Wednesday, October 06, 2010

What's the Best Way to Expand the Use of Solar WITHOUT Government Subsidies? Put Solar on the White House?

Whenever government support for solar declines, we are reminded of how important it is for renewable energy markets -- especially solar power -- to operate independently of government support.  Consider for example the boom-and-bust cycle experienced in Spain.  It's clear that feed-in-tariffs do not create sustainable markets.

The solar industry absolutely needs regulatory certainty, but it also needs to become sustainable on its own…a process that is referred to as market transformation.

The term market transformation has been used in the energy efficiency industry for a long time now.  It is essentially the process of expanding a market in ways that create lasting change.  Here's the definition of market transformation used by the Northwest Energy Efficiency Alliance (NEEA):

Market Transformation is the strategic process of intervening in a market to create lasting change in market behavior by removing identified barriers or exploiting opportunities to accelerate the adoption of all cost-effective energy efficiency as a matter of standard practice.

The key words in NEEA's definition are "lasting change." Because government subsidies do not create lasting change, we need to identify ways to intervene in the solar market in a way that accelerates the adoption of solar, but also leads to a sustainable market.

Governments worldwide have implemented a variety of solar incentives and support, with mixed results.  Here in the U.S. the latest example of "government support" is the installation of PV on the White House.  But if you look at the history of solar on the White House, it's no different than any other form of temporary support.  We're now seeing the third time solar will be installed on the White House.   President Carter installed solar on the White House…Reagan removed it….Clinton considered it….then George W. Bush installed solar again….and now Obama is [presumably] adding more.

It seems that solar on the White House is just like any other type of government support…it's on, it's off, it's on again.  In the end it's just another form of regulatory uncertainty...leaving the solar industry to guess about how long the current administration will support solar.

So here's my question.  What's the best way to expand solar markets WITHOUT government subsidies?  And how do we create lasting change without relying on transitory support?

As you may know, I have a clear opinion about how to achieve market transformation in the solar industry.  And most of the strategies I recommend include reducing the perceived risk of adoption which will help people learn to "trust" solar.

But as the saying goes, there's more than one way to skin a cat. So I'd like to hear what others think about this subject.  What can the solar industry do to truly achieve market transformation?

Now we all know that there's been massive government support for fossil fuels ever since christ was a small child.  But that's not the point of this dialogue.  Assume energy generation and delivery can be achieved without subsidies, and let me know your ideas for making solar a self-sustaining industry.

Thursday, July 01, 2010

The Relative Advantage of Solar

Most business schools still refer to Everett Rogers and his theory of how and why new ideas and technologies are adopted by a population.  In his book called Diffusion of Innovations, Rogers introduces five main dimensions that influence the adoption of an innovation: complexity, compatibility, observability, trial-ability, and relative advantage.

An examination of the factor called "relative advantage" reveals why there are so many challenges associated with making solar more widespread.

Relative advantage is the extent to which solar is viewed as better than the method in current practice.  Fundamentally, a new product or service will be successful if it does a better job than existing products at satisfying the needs of a targeted customer group.  But according to diffusion theory, "doing a better job" actually has four components. If a new product or service can surpass existing offerings across all four of these components at once, then we can guarantee that the targeted customer group will purchase it.

The four components expressed in terms of solar electric power are:

- solar must be less expensive than power from a utility (lower price).

- solar must provide better features or functionality than power from a utility (greater benefits).

- solar must not have any switching or adoption costs (easy to use).

- solar must be readily available (easy to buy).

Customers for whom all four conditions apply will purchase solar because there are only benefits and no barriers. And the closer a solar product comes to succeeding in all four dimensions, the greater the chance that the product will be a success.  And, of course, the new solar product will be a financial success if these conditions can be met at a profit.

The convenience and reliability of electric power from a utility makes it very difficult for solar to meet all four criteria.  And notice we haven't even talked about "trial-ability" yet.


Warren Schirtzinger advises solar companies on how to: differentiate their products, grow during an industry shakeout or consolidation, and thrive without government subsidies. He has authored articles as a "Renewable Energy Insider" on RenewableEnergyWorld.com and writes about marketing strategies on the solar strategies blog.  Contact him via e-mail (warren["at"]solar-strategies.com) or follow him on Twitter @SolarStrategies.

Wednesday, June 09, 2010

How 1BOG Helps Make Solar More Appealing to Mainstream Customers

We hear this topic discussed almost everyday in the solar industry. How do we reduce or eliminate barriers to adoption, and what programs or activities are needed to make solar/PV a mainstream technology?  Within this endless debate, it's interesting to see the different strategies being applied toward reaching the common goal of increased market adoption.

Two examples of recent initiatives -- specifically aimed at taking solar into the mainstream -- include groSolar's national advertising campaign and Akeena Solar's partnership with Westinghouse. In terms of strategy, groSolar is relying on building awareness whereas Akeena is focusing on brand recognition and using "home improvement" channels of distribution.  Yet in my mind the most interesting strategy is the one employed by an organization called 1BOG.

Buying solar involves a complex, information intensive and high risk purchase decision. (Note I said the purchase decision is complex and high risk, not the technology)  This is exactly the reason why the solar industry has not yet reached a tipping point.  Solar/PV is a high cost product, supplied by unknown vendors, in an industry without uniform standards or government regulation.

When faced with a purchase decision that involves high cost and/or high risk, pragmatic customers (starting with the early majority) will not buy until they see proven/leading suppliers, references from people they trust, and reliability of service.  1BOG helps mainstream customers meet these buying requirements by offering a unique combination of group purchasing/installation and objective advice.

1BOG's service organizes homeowners in a given area and allows them to purchase and install solar as a group.  In addition to negotiating a volume discount of about 15%, 1BOG acts as an independent provider of quality assurance and objective information.  To qualify as a 1BOG vendor, local solar companies must go through a rigorous evaluation of their products, installation practices, and longterm stability as a company. Customers are also provided with assistance and support in the areas of rebates/incentives, financing and permits.

While most people would point to the 15% reduction in cost or the assistance provided with bureaucracy and paperwork as the primary benefits of 1BOG's program, I believe the true power of their approach is in helping reduce the perceived risk of solar.

In the world of high risk the customer will not rely on the word of a vendor. The customer’s decision process is based on finding objective information from reliable sources, something the vendor cannot provide.  1BOG reduces the perception of risk by acting as that provider of objective information.  1BOG facilitates references from trusted sources (by organizing buyers into self-referencing groups), and then provides evidence of expertise and product quality (by vetting local solar providers).

The 1BOG strategy is by no means complete but it does a good job of addressing some of the needs of mainstream customers. Only time will tell if this, or other methods, will deliver the anticipated prize -- solar's mainstream market.

Warren Schirtzinger advises solar companies on how to: differentiate their products, grow during an industry shakeout or consolidation, and thrive without government subsidies. He has authored articles as a "Renewable Energy Insider" on RenewableEnergyWorld.com and writes about marketing strategies on the solar strategies blog.  Contact him via e-mail (warren["at"]solar-strategies.com) or follow him on Twitter @SolarStrategies.

Saturday, May 29, 2010

Akeena Solar's Market Research Raises Some Interesting Questions

I was surprised by the remarks made by Akeena's VP of marketing (Gary Mull) in a recent interview with Seth Masia from Solar Today Magazine (see: Why the Westinghouse Brand Matters for Solar)  The subject of that interview was Akeena's new partnership with Westinghouse.

About 1 minute and 15 seconds into the interview, Mr. Mull states that Akeena discovered through market research that there are currently no recognizable brands in the solar industry.



Here's the exact quote:
our research showed that consumers really couldn't recognize a major brand within the solar market today
The first question I would ask is…what about Sharp?  Isn't Sharp a recognizable brand name in mainstream America?

Please keep in mind that I'm not picking on Sharp Solar.  I know there was a lot of disagreement when I recently suggested that Sharp's brand failed to help them maintain the #1 ranking as a fabricator of solar cells. Many people were unhappy with my opinion about branding.  (see: Branding Only Works on Cattle. Just Ask Sharp Solar) I even got the publisher of Renewable Energy World (Oliver Strube) to moo like a cow in protest, which is not an everyday occurrence.  My goal here is to stimulate a worthwhile discussion about interesting topics in the solar industry.

The other question I would ask after listening to the Akeena interview is: if there are no recognizable brands in solar (per Akeena's research) and Sharp is a brand that is not recognized…what makes them think the Westinghouse brand will be of any value?

There are many similarities between Sharp and Westinghouse.  Both companies have a long history of financial success and are known for innovative household products that are marketed worldwide.  Both companies have a reputation based on reliability and trust. Wouldn't either brand be equally recognizable?

Obviously there are many details regarding Akeena's research project we don't have.  Did they forget to list Sharp on their survey form? Did Akeena's research focus exclusively on pragmatic/conservative mainstream customers or did it include all types of buyers? How does Akeena define the difference between early adopters and the early majority?

I feel these and other questions are worth asking, because the issue of "recognizable brand" forms the basis of Akeena's strategic decision to partner with Westinghouse.  At least that's what I'm hearing in this interview.

I would enjoy hearing everyone's thoughts and comments.

Warren Schirtzinger advises solar companies on how to: differentiate their products, grow during an industry shakeout or consolidation, and thrive without government subsidies. He has authored articles as a "Renewable Energy Insider" on RenewableEnergyWorld.com and writes about marketing strategies on the solar strategies blog.  Contact him via e-mail (warren["at"]solar-strategies.com) or follow him on Twitter @SolarStrategies.

Wednesday, May 05, 2010

Meet the Gatekeeper of Solar's Mainstream Market

The solar industry has been selling to an early market of innovators and early adopters for many years now. And there are still plenty of customers in the early market to sell to.

But most solar companies have their eye on a bigger prize -- solar's mainstream market -- a category that contains a whopping 84% of all customers. Because there are so many people in the mainstream market, winning their business is key to sustained profits and growth.

Customers exhibit purchase behavior over time that is different at each stage of a market's development. Innovators (about 2.5 percent of a market) are often fascinated with new technology. Early adopters (about 13.5 percent of the market) are less fascinated with technology but are often quick to see the potential benefits of something new. But the great majority of the potential market -- the remaining 84 percent -- is not fascinated with technology at all. In fact, the most substantial portion of a market are those who fundamentally dislike technology.

What are the characteristics of the customers who make up 84% of the solar market? Meet the gatekeeper of solar's mainstream market -- the early majority.

All mainstream markets begin with the early majority.  They are the gatekeepers of the business rewards that lie ahead.  These people do not want to be pioneers and will never be the first on their block to try a new technology like solar.  They like to keep a low profile and their goal in life is to make incremental, predictable progress. (quantum leaps are for Evel Knievel)

The early majority shares some of the early adopter's ability to relate to technology, but ultimately they are driven by a strong sense of practicality.  The word "risk" is a negative word in their vocabulary because it implies the chance to waste time and money.

When they buy they care about the company they are buying from, the quality of the product they are buying, and the reliability of the service they are going to get.  They like to see competition and prefer to buy from the proven market leader.  Members of the early majority tend to be vertically oriented, meaning they communicate more with others like themselves. References and relationships are very important to these people which presents a "catch-22" for solar vendors: the early majority won't buy from you until you are established, yet you can't get established until they buy from you.

In order to break into the mainstream market, solar vendors will need to re-orient their business practices to match the pragmatic and conservative characteristics of mainstream buyers. This means: facilitating referrals and references from someone the customer trusts, establishing then adhering to industry standards, emphasizing financial stability and product "intangibles" rather than technical specs, selling through channels that mainstream buyers are comfortable buying from, and offering turnkey systems that are designed for vertical markets.

Meeting the needs of the early majority is a strategic way of intervening in the solar market to create lasting change. There are many ways to affect markets on a short term basis -- advertising campaigns, government policy, subsidies, etc. -- but these techniques have no long-term positive impact on the market. Understanding mainstream buyer behavior and adapting your business practices accordingly will permanently change solar markets in ways that are sustained by natural market dynamics.


Related Articles:
Product Adoption Fundamentals
Solar in the Mainstream




Friday, April 30, 2010

Smart Grid Standards Must Come First

Technology adoption is all about standards. To succeed with consumers, one firm's gadget often has to work with other gadgets from other firms.

Technology moves so quickly that standards set by committees usually come too late. Instead, the industry organizes itself around de-facto standards championed by single firms with the clout to make them stick. For example, as Intel has done with microprocessors.

Early adopters who are using Smart Grid Investment Grants (SGIG) are currently choosing hardware, software and communications technology well before most of the relevant standards have been settled. This creates enormous *risk* in the minds of the public.  The possibility of selecting the wrong vendors or technologies is keeping a lot of people from participating, thereby delaying mainstream adoption of smart grid products and applications.

Smart grid standards would help remove this barrier to adoption and open the door to mainstream markets.  The only question is, who has the clout to establish a de-facto standard that the rest of the industry can follow and benefit from?

I was disappointed to read a recent article written by General Electric -- clearly one of the candidates capable of establishing a smart grid standard -- that said the key to smart grid adoption is education and awareness.  This claim was based on a report commissioned by GE Energy that surveyed consumers in the U.S. and Australia.  It found that 10% of the people surveyed know "something" about smart grid technology, and those people are overwhelmingly in favor of pursuing and adopting it as soon as possible.

GE's logic goes like this: we found that people who know about the smart grid concept support it…so if everyone knew about it, everyone would support it.

Innovators and early adopters (who make up about 16% of the smart grid market) are willing to accept high risk.  And the GE survey did a nice job of confirming the fact that innovators and early adopters are technology advocates and enthusiasts.  But the bulk of the smart grid market (known as the early and late majority) is risk averse and not willing to participate until standards and other risk-lowering factors have emerged.

I wouldn't recommend spending a lot of money promoting the smart grid concept until a minimal amount of standardization is in place.  You can't advertise or "educate" your way into a mainstream market.  Without the right mix of vendors, channels, products, services and standards, pragmatic and conservative customers simply won't buy in.

With emerging technologies and markets, sometimes raising awareness is the last thing you want to do.


Related Articles:
The Gatekeeper of Mainstream Markets

Monday, April 19, 2010

Reducing the Risk of Solar

Solar energy is considered a long decision-cycle purchase. Due to the complexity of the sale and its financial components, consumers educate themselves thoroughly before buying. As such, vendors cannot move a customer through decision stages to close the sale.

With products that are more costly, complicated or high-risk, the customer has more at stake.  If a solar installation goes bad, the customer is looking at losing thousands of dollars, the potential of roof damage/repair, time without basic necessities (electric heating, cooling, refrigeration, etc.), and a significant disruption to his or her life.

Adding to this perception of high risk is the nearly risk-free alternative of buying electric power from the local utility, a proven supplier with an unmatched record of safety and reliability.  Relative to a utility, solar appears extremely risky.

In the world of high risk the customer will not rely on the word of the provider. The customer’s decision process is based on finding objective information from reliable sources, something the vendor cannot provide.

Think about the last time you had to select a surgeon, a family doctor, a lawyer, or an investment broker/advisor -- all high-risk purchase decisions.  Would you entrust your life savings to a financial advisor or broker because of an ad or brochure?  Would you select a surgeon based on his "messaging?"

The only way to increase adoption of a high risk offering is with methods that reduce risk in the mind of the customer -- references from someone the customer trusts, professional credentials/affiliations, a supporting infrastructure, industry standards, evidence of expertise, product quality, and ongoing service.

The solar industry needs to wake up and realize that the McDonald's-happy-meal approach to promotion is useless when the product is high cost and/or the purchase decision is high risk.


Related Articles:
Marketing High Risk Products

Sunday, April 11, 2010

Solar Forces a Change in Behavior

I think it was Nathan Lewis of the California Institute of Technology who first said that solar energy-generated electricity does nothing "new." People already have electricity.  And that is true.  Solar doesn't offer an improvement in capability.  But that's not the real barrier to the public's adoption of solar power.

Most emerging technologies are introduced when their performance is not as well developed as established products.  And in order to become competitive over time, technologies like solar must be refined and improved by a sequence of users (starting with innovators and early adopters).

The key issue here is not that solar is an under-developed technology or that solar provides something people already have.  The key issue is that solar, like many technologies, forces a change in behavior.  With solar you must have panels (or PV material) installed, rather than use a built-in connection to the grid.

A recent survey by the Solar Energy Industries Association (SEIA) as reported on Renewable Energy World indicates people are in favor of solar power but would prefer that it is supplied by their utility.  Why would 75% of people surveyed want their utility to install solar?  Because that way they can realize the environmental and renewable benefits of solar, without changing their behavior.

As long as everyone agrees that centralized solar electric power delivered through a grid is the best path to a sustainable future, then our objectives are clear.  We need to focus on utility-scale solar and improve our centralized system of delivery.

However, if distributed generation and residential solar are a better way to go, we need to find a way to get people to change their behavior.  And getting people to change their behavior requires more than just cost reduction and government subsidies.  Encouraging people to change their behavior requires the influence or involvement of preceding groups of people in the marketplace


Related Article(s)
Product Adoption Fundamentals

Thursday, April 08, 2010

The Easy Solar Segments Are Gone

Today's solar markets have exhausted the "easy" segments. Typically, customers exhibit purchase behavior over time that is different at each stage of a market's development. Innovators (typically about 2.5 percent of a market) are often fascinated with new technology. Early adopters (about 13.5 percent of a market) are less fascinated with technology but are often quick to see the potential benefits of something new.

But the great majority of a potential market -- the remaining 85 percent -- is usually not fascinated with solar technology at all. In fact, the most substantial portion of any market may be those who fundamentally dislike technology.

Solar organizations that understand the shift in potential customer focus will recalibrate their marketing. They will concentrate more on the complete (intangible) product and less on the technical specs or "tangible" features.

Developing a complete product means helping the customer focus on how the product will improve his/her future. It requires detailed knowledge of the customer's life and direction, not merely an understanding of the efficiency of a solar cell.

Companies that do not understand this fundamental change will experience an abyss in their growth curves. Once the easy segments of their markets are exhausted, additional sales will come only at the expenditure of substantial resources, and the returns on sales and marketing will decline rapidly.


Related Article(s)
Product Adoption Fundamentals

Monday, April 05, 2010

The Relative Advantage of Solar

Most business schools still refer to Everett Rogers and his theory of how and why new ideas and technologies are adopted by a population.  In his book called Diffusion of Innovations, Rogers introduces five main dimensions that influence the adoption of an innovation: complexity, compatibility, observability, trial-ability, and relative advantage.

An examination of the last factor, "relative advantage," reveals why there are so many challenges associated with making solar more widespread.

"Relative advantage" is the extent to which solar is viewed as better than the method in current practice.  Fundamentally, a new product or service will be successful if it does a better job than existing products at satisfying the needs of a targeted customer group.  But "doing a better job" actually has four components. If a new product or service can exceed existing offerings across all four of these components at once, then we can guarantee that the targeted customer group will purchase it.

The four components expressed in terms of solar electric power are:
  • solar must be less expensive than power from a utility (lower price).
  • solar must provide better features or functionality than power from a utility (greater benefits).
  • solar must not have any switching or adoption costs (easy to use).
  • solar must be readily available (easy to buy).
Customers for whom all four conditions apply will purchase solar because there are only benefits and no barriers. And the closer a solar product comes to succeeding in all four dimensions, the greater the chance that the product will be a success.  And, of course, the new solar product will be a financial success if these conditions can be met at a profit.

The convenience and reliability of utility-delivered electric power makes it very difficult for solar to meet all four criteria. Grid parity alone is clearly not enough.


Related Article(s)
Does Grid Parity Matter?

Friday, April 02, 2010

How to Differentiate a Commodity

There's a lot of disagreement about whether or not solar is a commodity.  Even if it's not, at some point everyone will need to know how to differentiate a solar product when it becomes a commodity.  I've selected the example of a well-differentiated automobile dealership, to provide insight into how the same concepts can be applied in the solar industry.

Sewell Village Cadillac is the perfect example of a business that has taken a fairly mundane "product" (selling cars) and redefined it into a non-commodity powerhouse.

Sewell goes far beyond the average car dealership: The dealership looks spectacular, starting with lovely chandeliers on the showroom floor and a marvelous floral arrangement that is changed daily.  Stanley Marcus, chairman emeritus of the Neiman-Marcus stores, provides Sewell with merchandising advice and consultation.

As attractive as the Sewell Village showroom floor is, the service bays are even more spectacular.  They truly sparkle, the result of several daily washings and a nightly waxing.  The would-be customer is escorted through both the showroom and the sparkling service bays and then taken to a "preview room."  It is a twelve-by-twelve room off the showroom floor, decorated with lavish antiques.  One sits on a beautifully appointed couch and is treated to a brilliant audio/video presentation.  Only a small part deals with the tangible product (the Cadillac); most describes what it is like to become a member of the "Sewell Village Cadillac Family."  This involves such extras as being given the home phone number of the senior people in the service department.  If your car breaks down, one of them, night or day, will come out with a loaner car which you then keep until yours is repaired.

An organizational development consultant teaches interpersonal dynamics to Carl Sewell's mechanics!

This brief snapshot of the Sewell Village story may provide a bit of a feel for the non-ordinariness of the operation.  The tangible product is, of course, the Cadillac (even though it's no longer a best seller).  The expected product intangibles include such things as Sewell's keeping standard hours and having mechanics available, and perhaps the "loaner car."  The unexpected product intangibles would be: the fresh flowers changed daily, the use of Stanley Marcus as a consultant, the interpersonal dynamics training for the mechanics, the sparkling service bays and so on.  Taken together the "product" has literally been redefined.  Carl Sewel is not selling cars, nor is he selling Cadillacs. He is selling a combination of product, service, ease of doing business with, pleasantness of doing business with, that quite literally redefines the personal transportation/car purchase/service/ownership phenomenon.

The results speak for themselves. Sewell's sales are approximately $100 million; twice the average of most Cadillac dealerships. Plus they have won the Cadillac Master Dealer and Mark of Excellence Award (the award given to the top Cadillac dealer for retail sales and customer satisfaction)...for 35 consecutive years!!!!

Related Article(s)
Solar Product Perception

Tuesday, March 30, 2010

Public Confusion About Solar

There are many things that confuse the public when it comes to solar.  Included on the lengthy list of confusing factors are items such as: incentives, regulations, restrictions, warranties, technology differences and financing options.

But in my mind, the bigger issue comes from the fact that "confusion" translates into "high risk" in the minds of consumers.

Whenever something appears to be more complex or confusing than the status quo (a.k.a. power from the electric utility) most consumers label that item as a source of risk. This perception of risk comes from the potential consequences of making the wrong decision, based on confusing or complex information.

With most consumer products there is little penalty for making a wrong choice. If you buy a pair of blue jeans and they don't look good, the most you've lost is a couple of hours of time and somewhere around $100.

But if a installation goes bad, the consumer is looking at losing thousands of dollars, the potential of roof damage/repair, time without electric power, inconvenience, etc., etc.  In other words a massive and costly disruption in their lives.

The perceived risk of solar in the mind of the consumer presents the biggest barrier to mainstream adoption of solar power.


Related Articles:
Marketing High Risk Products

Saturday, March 27, 2010

Is groSolar's new ad campaign the right approach?

groSolar recently announced the launch of a new national advertising campaign that will feature images of real people in real life situations, rather than pictures of solar panels.  According to the company's press release, groSolar's objective is to "communicate the real value of clean energy choices."

This technique is especially common in the healthcare industry.  Doctors, hospitals, clinics, and other providers often show people living a happy, healthy life rather than say, open heart surgery in progress.

The questions is: would you select a surgeon based on pictures of happy people?  Does a value-oriented advertising campaign convince a skeptical audience to buy services from the advertiser?  My answer to these questions would be: not if the product or service is high risk…and solar is perceived as high risk.

Here's the reason why.

Solar requires a complex, information intensive and high risk purchase decision. (Note I said the purchase decision is complex and high risk, not the technology) A solar installation requires a good deal of work on the part of both the consumer and the provider. It is a product/service with a standard base of know-how, but totally customized and personalized. Buyers of want a dealer/installer with a good reputation and would prefer to find one by means of a reference or referral. Information and dialogue are part of the purchase process.  There is the possibility of interaction after the system has been installed and the customer wants to be reassured that he or she can always ask for and receive additional help or information. If the solar installation goes bad, the customer is looking at losing thousands of dollars, the potential of roof damage/repair, time without electric power, and a significant disruption to their life.

With products that are more costly, complicated or high-risk, the customer has more at stake.  So all of the typical methods used in low-risk consumer marketing -- cosmetic factors, product/company name, package color and design, messaging, image, "feel good advertising," celebrity endorsements, logos or symbols to reinforce associations -- are totally ineffective.

The only way to market a high risk offering is with methods that reduce risk in the mind of the customer -- references from someone the customer trusts, professional affiliations, compliance with industry standards, a supporting infrastructure, evidence of expertise, product quality, and ongoing service.

groSolar's ad campaign may raise awareness for the solar industry in general, and that's a good thing. But if the company's goal is to convince customers to buy groSolar's products and services, then advertising is the wrong way to do it.


Related Articles:
Marketing High Risk Products
Solar's Main Competition

Wednesday, March 24, 2010

The Long Term Effects of Government Subsidies

There's never been a technology that was perfected before it was released.  Technology products like solar are introduced when their performance is not as well developed as established products along some dimension that mainstream customers have historically valued.

In order to become competitive over time technology-based products must be refined and improved by a sequence of users (starting with innovators and early adopters).  This dynamic, called the technology adoption lifecycle, is critical to the success of any new product or technology.  Without the adaptation and improvement that's demanded by early users, mainstream customers (the bulk of any market) will not adopt the product.

This is important because government subsidies often completely disrupt the technology adoption process.  When mainstream buyers of begin to enter the market because of a subsidy rather than product attributes, then forward progress on product adaptation tends to stop.

When I surveyed residential solar owners in the Sacramento area I found that the majority of them were late adopters.  That's because the local utility (SMUD) was offering 4 kW systems for only $7 per month. (after 10 years the customer could buy the system for $2400)  SMUD's offering, which included a lot of product intangibles, caused technology laggards to enter the market prematurely.

This subsidy by a utility in Sacramento completely disrupted the normal cycle of adoption that is needed for a market to be sustainable.  And when the subsidy is removed, the market adoption pattern must start over from the very beginning.  This is why government subsidies are so damaging over the long term.  It's more than just a loss of money when the subsidy goes away.  It's also a loss of a key component of sustainable market development: product and buyer evolution.

Related Articles:
Product Adoption Fundamentals

Sunday, March 21, 2010

In Pursuit of Solar's Tipping Point

A recent call to action in the solar industry reveals a common misunderstanding of the term "."

An initiative, called National Solar Quote Month, is an effort to encourage lots of people to request quotes from solar suppliers in order to bring solar power to a tipping point in 2010.  Unfortunately, the presence of a large number of people does not translate into a tipping point.

A "Tipping Point," as described by in his book by the same name, is when an idea, product, message or behavior spreads like a virus.  It is the name given to a dramatic moment in an epidemic when everything changes all at once.

On page 33 of the book, Gladwell describes the need for more than just large numbers of people to create a Tipping Point.  It requires the participation of so-called connectors -- people with unique social gifts who have an uncanny genius for being at the center of events.  In other words, connectors are "influencers."

To illustrate the need for connectors, Gladwell tells the story of how Paul Revere's midnight ride started a word-of-mouth epidemic, while a virtually identical ride by fellow revolutionary William Dawes did not.  Paul Revere was a connector and William Dawes wasn't.

So fundamentally it doesn't matter HOW MANY people are spreading the message…it matters WHO is spreading the message.

Parts of the tipping point concept have been used successfully in the electric power industry in the past.  Thomas Edison used the power of influencers to accelerate adoption of electric light when he selected financial institutions in lower Manhattan as his first customers.  Seeing the windows of the financial district aglow by night demonstrated electric lighting technology to the metro population living across the Hudson River in New Jersey.  And because the financial community was considered to be an influential source of new techniques and ideas, Edison jumpstarted a word-of-mouth epidemic that had a tremendous impact on the rest of the country.

Interestingly, a group of researchers just reconfirmed the tipping point concept by studying the social networking site, Twitter.  They found that "follower count" is a meaningless metric when it comes to determining influence.  It doesn't matter how many followers you have.  It only matters who is following you.

Concepts like the Tipping Point, the Principle of Disruptive Innovation, and the Technology Adoption Lifecycle are extremely valuable in our efforts to expand the use of renewable energy around the world.  But it's important to first understand what these concepts really entail, and how they can be applied correctly.

Related Articles:
Product Adoption Fundamentals

Thursday, March 18, 2010

Utilities Speed Solar Adoption

A recent article in the New York Times takes an interesting look at a partnership between TXU (a utility in Texas) and SolarCity (a Silicon Valley solar supplier) designed to help homeowners go solar. The article says "TXU Energy, with two million customers, is making it possible for homeowners in the Dallas area to lease or buy rooftop solar-power systems in one of the first programs of its kind."

Although this type of program is not one of the first, the author correctly states that utilities are the key to widespread adoption of .

When solar suppliers partner with energy providers (especially utilities), adoption happens much faster. This is because most buyers in a market wait for the availability of a standard product that is made by a leading supplier who sells the product through someone familiar. These attributes are known as product intangibles. And together TXU and SolarCity can deliver most of these requirements.

This type of solar program however is certainly not new. In 1993 Sacramento Municipal Utility District (SMUD) began offering a standardized 4 kW solar electric system valued at $24,000 for only $7 per month. SMUD retained ownership of the system. After 10 years the customer could purchase the system for 10% of its original value ($2,400). Then in 1999 SMUD began selling the same system (worth $24,000) for only $4,800.

When SMUD offered PV to their customers through these two programs (called PV Pioneer) my research revealed that late adopters started signing up in droves. SMUD's program effectively delivered all of the product intangibles required by laggards and late adopters before making a purchase.

This latest initiative by TXU Energy is another version of a concept that is at least 17 years old. But it works!

Related Article(s)
Solar Product Perception

Monday, March 15, 2010

Solar in the Mainstream

There is an unfortunate fact about emerging technologies and markets that can cause great frustration for anyone offering something "new." The solar industry is a perfect example.

Most people do not view something new as "in the mainstream" until they see someone exactly like themselves using it.  So a homeowner in Iowa with a 2000 sq. ft. house located on a hill, wants to see another homeowner in Iowa with a 2000 sq. ft. house located on a hill using solar before he describes solar as available here and now. You can have millions of people using solar in other parts of the world, on many types of different buildings, and it means NOTHING to the guy on a hill in Iowa.

This peculiar market-behavior pattern applies to anything new or innovative that is introduced into a marketplace. In every case, the secret to achieving mainstream market acceptance is: focused vertical marketing. In other words, focus on one vertical market segment at a time because mainstream buyers/users will only accept information from people who are identical to themselves.  And it's impossible for solar suppliers to serve the vertical needs of all segments at once.

Any technology that is considered mainstream today, had to go through a phase of focused vertical marketing to get there. And with maybe one or two exceptions, I'm not seeing many suppliers do this yet in the solar industry.


Related Articles:
Product Adoption Fundamentals

Friday, March 12, 2010

Edison was a Marketing Strategist

Most history books say 1882 was the year the light bulb was invented. This is incorrect. The basic technology had existed for almost 100 years. The reason 1882 is important is because that's when Edison extended the adoption of electric power and light to the early majority. And the methods he used are strategically very important to the solar industry.

Edison’s strategy for accelerating the adoption of electric light was based on minimizing disruption to people's lives. Since gas lamps were the dominant method of indoor lighting, Edison designed his electric lights to look and operate almost identically. His initial electric lights provided 13 watts of light, almost the same as the 12-watt gas lamps he wanted to replace. The new electric lamps looked almost exactly like those same gas lamps.

Recognizing that many commercial and residential landowners in New York had invested considerable capital in gas infrastructure to light their buildings, Edison chose to run his first electrical wires through existing gas lines, fitting directly into the system people already understood for the delivery of light.

Edison’s technology was new, but the form and function were decades old.

But Edison's most ingenious strategy was in selecting the location of his first customers -- financial institutions in lower Manhattan. Seeing the windows of the financial district aglow by night demonstrated electric lighting technology to the metro population living across the Hudson River in New Jersey.

Because the financial community was seen as a credible source of innovative building technology, Edison helped meet the reference requirements of early adopters, who then shared the idea with their local communities. This endorsement of electric power and light, by demonstrating its use in a visible location, had tremendous influence on the rest of the country.

Who should the solar industry be using as a credible reference?


Related Articles:
Product Adoption Fundamentals

Tuesday, March 09, 2010

Does Grid Parity Matter?

One of the primary assumptions in the solar industry is: "if the cost of something gets low enough, everyone will automatically buy it." In my mind there is no guarantee that solar power will become mainstream when it costs approximately the same, or even less than conventional sources.

Here's why. Even with lower and lower cost per watt, solar power is missing two key elements of market expansion: product intangibles and a compelling reason to buy.

Consider what happened with the personal computer (PC). Not only did prices go down (and performance went up) but MANY other things helped make the PC a mainstream appliance. One of the biggest factors was the addition of IBM's backing and reputation to the desktop computing industry (does anyone remember the so-called "IBM compatible PC" standard?) IBM's blessing along with other "standards" such as the DOS operating system and the ISA/EISA bus (i.e. product intangibles) all combined to reduce the perceived risk of buying a PC.

But the most powerful factor in PC market development was a compelling application called the spreadsheet. Early spreadsheet software (Lotus 1-2-3 and Context MBA) running on the PC provided a quantum leap in capability over the existing ways of manipulating numbers…with adding machines, calculators, pens, pencils and sheets of paper.

It's true there are future benefits associated with solar such as greater environmental health and sustainability, but that's like selling green bananas. The promise that someday a green banana will turn yellow is not compelling enough.

In the solar industry, there are few if any risk-lowering product intangibles (who's the IBM of solar?) and the compelling "mainstream" reason to buy hasn't been sufficiently articulated yet. So when solar reaches grid parity, it will provide something that people already get from a utility…electric power for the same price. There's no quantum leap in capability or extraordinary advantage above what a utility already offers. Plus, there's no need to install a bunch of complex equipment when power comes from the grid.

Without risk-lowering standards or intangibles, and a compelling reason to buy, the solar industry needs to use reference-based techniques to overcome these missing elements of market expansion. (more about this in future posts)

Related Article(s)
Solar Product Perception

Saturday, March 06, 2010

Credibility and Market Leadership

The most important quality a growing solar company needs for rapid market access and positive competitive positioning is credibility. Credibility can be gained by inference, reference or evidence.
  • Inference is often used by startups to gain recognition. Who invests in a company is often more important than how much is invested.  Much of the initial interest in Genentech was stimulated by the involvement of Kleiner, Perkins Caufield & Byers. Similarly, the interests of Venrock Associates and Sequoia Capital in Apple Computer provided "larger than reality" credibility. The quality of investors and directors, along with the backgrounds of initial employees say a lot about the company to the marketplace.
  • Reference, or word-of-mouth, is the most important credibility-building tool an emerging company can use. Almost all computers, from personal to mainframes, are still bought because of word-of-mouth. All service-based businesses are word-of-mouth. And, in all segments of the high-technology industry, there are networks of analysts, industry experts, BOS and supporting product producers, and bloggers/journalists who spread the word.  Moreover, potential customers understand and rely on word-of-mouth to determine a new company's credibility.
  • Evidence is the third factor that builds credibility. Satisfied customers are essential. But the most visible reinforcing evidence is growth and profits from the business. This falls under the category of "If you're so good, why aren't you making money?" Many solar companies suffer from lack of evidence of financial success because they believe only public companies disclose results.
Other kinds of evidence exist, of course. These include clearly differentiated product performance, market share growth, significant products, the quality of initial customers, and the company's alliance partners, along with the quality of investors. All of these can be tangible evidence of credibility.

Related Articles:
Word-of-Mouth Communication
Word-of-Mouth Communication Part 2
Measuring Word-of-Mouth

Wednesday, March 03, 2010

Solar Customers are Changing

The Technology Adoption Lifecycle and the Principle of Disruptive Innovation share at least two fundamental attributes.  First, both models describe market development in terms of the changing nature of the user rather than the product.  Using similar terminology, both suggest that products are initially used by early customers who base their purchase decisions primarily on the product’s functionality.  Then, once the demand for functionality has been met, vendors must begin to address the need for reliability that is demanded by an initial wave of mainstream buyers.  A third phase of growth occurs when market followers and conservatives require that vendors meet their needs for convenience.  The final group is mostly concerned with price.

Another shared attribute is, despite a track record of proven success, both models are counterintuitive to most business managers.  When struggling for survival, a solar organization will find it incongruous to focus on the peculiar or specialized needs of a small group of potential buyers, before addressing the more common needs of larger groups.  Too often managers attempt to serve an entire market all at once, and unintentionally delay the market transformation process.

The inescapable task of winning over a sequence of buyer types, combined with the necessity of promoting intangible benefits tailored to the user’s point-of-view, form the cornerstones of market transformation.  These principles have repeatedly guided new products and companies to the achievement of mainstream market acceptance and commercial success.  Much of the history and experience behind these models can be translated into helpful guidance for the solar industry.


Related Articles:
Product Adoption Fundamentals

Sunday, February 28, 2010

Solar Marketing Lessons, Learned in the First Grade

Most of us learned at a very early age that it's not a good idea to kick sand in the face of the biggest kid in school.  Unless you enjoyed getting pounded into the ground like a tomato stake, the best strategy on the playground was to avoid direct, physical confrontation.

This simple lesson in life also applies to the practice of marketing.

The number one rule of marketing is never attack an entrenched competitor in his or her area of greatest strength with an emerging technology. (especially not with an emerging technology like solar)

Yet that is exactly what many people in the solar industry actually do!

Hardly a week goes by without a solar vendor, clean energy lobbyist, solar advocate, industry analyst, PR agency or marketing organization proclaiming that the solar industry needs to emphasize "reliability."  Well like it or not, reliability is a key strength of solar's biggest competitor…the electric utility industry.  Using a less traumatic metaphor this time, claiming reliability as an advantage of solar is like challenging Lance Armstrong to a race immediately after learning to ride a bicycle.

Not only does solar provide something that people already have (electricity), but their current supplier (the electric utility industry) has created an enduring public perception of being the most reliable source of electric power.  For more than 70 years, Reddy Kilowatt served as the official mascot of the electric power industry, and in the process became a permanent symbol of our culture.  Reddy represents specific characteristics and attributes that are the competitive strengths of all electric utilities -- reliability, unlimited capacity, plug-in ready, and constant availability.

Utilities are the 900 pound gorilla of the electric supply "playground" and power from the grid is perceived by the public as the safest, most reliable choice.

Those of us in the solar industry know that PV is in fact very reliable.  But utilities have already captured the reliability square on the game board.  They own that part of the playground. And it's a waste of time and money trying to compete against a public perception, built over 70+ years, that utility power is the most reliable.  There are many other areas in which to successfully compete against electric utilities.

One more thing.  Next time you are playing basketball at the local gymnasium, don't challenge Shaquille O'Neill to a game of one-on-one.  The results won't be pretty.


Related Articles:
Marketing High Risk Products
Solar's Main Competition

Thursday, February 25, 2010

The Illusion of Cost Per Watt

We have seen many times that a reduction in price often accompanies the acceptance of a product in the marketplace. But it is incorrect to assume that lower price will lead to mainstream market acceptance, or that any technology-based product would be widely used and adopted if its cost was low enough?

Price reduction alone does not guarantee mainstream acceptance.

Take for example global positioning systems or "GPS." Most observers would say a dramatic reduction in average selling price during the late 1980's was responsible for the increased acceptance of GPS in the marketplace.

However, several other factors were equally important in leading to the transformation of the GPS market. For GPS, the intangible drivers of market acceptance were:
  • the U.S. government's decision to make GPS available to the public
  • Magellan and several other manufacturers started shipping commercially available GPS products (1989)
  • the U.S. government announcement that GPS will be "free" for 15 years (1991)
  • addition of a 24th satellite to complete the GPS support infrastructure (1995)
  • the announcement that GPS will be free for the foreseeable future (1996)
Every one one of these events lowered the risk of purchase/adoption for prospective customers.

Pragmatic and conservative buyers in a market wait for: the availability of a standard product designed to specifically meets their needs, that is made by a leading supplier who sells the product through someone familiar. Despite evidence to the contrary, low price does not exclusively drive market transformation.

This misunderstanding is especially common in solar power and renewable energy. There is no guarantee solar power will become mainstream when it costs approximately the same as conventional sources.

Monday, February 22, 2010

Branding Only Works on Cattle

I'm all in favor of promoting solar and raising awareness for renewable energy.  It doesn't matter if it's with buttons, bumper stickers, social media (twitter, facebook etc.), web sites or search engine marketing (seo).  The more the better.

But never forget that solar power is seen as a riskier than the alternative -- power supplied by the local utility.  This perception of risk comes from the fact that solar is more complex, installation is not as simple, solar costs more, and most solar dealers/installers are smaller, unknown companies (at least compared to the local utility).

So don't expect people to seriously consider buying solar based on a promotional button, twitter or bumper stickers.

Think of it this way:  If you had a serious heart condition and needed surgery, would you select a surgeon based on something you saw on a bumper sticker or read on Twitter?  I know I wouldn't.

I would look at a surgeon's reputation, ask for recommendations from other doctors, determine which hospital the surgeon is affiliated with, investigate the surgeon's credentials and formal training, and definitely talk with patients who have had a similar prognosis.

Solar isn't a life or death proposition like heart surgery, but the trusted sources of information needed by buyers to reduce risk when making a high-risk decision do not include promotional materials developed by the vendor.

Promotional content does NOT help the customer lower their perception of risk in buying solar. And branding only works on cattle.

Marketing solar (which is higher risk) the same way that Coke markets soft drinks (little or no risk) is one of the reasons the solar industry has such a hard time breaking into mainstream markets.


Related Articles:
Marketing High Risk Products
Solar's Main Competition

Friday, February 19, 2010

Is Solar in the Dead Zone?

A simple graph of customer gain (x-axis) vs. customer pain (y-axis) highlights a dangerous place for technology-based products like solar/PV.

This simple four-by-four grid compares value derived from a product, to the pain of acquisition and ownership. The Dead Zone is defined as the area where a product provides value that is good but not great, which can be adopted with discomfort but not excruciating pain. This combination usually convinces the customer to delay purchase because the gain isn't really high enough to justify the amount of pain required.

Technology-based products generally thrive in areas of medium to very high "customer gain" and low-to-medium "customer pain." (see areas shaded in green) And a product or technology is said to be "in the mainstream" when it provides high or very high gain while imposing only modest discomfort.

Sustainable markets exist around the edges of this graph. Very high gains can overcome almost any amount of pain, and in the absence of pain, even modest gains look good. But what happens to an offer (such as solar) that falls in the middle?

A company or an entire industry can escape the dead zone by moving down and/or to the right, away from the center of the graph. And it's interesting that almost universally, the solar industry has decided that increasing gain via lowering cost per watt is the best way to move solar out of the dead zone.

However reducing pain would actually be a faster, long-term solution. In nearly all cases, customer pain is minimized by intangible factors supplied by the vendor rather than tangible or technical attributes of the product itself.

Examples of reducing solar-customer pain might include: selling preconfigured systems/packages through major retailers, eliminating the interconnection application process for small systems, introducing standards for equipment ratings, or making solar-product warrantees transferable.

Focusing on product intangibles would be a much more effective way of lowering pain, reducing the perception of risk and leading solar out of the dead zone.


Related Articles:
Solar Market Leadership

Tuesday, February 16, 2010

Solar Market Development

The strategies historically employed to spur expansion of the solar (PV) market are almost always product oriented. They are typically based on the progressive lowering of prices through economies of mass production, combined with subsidized “buy-down” programs or "feed-in tariffs" for residential and commercial users. Lowering “cost per watt” is seen as the key to unlocking a vast potential market for photovoltaics.

Numerous past studies and development efforts have promoted this “product path” to solar (PV) market expansion. PV products are subsidized or supported with the primary goal of achieving economies of mass production and eliminating barriers to use. Examples include:
  • federal and state buy-down programs
  • coordinated government procurement of PV
  • elimination of barriers to capital formation
  • legislative packages supporting distributed energy
  • legislative and regulatory assistance to states
  • prohibition of restrictive covenants and ordinances
At the same time, steps are taken to make the product (PV) more “attractive” to the consumer. These include: legislation that encourages deployment of PV systems, sales tax exemptions, interconnection standards, net metering laws, and other programs designed to ease or eliminate barriers to adoption.

Here's a classic example as stated in a research report by the Renewable Energy Policy Project (REPP):
The product path requires government involvement to increase the diffusion rate of consumer [PV] products through setting market rules, making strategic purchases, and other innovative support.
This product-centric approach emphasizes pushing photovoltaics into various applications or markets under the assumption that lower prices, attractive financing options, and the absence of barriers to implementation, will automatically lead to consumer demand.

In contrast, the underlying belief in free-market enterprise is that people do things for their own reasons. So low price and ease of implementation do not exclusively drive market expansion. People must want to buy what is being offered. And motivating people to want something -- especially if it’s technical in nature -- requires the influence or involvement of preceding groups of people in the marketplace.

Most “for profit” organizations working to accelerate market adoption focus on winning over groups of buyers in sequence according to their psychographic profiles. This involves identifying a group of early buyers who initially value a product offering, and then communicating or promoting a combination of tangible and intangible benefits in ways that lead to the sale of product. After capturing the first group, the organization refocuses its collective attention on the unique needs of the next group, and so on. In this way, a succession of customers act to pull the market forward as the product is adapted or “positioned” to address their varying needs.

From the standpoint of pure capitalism, it is important to realize that there is no guarantee solar power will automatically become widely adopted when it costs approximately the same, or even somewhat less than conventional sources of electricity. Many other factors influence market adoption.

Related Articles:
Product Adoption Fundamentals

Saturday, February 13, 2010

Marketing High-Risk Products

Marketing a high-risk product is *vastly* different than marketing a consumer product that carries little or no risk. As everyone knows from personal experience we choose a professional advisor, a doctor, an attorney, or a stockbroker with much more care than we buy soft drinks or even automobiles. With high-risk products (or services) the customer has more at stake and looks for objective sources of evidence about the provider's methods and abilities.

In the world of high risk the customer will not rely on the word of the provider. The customer’s decision process is based on finding objective information from reliable sources, something the vendor cannot provide. Have you ever had someone call and ask you what kind of computer he or she should buy? This is a common method of lowering risk by gathering objective evidence.

Although solar power may not be considered high risk from a technical point-of-view, it is certainly much riskier than the alternative of obtaining electric power from the local utility. Consumers perceive solar to be high risk "relative" to Ready Killowatt.

With low risk products, there is little or no penalty for making the wrong decision. Marketing low-risk products relies on name recognition, image and branding because most products in a given category are interchangeable, plus customers accept the claims of the provider at face value. When was the last time you called a trusted friend to ask what type of cereal or milk to buy? Or called the Coca Cola Company to ask if they offer 24-hour support? We just automatically believe that Kellogg's knows how to make Corn Flakes.

Marketing solar power as if it were a low-risk consumer product is a fatal mistake.

Related Articles:
Solar's Main Competition

Wednesday, February 10, 2010

Solar's Main Competition

Who are solar suppliers really competing against?

The answer is "Reddy Kilowatt."

It's true that solar companies compete not only against their solar peers but also against other sources of electricity. But when customers make decisions about energy providers, the "concept" of Reddy Kilowatt (i.e non-stop power from the local utility) still holds the advantage.

For almost 70 years, Reddy Kilowatt served as the official mascot of the electric utility industry, licensed for use by as many as 300 electric utilities in the US and abroad. Created in 1925 by Alabama Power Company executive Ashton Collins, Sr., the familiar “bolt and bulb” figure symbolized the power industry during a time of tremendous growth and goodwill.

Reddy represents specific characteristics and attributes that are the competitive strengths of all electric utilities -- attributes such as reliability, plenty of capacity, plug-in ready, and always available.

Even though we don't see Reddy Kilowatt mentioned today, he is an enduring symbol of our culture and a competitive advantage for electric utilities.

It's vital that solar companies of all sizes recognize and compensate for this enduring "consumer perception" in their marketing programs and activities.


Reddy Kilowatt Commercial:

Sunday, February 07, 2010

Measuring Word-of-Mouth

Measuring word-of-mouth (WOM) results is not really very hard. It only becomes difficult if you try to use quantitative methods.

That's because WOM is a "qualitative" technique. Putting numbers on word-of-mouth communication is like using an apple to check the color of an orange.

To [qualitatively] measure the results of WOM marketing, just ask and answer the following questions:

1. Do prospective customers know: what makes your solar business different than all the others, and when you're the best supplier for the job?

2. Do members of the press (including bloggers) accurately reflect your competitive positioning and lend 3rd party credibility to it?

3. Do industry influencers understand your business strategy and support it to the press?

4. Does the target market see you as a reference source expert/counselor in the solar industry?

5. Do your business partners support your products and strategies?

6. Do your resellers (or channel partners) know where to spend their time, who to call on, and what to say?

7. Are key customers actively involved in testimonial marketing and serving as references?

I've been successfully using this 7-point checklist to evaluate WOM programs for many years. It's really not that hard. Really!

Thursday, February 04, 2010

Word-of-Mouth Communication pt2

The content of word-of-mouth communication for solar products -- once underway -- can be enhanced and mildly diverted by the solar supplier. But because it is essentially an underground communications medium, the content of word-of-mouth cannot be substantially changed or improved, once launched. Hence the need to be correct at the start, to assure that the power of word-of-mouth will not turn negative and then increasingly build negative perceptions.

The risk of negative word-of-mouth is always present, particularly for companies where products may be incomplete at introduction. Negative word-of-mouth is substantially stronger, and works substantially faster than positive word-ofmouth. Using a word-of-mouth based strategy for a new product that does not meet expectations will provide rapid and permanent failure.

For all of its difficulties and risks, word-of-mouth has one powerfully vital attribute: it provides a method for reinforcement that is substantially better than any other medium. There is substantial research on the learning process that says, in essence, that the identical message is only effective the first three times it is received. After three exposures, the recipient becomes saturated with the particular message and interest declines rapidly. It is this finding behind the use of changing messages in advertising, behind the campaign concept.

Word-of-mouth provides continually changing messages to maintain and even enhance learning. Word-of-mouth involves multiple sources (the people who talk about solar) with, by definition, multiple messages. People who are the sources of word-of-mouth customize the message to fit their circumstances and experience.

The value of this customization is that it avoids saturation by providing different messages about the same product, avoiding the saturation point of the same message, and stimulating and reinforcing continuing progress through the learning process. It is for this reason that word-of-mouth has such a powerful effect in quickly stimulating purchase behavior.

The infrastructure concept and infrastructure communications recognize this unique characteristic of word-of-mouth and are designed to keep different messages flowing.

Product introductions that recognize this stimulating word-of-mouth effect focus on effective, customized communications to different segments of the infrastructure primarily to assure that word-of-mouth reinforcement communications keep moving, keep evolving and keep on target. Such product introductions recognize the requirement for multiple messages to multiple segments, they understand and plan based on the infrastructure concept, for changing but consistent messages, and they appreciate the fact that word-of-mouth is outside the marketer's control.

In my next post, I'll talk about ways to measure the effectiveness of word-of-mouth marketing.


Related Articles:
Word-of-Mouth Communications Part One

Monday, February 01, 2010

Word-of-Mouth Communication

The most likely way information about a solar product can be effectively communicated is through word-of-mouth.

Word-of-mouth has these advantages:

• The source is seen as credible, particularly in comparison with advertising since the source is a person known to the recipient. Ads are known to be created by the advertiser. Today, even editorial endorsements have the "taint" of being created by "public relations" tactics and therefore have less credibility than word-of-mouth communication.

• Word-of-mouth often deals with awareness, interest, the source's trial experience and product benefits all at the same time. This can move the recipient rapidly through the stages of purchase decision making and often even creating a reason for purchasing, all in one "exposure."

• It appears to have a more permanent effect than most other communications channels

As a result, second only to the task of creating intangibles for solar products and companies is the challenge of finding the most effective way to generate positive and relevant word-of-mouth.

But because word-of-mouth communication is out of the "senders" control, the requirements for developing essential messages, positions and reasons for purchasing is substantially different than it is for, say, advertising.

Advertising is as direct as standing across a small creek from the prospect, and signaling via messages of the advertiser's design, based on assumptions about the recipient's needs. Advertising is direct, controlled and immediate.

Word-of-mouth, on the other hand, is like swimming 40 miles underwater in a decaying swamp, with the mandate that the swim must be completed by a large group of other people under no control of the starting swimmer, via strokes that cannot be prescribed, and on a time schedule that cannot be forecast. And to add more reality to the metaphor, none of the swimmers can see each other.

With an advertising campaign, the marketer determines message, positioning and purchase reasons only weeks or at most months in advance. If a particular advertisement or campaign does not work, it can be pulled and redesigned.

With word-of-mouth communication, however, the initial positioning and messages once started through the word-of-mouth channel (swamp?) are completely outside the sender's control. They are also outside easy measurement. Consequently, they must be designed at the outset to survive the trials of time decay and the communications quality deterioration through a series of people who invariably have motives other than the marketer.

It is for this reason that the initial positioning and message development effort in a solar company is so critical: the risk of failure is so high, coupled with the need for a "hardened" yet buoyant position and set of messages that will work continually.

Friday, January 29, 2010

Creating Intangibles

Creating intangibles in an emerging market is -- by definition -- a creative marketing and a creative communications task. It is also a "steering" task, comparable to steering an ocean liner where feedback is limited and time is a critical variable. It requires the ability to think through what the customer needs are likely to be in the future, and to begin positioning the emerging product based on expected needs. Hence, it is both exhilerating and risky.

Often, the company's first attempts at bringing a new product to market will seem unsuccessful. Sales will not appear to increase. The messages will appear to be too early, the channels used to send messages inappropriate, or the intangible messages will be received but not correlated to a product.

Each of these apparent "failures" is, however, often a normal part of the process of learning that a potential customer goes through.

The process concept of learning is an vital one with regard to marketing planning. In most product markets characterized by some customer risk (in other words, most markets where the price is higher than a few dollars for a disposable commodity), customers will require three to twelve positive exposures to messages -- during the purchase cycle -- about a new product before they purchase. At the same time, we know that the same message reaches a saturation point after it has been noted three times. The way in which these two apparently contradictory findings - the need for up to twelve exposures and the saturation at three exposures - are fused helps explain the extraordinary power of word-of-mouth communication in an emerging business.

There are also some important caveats here. First, is there a purchase cycle? From the standpoint of perception, if there is no interest in purchasing, there is little chance that a message sent by mass communications channels will be received -- instead, it will merely be disInissed as clutter.

Second, is the message relevant? Even in situations where a customer is disposed toward purchase, if the messages are not on-point, they are likely to be discarded.


Related Articles:
Solar Product Perception

Tuesday, January 26, 2010

Determining Intangibles in Emerging Businesses

Determining intangibles in an emerging business is a special case within the disciplines of marketing and communication.

For an emerging business, the base of customers is small, and many customers represent innovators and early adopters, buyers whose characteristics are not typical of the majority of the future market. Indeed, attempting to build a business based on innovators is often a course that leads to bankruptcy. Even if the company does not fail, relying on innovators leaves the majority of the market open to new competitors who focus more effectively on the intangibles important to other adoption segments. It is this phenomenon that results in pioneering firms doing all the early eduction and market development, only to find the lion's share of the market falling to a later entrant.

Building intangibles for emerging businesses remains a special art, particularly in markets where the majority of customers are still classified as innovators. In this situation, traditional research techniques usually do not provide adequate insight into potential intangibles. Instead, management is often wiser to embark on a course of creating intangibles rather than searching for them in the customer base.

Related Articles:
Solar Product Perception


 

Saturday, January 23, 2010

Assessing Intangibles in Turn-Arounds

Determining how customers view product intangibles is easy in turn-around situations. The usual problem is that many of the intangibles no longer relate primarily to the product. Instead, they concern the company's performance. Typically in turn-arounds, most of the intangible aspects surrounding the company turn negative.

For public companies, with highly publicized financial difficulties, the sales force/channel will often spend most of its time trying to answer intangible objections about the company's performance and longevity. In addition, most product advertising is wasted because tangible product claims are overwhelmed by intangible concerns. Here, the challenge is to find ways to reverse the perceived decline in non-product intangibles. Often, a refocus on product intangibles is the most effective way to accomplish this.

The most difficult task facing management of a turn-around is objectively determining the company's current perceptual strengths and weaknesses. Turn-arounds are characterized by attempting to effectively deal with past failures. Failure is an emotional issue. Consequently, determining current perceptions and the areas requiring improvement is something most difficult for existing employees and managers to accomplish. Experience, objective external support is almost always required.

Wednesday, January 20, 2010

Determining Product Intangibles

In an existing solar business, with established products, customers and competitors, the process of determining the intangible factors that influence purchasing decisions is relatively simple. It means asking customers (and others who influence the purchase decision) two basic questions:

1. What factors in the purchase and use of solar power are important to you? and,

2. How does our solar offering compare on these factors to other alternatives (including related but not directly competitive products)?

This type of research is easy to describe but difficult to do. In my experience, many research efforts fail to achieve adequate answers to the two questions.

When it does, however, the results can be dramatic. In one recent case, interviews with 200 solar/PV customers and potential customers found that users valued the reputation of the supplier, the service and support provided, prior interaction with the supplier, and industry standards or certifications as the most important intangible attributes of the product. In fact, the tangible characteristics (i.e. PV system specs) ranked no higher than sixth in the customer's ranking.

However, this company had based the majority of its marketing and sales messages on tangible product attributes: conversion efficiency, crystalline vs thin film, panel specs, inverter specs, and maximum power.

The research was commissioned only after a period of frustration and declining sales, and after two new competitors had made substantial early inroads into the company's customer base.

After the product perception research was completed and after the company's sales and marketing messages changed to reflect the results, revenues reversed their decline and climbed twenty-four percent the first year, gross margins tripled, and the market value of the company doubled. All of this occurred with only a slight increase in marketing expenditures, and with no change in the tangible product.

Not all cases are this positive, of course. But enough of them are to demonstrate the power of marketing product intangibles.

Simple in concept as this type of customer focused research is, it rarely appears in discussions about the solar industry. Determining product intangibles and converting the knowledge into messages and programs is easiest in an existing market where competition is strong, such as the example cited above.

The process also works in emerging businesses and in turn-arounds, but the situations are different.

Sunday, January 17, 2010

Solar Market Leadership

There seems to be wide spread agreement that solar power is well on its way to becoming a commodity. And when it does, there will be a consolidation of the industry with only a handful of solar suppliers left standing.

So how does a company survive an industry shakeout? And what does it take to build a lasting position of leadership in an industry that makes and sells a commodity?

The answer is: those companies that effectively market their solar offering (using a mix of tangible and intangible product attributes) and are always in step with the changing preferences of the market.

The relationship between product tangibles and intangibles shifts dramatically as different stages of the adoption process are achieved. This shift in customer emphasis from tangibles to intangibles can be demonstrated as:

As products move through the adoption process, intangibles assume more importance. Often, pioneering new products or "first movers" lose their initial prominence because a new entrant is more successful in product positioning based on a more effective mix of intangibles. This can be the case even if the second product is not technically superior.

Apple was not the first microcomputer company, nor was the Apple II the first microcomputer. It was the first product to be called a personal computer, but much of the success of Apple, at a cost to MITS, Tandy and others, was the result of emphasis on intangibles.

Similarly, International Business Machines was not the first mainframe computer company. A number of others were ahead of IBM (generally, Univac is credited as being the first moderately successful mainframe company). But IBM was ultimately successful in dominating the mainframe market. The main reason was an appropriate emphasis on intangibles in the early stages of market development. Univac and the others continued to compete mainly on the tangible aspects of the product, even though the situation had changed.

The power of the tangible / intangible mix of the perceived product is so strong that it can be used to identify markets and segments where pioneers can be superseded.

This seems to be a persistent weakness in the marketing practices of solar suppliers today. Most solar companies are not working to build intangible attributes into their offering, and instead seem to be focused on just the tangibles (module efficiency, price, technical specs, etc.)

A number of solar/pv market segments exist, for example, where the major focus of suppliers should be intangibles. The solar installation business is also ripe for the effective marketing of intangibles.

Related Article(s)
Solar Product Perception