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.


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Product Adoption Fundamentals

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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.

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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.


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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.

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Intangibles Develop New Markets

One of the most famous examples of the power of product intangibles is xerography. In the late 1950's, the Haloid Corporation (the predecessor of Xerox Corporation) developed the first dry copier, but ran short of funds for marketing. Haloid approached IBM with the notion that IBM handle distribution. The idea seemed to be a good one, in that IBM had the sales force and service organization that Haloid would otherwise have to establish.

IBM hired Arthur D. Little, Inc. (ADL) to do a study of the market for dry copiers. ADL reported that the entire U.S. potential market was 5,000 machines. The study was used as one of the factors in IBM's decision to reject the Haloid offer.

So, with limited resources, Haloid brought the 914 Xerox copier to market. In the first two years, even though production was constrained, over 10,000 units were placed in use. Twice as many copiers than the predicted potential of the total market were sold. This story, and others like it, demonstrate the power and value of the tangible / intangible product concept.

ADL and IBM looked primarily at the tangible product. Haloid, on the other hand, concentrated more on intangibles. The 914 was sold in a unique way: based on a flexible utilization plan (in other words, on an intangible).  A customer could acquire a Xerox 914 for as little as $95 per month, which covered the machine and the first 2,000 copies per month. Additional use was billed on a cost per copy scale.

Customers bought double the projected total market forecast in the first two years primarily on the intangible aspects of the product. This is but one of many examples of short-sided research that focused more on tangibles than intangibles.

It has become a premise of the industry that research cannot uncover a market for a product that does not yet exist. But this premise is wrong. The problem is not with research, per se, but with research that focuses exclusively on the tangible product factors.

Good qualitative research, conducted by well-experienced professionals, often can elicit glimpses of markets based on intangible factors that might otherwise be ignored.

Are your market research efforts focused on the tangible or intangible side of solar/photovoltaics?

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About This Blog

Welcome to the Solar Strategies Blog.

This blog is dedicated to solar market development. My goal is to share advice, resources and insights I think will help solar suppliers be more successful today and tomorrow. I’ll talk about where the solar industry is now and where it’s going, focusing on the market-development techniques, ideas and strategies I believe will make a difference.

I invite you to participate. Please post comments, start a discussion or send me your feedback directly. I'd love to hear your thoughts.

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