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.

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