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.

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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.

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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

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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.

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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.

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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!!!!

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