic product. As jointproducts or in the wake of other facilities,only ‘generics’ can be produced, i.e. basicfacilities. The attractiveness of a product,

however, is mostly developed on thehigher product levels.

Generally, consumers assume furtheradditional benefits to be self-evident,which means that they would not considerbuying the product or would only evaluateit as of minor quality. In the case of thehotel, this would be features such as clean-liness, towels, telephone and breakfast.This is the level of the expected product. Intourist areas, the recreationist will expectto find road signs and benches in the forestand views of beautiful landscapes. Alreadyon this level, there are marketable productpossibilities.

In industrialized economies, competi-tion between enterprises in general takesplace on the level of the augmented prod-uct (additional benefit). It has to be consid-ered that there are different productstrategies in different price segments, but itcan be assumed that the choice of a hotelgenerally takes place on the level of theaugmented product (swimming-pool, ser-vice, cuisine). Additional expense can leadto a considerable amelioration of marketchances. The same is true for a forest track.

Finally, every product has a potentialfor development, i.e. product levels whichexceed the present general product strate-gies. Some hotels already offer the organi-

4 Chapter 1

Recreation programmes and activities Recreation programme licences

Television, hotel bar, sauna, pool

Cleanliness, phone, breakfast

Bed, reception

Silence and sleep

Hotel

Maps, equipment, places

Signs, benches, views

Forest roads and paths

Recreation

Forest road

Potential product

Augmented product

Expected productGenericproduct

Basicuse

Fig. 1.1. Changing the character of rivalry and exclusion on different utility/product levels.

zation of adventure holidays or specialleisure activities programmes. A compara-ble facility could be offered by a forestowner by combining different forest facili-ties in a leisure package offer (ecological orforest-cultural guided tours, hiking maps,utilization of sites, picnics and many more)submitted to the recreationist as the finalconsumer of the product. Therefore, it can-not be entirely excluded that a forest roadand a hotel are identical on the level of thepotential product – apart from the wish ofthe owner to actually make the offer.

So far, the concept of benefit levels hasbeen described exclusively as a marketinginstrument. Aspects of marketability havenot been outlined up to the present.Mantau has described these aspects in dif-ferent contributions (Mantau, 1993, 1994,1999):

1. First, environmental and recreationalfacilities are basic benefits. As long as for-est functions are marketed, market failureis always the case, as no product, not evena hotel, is marketable on the level of itsbasic benefit. This logical error is mainlycaused by the theory of forest functions,which refers to forest facilities mainly interms of the basic benefits.2. Moreover, the product properties ofrivalry and exclusiveness react entirely dif-ferently on the different levels of benefit.Via a design on higher levels of benefit,public generic goods can be transformedinto marketable goods, i.e. rivalry andexclusiveness can be influenced.3. The examples mentioned above, more-over, indicate that real products often rep-resent a combination of goods (forest road,guided tour, accommodation). The struc-ture of these combinations of goods con-cerning rivalry and exclusiveness alsovaries. Neoclassical economic theory isstill based on homogeneous goods. Thisapproach to goods (black-box approach) isone of the main reasons why theoretical tri-als by the neoclassical school to solve theproblems, in large part, by measuring theassumed market value of fictitious goodssubsequently correct ‘market failure’Pareto-optimally.

4. Finally, dynamic aspects are importantfor the marketing of goods. Rivalry andexclusiveness of a product can be causedby environmental changes, as well as byactivities of the participants.

When considering these four statementson the properties of goods, one also reachesother conclusions concerning the market-ing of goods. All approaches that workwith alternative categories like privategoods and public goods lead to the conclu-sion that there is a clear borderlinebetween marketable and non-marketableoutputs. This is not the case. Rivalry andexclusion are not ‘yes or no’ properties.They vary in a continuous range from ‘as ifnot existing’ to ‘abundant’. Different groupsmay be rivals for an attractive forest roadclose to a city, while a badly managed log-ging path is not frequented at all. Thus,product properties are not only determinedby market conditions but can be changed,depending on owners’ actions anddemand-side changes.

Figure 1.2 illustrates the continuousstructure of goods. The vertical axis repre-sents rivalry, from low-level rivalry tohigh-level rivalry. The horizontal axis rep-resents exclusion. It is assumed that exclu-sion is a matter of costs. It is veryexpensive to produce exclusion close tothe zero point. In the other direction, itbecomes less cost-intensive.

Therefore, the term non-marketability ismisleading. There are goods with low mar-ketability properties (low rivalry and highcosts of exclusion) and goods with highmarketability properties (high rivalry andlow costs of exclusion). Every good to someextent has properties of marketability.However, these may not be enough for it tobe successfully marketed.

The space of marketability can be sepa-rated into four strategic fields. Forest out-puts in the first quarter with low rivalryand high costs have low marketabilitychances. If they are offered, legal regula-tions or state subsidies have to be applied.Forest outputs with high rivalry but alsohigh costs of exclusion will utilize the highvaluation by the users. It is very cost-

The RES Project 5

intensive to exclude somebody from look-ing at a very unique tree formation.However, marketing strategies that focus onvalue selling, such as sponsoring, can besuccessful in this segment. It can be prof-itable to look for a sponsor or to organize aclub. Products with high rivalry and lowcosts of exclusion are, in general, calledprivate goods. Normal economic strategiescan be applied. Products with low costs ofexclusion and low rivalry may also be mar-keted by adding value strategies or by insti-tutions promoting more effective marketorganization.

However, it should be omitted to fallinto new fixed categories. Products can beshifted from one segment to another,depending on changes in demand, prefer-ences, property rights, owners’ activity, etc.Thus Fig. 1.2 shows a general dynamic pat-tern of product properties.

On top of the dynamics of market condi-tions and private behaviour, there is prod-uct dynamics due to time. Figure 1.3illustrates some examples. Looking at a pri-vate good like pulpwood in 1993, theprices after the big thunderstorms of 1990(in Germany) were still so low that some

landowners decided to leave the small-sized timber on the ground instead ofpreparing it for pulpwood (A1). The priceof rivalry was lower than the cost of prepa-ration and transport. In 1995, this situationchanged rapidly (A2). Apart from such nor-mal business cycles, there are structuralchanges as well. Let us assume that, as aresult of technological inventions, energywill be overabundant in 2010. All small-size timber may have a low value (A3). Ifbig energy shortages occur, all small-sizetimber may become highly valuable andthe costs of exclusion will rise (A4).

An environmental good like a ‘biotope’(B1) may have some value to the public butthe cost of exclusion will be high.However, designing the ‘biotope’ as a prod-uct for a sponsor may make it more valu-able (B2). The right of using the value ofthe ‘biotope’ for business advertising activ-ities can easily be made exclusive.

In the year 1955, cycling was not seen asan important activity. Exclusion in eco-nomic terms was not practicable (C1).Mountain-biking has become a major recre-ation activity in our day. While foresters inGermany are discussing the problem of

6 Chapter 1

Incr

easi

ng v

alue

s by

riv

alry

Market strategyUsing valuesSponsoring

Economicgoods

II III

Market

Market strategyAdding valuesInstitutions

IV

Subsidizinglegislation

Publicgoods

Decreasing costs for exclusion activities

IMA

RKET

ABILI

TY

Fig. 1.2. Continuous structure of goods and strategic fields.

whether or not the mountain-biker or thehiker has the right of access, the Austrianstate forest has defended its right to excludemountain-bikers from using forest roads aslong as it does not receive any payments(C2). If forest landowners are successful inmaking forest roads attractive to mountain-bikers, this recreation may become evenmore valuable and the costs of exclusionwill decrease (C3) because added valueopens new ways to produce exclusion. Ifregional recreation becomes more attractivein the future, this will again increase mar-ketability (C4).

When the product properties rivalry andexclusion are changed by market condi-tions, by behaviour and over time, there aremany theoretical implications. Togetherwith the dynamics to which all productsare submitted with regard to their mar-ketability, this indicates that a clear border-line between private and public goodscannot be drawn. For this reason, oneshould only differentiate between mar-

ketable and potentially marketable goods,instead of non-marketable and marketablegoods. Otherwise, there is a danger of drop-ping future marketing possibilities or ofstating non-marketability.

1.1.4 Non-material values in the marketing process

A variety of forest facilities are classified asnon-material goods (scenery, environmen-tal values). The design of non-material val-ues can be used for enhancing market-ability. Traditional concepts in forest econ-omy formulate values in the form of forestfunctions, but when their importance isdismissed, they are withdrawn from theprocess of marketing. Values, however, canbe integrated in the marketing process indifferent ways:

● Transformation of an already existingtangible product of one’s own companyby trade marks and certificates.

● Transformation of an already existing

The RES Project 7

Incr

easi

ng r

ival

ry

B1

Decreasing costs of excludability

C2

C1

C3

B2

C4A4

A3

A2

A1

TIME

Consequences for marketability

Fig. 1.3. Dynamic changes in the character of marketable goods and potentially marketable goods. Seetext for explanation of symbols.

tangible good of another company bysponsoring and licensing of trade marks.

● Establishing a product mix of non-mate-rial values and tangible product charac-teristics to form products and services.

● Persuading customers to pay voluntarilyvia prices and contributions.

There are many product structures thatprovide possibilities for overcoming non-marketability. A forest road is an exampleof a product that is integrated in differentutility networks, such as the use of a forestroad for logging, recreation or environmen-tal education. Rivalry and exclusion aredifferent in each of these utility networks.

More important for environmental goodsis the difference in value levels. Values arebecoming a more and more important factorin competition. There are already huge mar-kets for values. Companies and their prod-ucts are more and more valued by theircontribution to society and ecology. Quiteoften they are not able to serve this demandwith their simple products or they want tocompete with more engagement. Forestlandowners have a great potential to offersuch value products. Figure 1.4 shows thedifference in exclusion. A good like a‘biotope’ may be public on the material

level (nature). However, the right to adver-tise with the environmental value of thisgood can be sold exclusively to one spon-sor. Sponsoring is just one way of sellingvalues. Organizations like the WorldwideFund for Nature (WWF) and Greenpeaceare very successful in the marketing of val-ues. But this leads us to another disadvan-tage of environmental forest products. It isnot necessary to be the owner of nature tobecome a successful company in nature-value selling.

Values are invisible and non-touchableentities. It is important to ‘materialize’ val-ues. The advertisement of a sponsor of a‘biotope’ shows the ‘biotope’ in the back-ground and the logo of, for example, WWFat the bottom. The price is paid for the logoand not for the ‘biotope’ The logo repre-sents competence in environment.Whatever their usefulness, tasks whichcannot be visually communicated byadvertising will not be remunerated. Theyhave to be visible for those who are willingto sponsor or choose the product that rep-resents the nature value or who agree topay for outputs that do not have to be paidfor. Most forest landowners are ‘no-names’.For the marketing of values, it can be putas simply as this: no name, no money!

8 Chapter 1

Exclusive

Public good

VALUES

MATERIALSCollective

Economic good

Exclusive

Exclusive

Fig. 1.4. Changing character of exclusion on different value levels.

1.1.5 Active market development – therole of law, contracts and organizations

Markets are complex entities of institu-tional and organizational structures. Theformation of markets has to be shaped, i.e.can be influenced.

● Markets are not concentrated in onesingle spot but often result from a suitablenetwork of intermediaries and channelsof distribution (seminars for executives).

● Markets often start to function onlywhen institutions of coordination andconfidence in interactions are estab-lished (a network of bridle-paths).

● Markets consist of exchange transactions,and exchange transactions in turn requirecontracts and conditions of sale. Withoutbusiness rules concerning financing andtrade, the timber trade does not function.Each market transaction is related tooverhead charges (transaction costs),depending on the company and the prod-uct environment, because of initiation,execution and control of market transac-tions. By lowering these costs (e.g. bysample contracts), marketability rises.

● Markets require a clear, trustworthylegal framework. Forest regulationscame into existence under differentpolitical conditions and require modifi-cation. Even more important for foresteconomy is the circumstance that self-imposed limitations are often not basedon a legal background.

The model of a perfect market has leftconsiderable damage to the market’s eco-nomic philosophy. The neoclassical con-cept of a perfect market has inflated theproblem of public goods by excluding thepossibility of exerting active influence onmarkets and their dynamics.

A product can pass through differentkinds of distribution channels. In one case,it may be marketable, while in another itmay not. In a distribution channel withlow rivalry or a high degree of exclusion orhigh transformation costs, the product willfail. The best product is not marketablewhen it is not marketed in the right way.Thus, distribution channels have to bedesigned, as well as products (Fig. 1.5).

Every business is based on contracts.

The RES Project 9

FLO–Expl.–SocietyAssoc. Service

Company

Companies andrecreational

organizations

Private

Community

Private end-user

Ecologically orientatedconsumer, voters

and club members

Companies,organizations,

authorities in theecological market

Forest Landowner(FLO)

Fig. 1.5. The role of distribution channels for marketability.

Forest landowners have an excellent con-tracting system for timber selling butalmost no commercial practice for therecreational and environmental outputs offorests. Contractual tools and trade usageare an important requirement for mar-ketability.

Finally, there are many coordinationproblems for forest landowners wishing tomarket RES. Many of these services canonly be offered on a large scale. Small-sizeforestry has to coordinate its supply. Onthe demand side, many consumers must becoordinated entities that can be dealt with.Totally new institutions may becomeimportant to make RES marketable.

In economic theory and in economicpolicy, the approaches of the newer trans-formational and institutional theory areincreasingly discussed (Williamson, 1990),as they have already been formulated inthe theories of the liberal school, partlyusing another terminology, for decades(especially in von Hayek, 1969). In thistheory, it is accepted that the process ofexchanging goods does not proceed auto-matically, but that the process itself leadsto costs and has to be organized. However,it would exceed the framework of this bookto reflect on this discussion.

Its significance can be illustrated by thefollowing example. In most forest eco-nomic and forest products curricula, thereis a lecture series on the timber trade.Within the framework of this weekly 2-hour lecture over one semester, a variety ofsubjects is dealt with which a forester orforest economist has to master, from issuessuch as classification and grading stan-dards, sales procedures, national and inter-national trade customs and measuringsystems to legal trade regulations. Thesetrade customs have been developed overdecades and provide an organizational andinstitutional ‘asset’ of the timber economyfor dealing in the timber trade. The lecturewhich, in more theoretical terms, could becalled ‘forest economic transaction andinstitution theory’, is utilized to introduceonly the substantial issues in timber trade.It has to be taken into account that theseinstruments are almost entirely lacking for

the infrastructural facilities of the forest.But without these instruments timberwould be difficult to market, which canstill be seen in timber markets in develop-ing countries. There is a great unfulfilledrequirement to adapt infrastructural facili-ties (environment and recreation) to mar-ketability.

Exchange transactions in marketsrequire a legal framework at several levels(Fig. 1.6). The political state (distributionof the functions of power, constitutionality)and the economic conditions (property,contractual liberty) establish the frame-work in which legal regulations are set up(law of contracts, Federal Forest Law). Thelegal regulations define the participants’capacity to act. Frequently, the exchangetransactions are so specialized (timber mar-ket) that the participants in the marketexpand the standard regulations (trade cus-toms, norms, sales conditions and terms ofpayment). In particular, such trade customsand regulations are formulated by theexchange parties if by doing so the costs ofthe exchange, the transaction costs of open-ing, negotiation and control, can be low-ered. Thus, there exist a multitude ofregulations concerning settlement of thetransactions, especially in the internationaltimber trade. But, without their existence,complex exchange transactions would nottake place, as risks and expenses would betoo high.

At the next level of market organization,contractual knowledge is required. Theoffers for environmental and recreationalfacilities frequently have to be introducedin markets which are new to the forestcompanies. The development of contractpatterns and the legal design of conditionsof utilization, terms of notice, relations toforest law and traffic regulations, as well asissues of liability and insurance, to nameonly a few, are important preconditions forthe marketability of the recreational andenvironmental facilities of the forest.

Finally, the operational abilities of themarket participant are necessary to makegoods marketable. The market participantcan launch the offer on the market as asingle entity, or may be required to do so in

10 Chapter 1

the framework of a larger organization. Theforest owner either possesses the knowl-edge and contacts required to execute theexchange in direct contact with the cus-tomer or he/she appoints the necessaryintermediaries.

Each element of this complex marketframework could be the reason for the non-marketability for a product. The neoclassi-cal concept of ‘market’ is abstract andtheoretical. A market comes into existenceonly by the development of the relevantsystem of rules and the participants’ com-petence to act. Thus, frequently one mayjump to the conclusion of ‘market failure’although the reason is actually human fail-ure, as the operational framework (politi-cians) or the participants (economicoperators) have failed.

1.1.6 Behaviour – ability and willingnessto act

As mentioned above, the human factor isan important element in the marketability

of goods and services. A lack of marketingof forest products is frequently due to thehuman factor. From the broad spectrum ofthe human aspects of marketability, themost important are the following features:

● New markets and new business fieldshave to be operated by new, adjustedcompetences and instruments. In gen-eral, companies are used to this situa-tion. In the case of forest managementand the marketing of recreational andenvironmental facilities, however, thisissue is an unfavourable phenomenon.

● Even if the capacity to act is provided,the willingness to act (motivation) hasto be present. This involves over-coming barriers due to personal (profes-sional training/tradition) and organiza-tional (public forests) reasons. Thissituation is commonly known to compa-nies. However, it has grave effects onforest management and the marketing ofRES products, because forest landownersoften have other than economic targets.

The RES Project 11

Capacity to actLegal framework

Single enterprise

Contract knowledge

Organization

Intermediaries

Markettransaction

Political system

Trade regulationsTrade usage

Operational ability

Economic system

Direct marketing

Fig. 1.6. Elements of marketing transaction.

● The basic element of every markettransaction is not complete information,but limited information, underlyingpreferences and emotions. Therefore,subjectivity overrules objectivity. In acompetitive situation, the history of theproduct often has a greater influence onmarket success than the product itself.In the ideal case, the two aspectsmatch.

The RES project has no influence onparticipants’ willingness or disposal to act.It rather accepts the basis of private auton-omy and with this the right to decideagainst marketing. However, if there is awillingness and the economic necessity ofopening new markets, the RES project cancontribute to marketing by expanding theinstrumental abilities of the participants.This was a substantial reason for docu-menting and processing case-studies. Case-studies contribute to the understanding ofthe instruments offered by their relation topractice and indicate the relevance of mod-els and instruments.

The integration of environmental andrecreational facilities in the operationalprocess of an enterprise is assigned greatimportance in the RES project. In the sec-tion on ‘Management of multifunctionalforests’, aspects of potential analysis (PA)as a multifunctional management tool aswell as aspects of project management(PM) for RES projects are outlined. Multi-functional management, planning andaccounting are integrated in the economicbackground of the forest companies. Mar-keting instruments concerning the recre-ational and environmental facilities of theforest are developed according to the indi-vidual case.

The main hypothesis of the RES projectcan thereby be formulated, as follows:

With the concepts described aboveconcerning product economics, non-material values, market developmentand the human factor, the degree ofmarketability for recreational andenvironmental goods and services frommultifunctional forests can be extendedwidely.

1.2 Summary and Recommendations

1.2.1 Economic strategies fortransformation and product developmentThe main objective of the RES project is todevelop instruments and solutions for abetter marketability of recreational andenvironmental goods and services from for-est outputs. Thus the methodological back-ground is strongly related to institutionaleconomics, business planning and market-ing. However, the economic literature onthe problem of public goods is broad andhas a long tradition. In the contribution ofMerlo et al. (1999), the linkage between theeconomic literature on public goods andthe RES project is shown. The first part ofthis section is devoted to the characteriza-tion of the economic nature of public goodswith reference to the environmental andrecreational goods and services (ERGS)provided by forestry and the related envi-ronment. Theoretical backgrounds arebriefly outlined according to public-financeapproaches, such as taxation and pricingand the search for optimum provision ofpublic goods. Excludability and rivalry cri-teria are employed for defining public andprivate goods.

ERGS are defined as public goods andservices provided by forestry and therelated environment before any transforma-tion/development takes place. By a processof transformation (e.g. legal status, propertyrights, planning permissions, contractualagreements, etc.) and/or by product devel-opment (provision of complementary/addi-tional goods and services, marketingpromotion, changes of existing contracts,etc.), RES products (goods and servicesprovided by forestry) are created.

The different character of the RES case-studies is documented by country.Products are offered both by private and bypublic estate proprietors. Environmentalproducts are mainly offered on a big scale,whilst recreational products are quite oftenalso found in small areas. Within the last 4years, the introduction of RES products hasincreased in all four countries. However, agreat proportion of products with a longtradition (before 1980) was identified, par-

12 Chapter 1

ticularly in the field of recreation. Variousspecific conclusions were drawn from thedifferences of the participating countries.General patterns were identified that couldgive more empirical evidence for themostly theoretical discussion of publicgoods.

The experience is such that both theapproaches and means (institutional andmarket) are often used or needed in orderto achieve remuneration of ERGS throughRES products. The first institutionalapproach forms the base for transforma-tion: e.g. new regulations are introducedfor using the ERGS. However, the status ofthe ERGS is not dramatically changed. Thecore of the development process is givenby the application of market-based tech-niques, taking advantage of the existingcomplementarity between RES productsand ERGS. In fact, in most cases the pres-ence of additional goods and services isnecessary to create a market for the ERGSthrough the RES products.

In other words, what can be firmlystated is that the remuneration of ERGS isoften quite indirect, through the develop-ment of complementary/additional RESproducts supported by some institutionalchanges of ERGS. The possible level ofcomplementarity between ERGS and RESproducts is variable. There is a high com-plementarity between the pure environ-ment and the footpaths to gain access tothe environment, while it is lower withrestaurants and shops. At the limit, whencomplementarity is very high, the ERGSand the RES products overlap almost com-pletely. However, in almost all cases, theRES products are paid for in the market,and not the ERGS.

The case-studies show that each trans-formation/development path is different.However, a simplification model appliedby Merlo et al. (1999, unpublished results)allows the following conclusion.

In general terms, the transformation/development paths can be divided intosequential stages, all represented in theinvestigated cases. The transformationstarts with the creation of a certain exclud-ability that causes some changes in rivalry,

due to congestion effects (for shared goods)and to the different intrinsic characteristicsof RES products (for both shared goods andprivate goods). In the following stage, theRES product is further developed (throughmarketing techniques) in order to respondbetter to customers’ demand. If congestionis creating problems (as sometimes is thecase for recreational products), measures toreduce it are implemented. In some cases,other technical or structural modificationsto improve service quality are undertaken,without consequences for excludabilityand rivalry.

In particular, the following selectedissues were found to be important toachieve market remuneration of ERGSthrough the transformation/developmentinto RES products:

● The type of product is particularlyimportant. In general, those productslinked to recreation can more easily findmarket remuneration, while the envi-ronment itself is not so easily trans-formed into a market good.

● The transformation/development of RESproducts, when the environment com-ponent is more important, is usuallyconditional upon large estates. It istherefore not surprising that environ-mentally based RES products mainlyappear on public land or in variousforms of common properties.

● A remarkable number of RES productsbased on recreation (camp-sites, sportsfacilities, etc.) do not need a large landbase, though they exploit the surround-ing forest environment.

● Increasing management costs and othereconomic pressures often encourage theestablishment of RES products.Opportunity exploitation is, however,the driving force supporting transforma-tion/development.

● The main strategy behind developmentis the ‘complementarity’ between ERGSand the RES products, and the provisionof structures necessary for recreationand access to the environment.

● Failures are not uncommon and cansometimes be due to property rights

The RES Project 13

violation as well as lack of demandand/or poor management.

● Concerning the relationships betweentraditional forest products, such as tim-ber and RES products, the case-studiesessentially referred to forestry, wherecompetition was not so acute as it couldhave been in the case of agriculture.

The contribution of Merlo et al. (1999,unpublished results) starts with anoverview of the main literature with regardto the economics of public goods. A theo-retical framework has been developed tosystematize the transformation/develop-ment activities of the case studies. Themain transformation/development pathswere documented and divided into sequen-tial stages on the basis of the theory of pub-lic goods, on some basic assumptions ofthe RES project and on an empirical basis.Thereby it was possible to add some moredifferentiated and empirical-based views tothe theory of public goods. Furthermore,the importance of dynamic changes wasshown for any kind of transformation.

Mertens and Welcker (1999) develop aspecial typology for marketing and contract-ing analysis. They use the degree of non-materiality of a product and the customerintegration in the product developingprocess to group the case-studies. The inves-tigation showed the following results con-cerning the degree of customer influence onthe development of RES products: in 53cases, it was a mainly autonomic productand, in 36 cases, the product developed inan integrative way, which means that cus-tomer participation was necessary todevelop the product. Concerning the degreeof non-materiality, the systematizationshowed the following results: material prod-ucts (four RES cases); material products withadditional non-material components (13 REScases); non-material products with addi-tional material components (21 RES cases);non-material products (59 RES cases). Thecombination of both criteria (customer par-ticipation and non-materiality) was helpfulfor deriving general statements concerningpossible marketing instruments and organi-zation and contract structures.

1.2.2 Marketing tools for the developmentof RES products

Marketing strategy and potential forRES products

The development of marketing tools forrecreational and environmental goods andservices and its competent application ismost likely the key for marketability. Inthe contribution of Welcker (1999), mar-keting tools as described in differentmarketing textbooks were related to thecomprehensive empirical material of case-study interviews. By explorative research,innovations and general marketing theory,a specific marketing theory was developedfor recreational and environmental goodsand services for multifunctional forestmanagement.

Since every offering company, everyproduct and every product environmentare different, this marketing process needsto be strictly orientated towards individualcases. Thus, it is not possible to draw com-mon conclusions about which instrumentshave an impact on which factors andwhich combinations always lead to thebest results. External influences, productdesign and the factor ‘management andorganization’ have a determining influenceon the success of an RES product. Activemarketing was said to be decisive for thesuccess of the product in only a few cases.This initially points to the special signifi-cance of product policy in the early stagesof the marketing process. It is recom-mended to take the possibilities of market-ing – particularly beyond the stage ofproduct development – into more profoundconsideration.

RES products are often simple in theirstructure and, with regard to their demandfor special staff, harmonized with the givencompany conditions. Thus the planningprocess depends to a great extent on per-sonal factors and special circumstances.The availability of physical production fac-tors as well as staff and know-howincreases the prospects of success of a newproduct. Many RES products are in theearly stage of their life cycle. For RES prod-ucts in the introduction stage, there is the

14 Chapter 1

danger that they are not carried further dueto insufficient financial benefits. It is rec-ommended not to assess the success of RESproducts in comparison with traditionalproducts (wood), as most of the productsdo not become profitable unless they are intheir mature phase.

RES products are, to a large extent,traded on new, unsaturated markets.Available competitive products are mostlysuccessful and have often been establishedin the market for some years. A significantpart of RES products competes with alter-natives that are free of charge. SuccessfulRES products remain competitive throughadditional benefits. They are not stronglyaffected by competition and the partly pos-itive impact is not regarded as highly as thenegative impact. It is strongly recom-mended that public forest proprietors takeinto consideration the consequences oftheir action with regard to the offer of pri-vate forest owners.

RES products are often developed andoffered on the basis of information on cus-tomer wishes which is not obtained sys-tematically but presumably partly obtainedby chance. Customer orientation withregard to RES products is usually reachedby measures of product policy. The designof the facilities offered, additional offers,measures of infrastructural design in theforest, service, flexibility and care in forestmanagement optimize the customer orien-tation regarding recreational offers.Concerning market segmentation, nichemarkets for RES products must not be lim-ited too closely. Segmentation should beseen by forest companies as a chance todifferentiate themselves from competitorsby their special competence concerningtheir forest, enterprise and products. For aclear positioning of their company, it isimportant to establish and transmit a suc-cinct corporate identity (CI).

As a basis of strategic thinking, a forestcompany should have a clear view on the‘portfolio’ of its present and potential busi-ness units. The potential utilization ofattractive business fields through RESproducts means a lateral diversification formany forest companies. Therefore, the

risks and difficulties of the necessary diver-sification need to be recognized and man-aged before the necessary investments areactually carried out. The differencebetween this area and the trade of raw tim-ber as the usual business of a forest com-pany has to be realized.

Marketing tools for RES productsMany examples of using marketing toolssuccessfully are introduced, along withapplied examples, by Welcker (1999,unpublished EU Report). Starting with theimportant aspects for a marketing mix forrecreational and environmental goods andservices, it can be shown that all theseaspects are already used in the case-stud-ies, even if the intensity varies widely. Theaim of product policy concerning RESproducts is, first of all, to turn forest facili-ties into marketable products.

Product packages, additional servicesand the creation of a shopping event areimportant additional benefits for tangibleRES products. Innovative benefits can beadded to RES recreational products on sev-eral levels. The special value of the land-scape and an adequate forest managementare the basis for the first, fundamental level.On this level, especially, simple recre-ational products are added value – forexample, by building facilities for sportsand resting in the forest. On the secondlevel, there are additional organizationaloffers, with guided tours, events, additionalforest facilities and all-inclusive pro-grammes lasting for several days. The suc-cess of many complex offers for recreationand accommodation is based on such inno-vations. RES offers on a third level can beturned into ‘luxury events’ with an individ-ual atmosphere. The creation of atmospherehas become the most important additionalvalue concerning accommodation offers.

Advantages should result from a hori-zontal and a vertical distribution structurefor all concerned parties. In particular,intermediaries promote RES productsbecause of special advantages from thisbusiness. The forest company should takethese economic or political advantages intoaccount and use them actively for its own

The RES Project 15

purposes. Thereby, the distribution systembecomes an important success factor.Recreational forest products, for example,have positive effects for the regionaltourism, on the one hand, and profit fromthe know-how of horizontal distributionpartners from the tourism business.Environment conservation contracts aresometimes arranged by non-commercialorganizations. Informal contacts are alsoimportant for the success of RES offers.

Prices can be changed flexibly withoutgenerating direct costs. The prices of initialoffers should be determined under consid-eration of the company’s own productioncosts, the willingness to pay and the pricesof substitutes. Environmental-economicvaluation techniques are only partly suit-able for finding a price for RES products.Prices need to be orientated towards thechosen marketing strategy. RES productsare mainly offered at market-orientatedprices. However, there are, for a certainpart of the products, purely cost-orientatedprices or prices stipulated by the cus-tomers. Time-related price distinctions arein most cases supposed to compensate forfluctuations in demand and are thereforean important marketing tool, especially forservices. Seasonal prices are an importantfactor of success for many RES products. Itis recommended not to regard the price toomuch as a reaction of the market. Withinthe broad field of services – in comparisonwith mass products such as industrialwood and normal logs – creative possibili-ties with regard to the degree and the modeof the price increase are much bigger.

The relationship between marketingstrategy and pricing can be shown by theextremely high variability of types of pay-ment for RES products. Characteristics ofevery product influence the optimum typeof payment. For material RES products, thecalculation is mostly made according to thedegree of consumption. It is possible,though, to agree upon basic amounts withinstitutions. Whereas for directly performedRES, it is particularly the performanceduration that serves as the basis of theprice, there are entry tickets and licencesfor utilization, which are especially suitable

for permanent offers. Single negotiated RESrecreational offers are often remuneratedvia bundle prices. In the case of offers foran overnight stay, tangible aspects, such aswater consumption, are often calculatedseparately. Concerning integrative contractproducts, it is preferred to come to volun-tary agreements as to type of payment,though donations are possible in this case.For those RES products which are onlymarketable in a limited way due to consid-erable legal restrictions, earnings can never-theless be obtained on a voluntary basis.

Communication is inevitable for thelong-term existence of forest companies. Atpresent, advertising for RES products isdone mainly through advertisements andleaflets. The expenses of advertising viaelectronic mass media are covered only ina few cases. Advertising is mainly suitedfor those RES products supplied as con-sumer goods. Complex recreational offersin the forest often utilize advertising strate-gies, because of their economic potential.In general, advertising is not sensible forRES products offered to institutions in theform of a contract. With the sponsoring ofproducts, advertising for a productswitches to advertising with the product.

Public relations (PR) are a means ofcommunication preferably utilized by for-est companies. However, they are rarelyused for targeted sales support of certainRES offers. Public relations by third partiescreate the impression of high credibility.PR are extremely important for RES prod-ucts, that were formerly obtained free ofcharge. The utilization of the internet is aninnovative form of public relations, as wellas of advertising, for certain RES products.Personal communication is mainly charac-terized by the direct exchange of impactand reaction between offerer and customer.Such a contact exists with all RES productsthat have been worked out together withthe customer. Especially for RES-contractproducts, this is an essential basis.Personal contacts with selected customersare often an important factor of success forcomplex recreational products as well.

Free publicity and outsourcing mean theexecution of a positive communication for

16 Chapter 1

a product or an enterprise by a third party.The special advantage of free publicity liesin the high credibility and the fact that it isfree of charge for the company. Above all,RES recreational products often benefitfrom free publicity. Regional tourism insti-tutions have a special significance withregard to this.

Brands as a recognizable identificationmark of quality are particularly importantfor non-material products. Sponsored prod-ucts require a plain name in order to beused by the sponsor. The generally highsignificance of brand creation as a successfactor in contrast to the relatively few indi-cations of their use in RES case-studies.This could indicate that the significance ofbrands has not yet been recognized bymany forest companies.

1.2.3 Contracts and organizations as abasis for market development

One of the basic assumptions of the RESproject is that products are not homoge-neous entities and static phenomena. Theirproperties of exchange can be changed byproduct structures and the contractual andorganizational framework. The main objec-tive of the work of Mertens (1999) was toanalyse product structures and theirimpact on contracting and business organi-zation in niche markets for RES of forestenterprises.

The explanatory value of the mainapproaches of institutional economics,such as property rights theory, principalagent theory and transaction cost theory,for analysing contracts is discussed andtransaction cost theory is chosen as a theo-retical basis. The marketability of a productdepends on the cost of realizing the transaction, such as costs for initiation, agreement negotiation, management oforganization and controlling. This part ofthe study analyses the transaction costs inrecreational and environmental goods andservices from multifunctional forestry anddevelops a contract solution. Thereby acontribution to decreasing transaction costsis made. Other important aspects are theorganization of the business (e.g. by a mid-

dleman) and the risks and liabilities.Several product groups are analysed con-cerning their cost aspects. Many examplesare given for the explanatory relevance oftransaction cost theory.

Offering tangible products, such asdrinking-water or electricity, forest enter-prises have completed individual writtencontracts with organizations because of thelong-term perspective of the exchangeprocess and because of the specific invest-ments of the contract partners. When offer-ing tangible products with additionalnon-material value to individual userssuch as Christmas trees, mushrooms, gamemeat, certified wood, etc., no individualcontracts have been completed, as the tan-gible product part is a traditional productand therefore standardized contracts writ-ten down in the Civil Code provide a suit-able framework for these exchangeprocesses.

Forest enterprises do not completedetailed written contracts when offeringaccommodation possibilities, because gen-eral regulations in the Civil Code andjuridical decisions are detailed enough tosecure the exchange process. Furthermore,offering accommodation possibilities is avery common business. Standardizedapplication forms are used to diminish thecosts of dealing with numerous individualusers. The special non-material value (for-est surroundings) which is offered by forestcompanies is not secured by contract withthe tourist but by market competition.

For seminars, the combination of differ-ent rights, tangible products and servicesin a product package makes the recre-ational and environmental quality of a cer-tain forest area marketable. Forestcompanies cooperate with business consul-tants, as in general they do not have con-tacts with companies that want to traintheir personnel or have the relevant knowl-edge. Personal contacts with business con-sultants help to establish their cooperationand therefore those forest enterprises thatdo not have these contacts face a marketbarrier. These contracts are often framecontracts, which define the obligationsvery generally, because the product itself

The RES Project 17

combines numerous non-material partswith credence qualities that cannot bedefined in detail. Forest enterprises cooper-ate with business consultants or otherofferers of seminars, because they do notwant to face the liability problems of a touroperator.

Environmental services of forest outputscan only be sold as sponsoring products ifcombined in a product package containingdifferent additional parts, such as commu-nication, information, choice of a suitableproduct, etc. By differentiating single, well-described environmental products insteadof offering the environmental quality of theforest in total, the forest enterprise has thepossibility of offering several sponsoringproducts. Sponsoring contracts are long-term business relationships with highinvestments by both contract partners.Thus, the different obligations have to beregulated in a very detailed manner or, ifthis is not possible, the trust potential ofthe contract partners has to be very largebecause of personal contacts.

The possibility of offering use contractsconcerning the recreational use of forestsdepends on the legal situation in eachcountry. If the law requires permission ofthe forest landowner for certain recreation-ists in general (as for mountain-biking inAustria), it is easier to offer such use con-tracts. But an offer of additional value (e.g.the right to mark forest roads to design anetwork, the offer of insurance or the offerof road maintenance) is almost as impor-tant for marketability as the legal situation.Regarding use contracts concerning forestroads, it is very important to define thesubject of the contract in detail (with a mapas part of the contract) and to regulate useconditions, such as use period, right to putup signs, obligation to remove rubbish, etc.The forest landowner should try to transferthe responsibility for traffic safety to thecontract partner as far as possible.

The various possible RES products aresold with different contractual and organi-zational structures. Numerous RES prod-ucts dispose of a high degree ofnon-materiality, adding value and cus-tomer integration, and therefore differ

greatly from the product timber. Due tothese differences, forest enterprises have toface relevant initiation costs before con-tract completion. Furthermore, Mertens(1999, unpublished EU report) documentsthat certain characteristics of exchangeprocesses have an impact on contractdesign and can be very well described andstructured in terms of transaction coststheory. It was possible to develop somegeneral suggestions for forest landownerorganizations to support the offer of RESproducts.

Several regulations can be relevantaccording to the individual situation.Nature conservation law and forest law, asimportant laws regarding the use of forests,have been relevant in almost all cases.Transaction costs for information aboutlegal circumstances seem to grow the morecomplex and distinct from normal forestrythe offered RES products are and the morethe forest enterprise is involved in devel-oping the product. The observation thatmore than half of the contributors usedexternal know-how when developing theirproducts shows that offering RES productsis no normal forestry business and thatthese information costs are of considerableimportance when starting business in theseniche markets.

Exchange partners are not arbitrarilyexchangeable. They depend to a greater orlesser degree on each other and thereforeare interested in instruments that securecontract fulfilment. In the case of theseexchange processes, individual contractswith individual security instruments arenegotiated. In the case of non-materialproduct components, the customer doesnot have complete knowledge regardingthe relevant product qualities. Whether thecustomer experiences the promised atmos-phere of the Christmas fair or not is subjec-tive and cannot be verified byjurisprudence. Rules that regulate the con-sequences in case the promises are not ful-filled cannot be designed in this case.Contracts regarding the exchange of prod-ucts with non-material product compo-nents, therefore, have certain tendencies tobe incomplete.

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The missing physical comparability ofRES products with a large amount of non-material parts results in low market trans-parency (e.g. in the case of the offer ofseminars). A high degree of non-materialityof RES products, combined with high inter-nal complexity, means a growing importanceof the price as indicator for product quality,as well as references and images. As theofferer cannot present visible products, com-munication policy becomes much moreimportant (quality of advertising, publicrelations). It takes considerable time to buildup a certain image and customer confidence.

In the case of products with a highdegree of non-materiality, it becomes diffi-cult and produces considerable transactioncosts to define all obligations of the offererin a detailed contract. The uncertainty ofboth contract parties grows the more non-material parts a product implies, and there-fore incomplete contracts are used. In thiscase, security instruments apart fromjuridical regulations become more andmore important (e.g. image, confidence,personal contacts).

Customer integration has consequencesfor contract initiation. When a forestlandowner develops a certain producttogether with and according to the specialwishes of a customer (e.g. sponsoring prod-ucts), he/she sometimes has difficulties instating his/her contribution to the productdevelopment and in demanding a reason-able price. The more specific the productsare, the lower the market transparencybecomes. This might result in disadvan-tages when the forest landowner has tonegotiate with a very powerful potentialcustomer (e.g. in the case of nature conser-vation contracts with a public body or ofcontract negotiations with a big-drinkingwater company).

When offering products that can becharacterized by the term product busi-ness, variable transaction costs to negotiatecontract conditions do not arise, becauselegal regulations serve as contract condi-tions. In this case, transaction costs for thedevelopment of the respective regulationshave been produced by the legislator andmust be regarded as integral transaction

costs for the relevant business. This exam-ple demonstrates that state authorities caninfluence marketability by providing aneffective transaction framework.

1.2.4 Management of multifunctionalforests

Project management (PM) for RES projectsOnce the decision for the introduction of anew RES product is taken, effective andefficient coordination of all persons/insti-tutions involved in the process of projectrealization is important to secure the suc-cess of the project. Plaimer (1999a) appliedthe methods of PM for RES products. Sincehe was the project manager himself for theHebalm Beachball Camp of a forest land-owner in Austria, he combined the theoret-ical and practical aspects of PM in a verytarget-orientated way. The integration of aproject in the business organization couldbe seen as a success factor. In the course ofthe RES research, 98 cases were docu-mented which, to a greater or lesser degree,are typical and individual projects.However, in about 60% of all cases, theprocess of establishing the RES activitieswas integrated in the daily business andfewer than 40% of all interviewed forestlandowners defined a separate project.

What is daily work and when does aproject start? For the judgement of a pro-ject, specific criteria can be defined. Suchcriteria are, for example, contents, dura-tion, unusual features, complexity, mean-ing, risk and the costs of the project. Theimportance of PM is underlined by theresearched case-studies. About a quarter ofall respondents declared that organiza-tional aspects would be possible improve-ments for establishing a new RES product.

For example, along with the develop-ment of new products or the introductionof new services, a clear allocation of tasks,the delegation of responsibility (motiva-tion), clear aims and priorities, faster pro-ject realization, efficient use of resources,an early recognition of conflict potentialsand other aspects have to be dealt with.Plaimer (1999a) combines the methods of

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PM with the experience of the 98 casestudies. Thereby, the usefulness of PM forlarge and small projects becomes evidentand PM is easy to apply for RES products.

The advantages and disadvantages ofdifferent organizational forms are dis-cussed and selection criteria for suitableorganizational forms are presented. Asshown in the project tasks, ‘marketing’ and‘contracting’ intermediate experts or exter-nal project team members are quite fre-quently integrated in RES projects. Possibleorganizational forms for the integration ofexternal persons and institutions aredemonstrated.

The PM manual represents the simplestform for the arrangement of the projectcontents. Without large expenditure, pro-jects can be planned in an efficient wayand clearly laid out and are easily feasible.The tasks of all persons involved in theproject can be coordinated and controlled.An example of such a project handbooksummarizes all aspects of PM in a verycomprehensive, practical way and makes iteasy to set up one’s own handbook for anyproject. Additional essential success fac-tors can be arranged with this instrument:the acceptance and identification of all per-sons and communication between personsinvolved.

After the presentation of PM planningtools and their relevance for RES projects,the handbook demonstrates the use of defi-nition of project boundaries and objectives.Examples are given for context analysesthat can prevent the project from gettinginto external conflicts. Time schedules andcheck-lists are laid out and milestones aredetermined. The project organization isdemonstrated and the needs of resourcesare defined. This contribution of Plaimer(1999a) on PM will make it easier for futureprojects to secure the success of a productdevelopment.

Potential analysis (PA) – a multifunctionalforest management tool

Besides the implementation of new man-agement methods (e.g. PM), it is essentialto analyse various infrastructural perfor-mances of forests as well as relevant

resources related to any RES activity in amore detailed way. The PA could bedefined as an investigation of success fac-tors with regard to expected developmentstrategies (prediction). The contribution ofPlaimer (1999b) presents related aspects ofinformation management and the tasksand methods of PA. For the assessment ofrecreational and environmental forestfunctions, practical procedures of how toidentify strengths and weaknesses areexemplified with projects such as a moun-tain-bike route, acquisition of waterresources and the establishment of forestapartments.

For strategic information management,it is helpful to define specific businessunits. The essential features for a strategicbusiness unit (SBU) are to fulfil a specificmarket task, to be organizationally inde-pendent, to cover a relevant market seg-ment potential and to be relativelyindependent of the decision-makingprocess in other business units. In compar-ison with other small and medium-sizedcompanies, the internal information sourcetakes on a greater meaning in forest compa-nies. More than 40% use internal informa-tion sources. This circumstance could beexplained by still existing forest manage-ment plans (forest maps, inventories, otherexisting plans). A variety of examples ofexternal data sources, such as data banks,are documented. Since RES products oftenperform in markets that are completely different from those of traditional forestactivities (wood production, hunting), out-sourcing plays quite a big role.

An example of PA is given for theAustrian Federal Forest Administration(ÖBf AG). It starts with a situation anddevelopment description, followed by aninternal analysis, and finally determinesstrategies and activities. For different com-pany sizes environment potentials are dis-cussed more generally. How can strengthsand weaknesses be operationally identi-fied? Checklists for recreational and envi-ronmental parameters are presented.Within the environmental field, valuationmethods are quite often developed forpolitical reasons, while, for product devel-

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opment needs, a complete checklist of pos-sible offers is often a greater help than acomplete model with indicators and crite-ria. However, the field of environmentalproduct development is more sensitive.

The examples demonstrate that everyproject is different and needs a specificadaptation of theoretical methods. For amountain-bike route, technical parameters(e.g. length of the course, drainage system,signposting) were documented. On theenvironment side, an assessment of useconflicts and possible sources of dangerwas explicitly carried out. In the context ofthe acquisition of water resources, the legalsituation and possible changes were animportant part of the strategic informationmanagement. On the other hand, the acqui-sition of internal water resources and qual-ity had to be analysed and potential dangerhad to be identified. The determining fac-tors for the establishment of forest apart-ments could be subdivided into generalaspects, factors related to foresthouses/apartments and factors related tothe regional/global market situation. Thecriteria used for classification of farm-houses in Austria are almost a completechecklist. The three examples give a lot ofimpressions for practical potential analy-ses, but specific adaptations have to bemade to each project.

Multifunctional forest management planningThe allocation of land-use priorities maybe performed either by ranking land usesin accordance with their importance for theplanning individual or group or by apply-ing a weighing system, as shown in the sec-tion on ‘Potential analysis’. A morecomplex approach is the use of geographi-cal information system (GIS) technology.The contribution of Ottitsch (1999) appliesGIS technology to RES planning. By link-ing objective physical information and sub-jective goals of the manager/landowner, aswell as external influences, potential con-flicts are identified. Multipurpose land-useplanning is about visualizing the differentangles from which a landscape is viewedby different potential users. By combiningthese different views, it is also possible to

assess where different requirements willinterfere with each other.

By more closely identifying the spatialdistribution of land-use potentials, land-use managers are also able to detect nichesin which to allocate specific uses withoutany production loss for the main produc-tion goal.

The use of GIS technology is nowadayswidespread in land-use management plan-ning, and methods are discussed widely in abroad range of literature. Thus, only theapplied aspects for RES product develop-ment and planning are presented in this con-tribution. Yet the introduction of newplanning tools itself will not solve any land-use problems or lead to success in marketingnew products or services. Some elements ofparticipation in planning may thus be ratherseen as implementing techniques to assessthe users’ preferences or public relations inorder to offer new products.

The project ‘Land-use AnalysisAchenkirch’ was launched to design anintegrated land-use concept. Nature conser-vation, agriculture, protection against dis-asters (torrents and avalanches), tourism,forestry and hunting were the land-useforms considered

recreational and environmental markets for forest enterprises · a new approach towards...

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