Archive for July, 2009

SolarFred is making sense

A post by SolarFred rang true with me.

To the Street, the solar uneducated, a solar panel remains a solar panel. The Street just wants to know how much it costs. It’s always the first question. There will increasingly be the pressure for installers to simply get these consumers that lowest price. The commoditization of solar is upon us, but perhaps not quite set yet.

How can your solar company resist this commoditization pressure? … [truncations mine]

… Think about Diane’s. This was New York City. We could have gone to any fast food place for our burger and fries, but we went to Diane’s. Why did we pay probably double the price for basically a Big Mac– plus 20% tip? …

… Think not only about your technological innovations, but your company’s “experience.” As your new solar products come on line, how will you better serve the solar installers that will be selecting these new innovative PV panels on the consumer’s behalf? Easier installation designs are obvious. Loan programs. Well vetted leads. Good training. What does good training mean? What does any of that mean? Define those things for you. Perhaps, if you create a unique Diane’s-like experience for your customers, whoever they are, you will be less susceptible to the 2010 fast food solar PV meat market to come.

As I’ve also written, the solar business is at a critical juncture.  If it doesn’t play its collective cards right, it will commoditize, and miss out on huge potential value capture in years to come.  If a commodity is something that cannot achieve attractive margins due to undifferentiated substitutes and ample suppply, I hold that nothing is inherently a commodity (even PCs).  The behavior of suppliers commoditize categories (vendors do it to themselves).

As SolarFred rightly states, solar players can act now to ensure margins remain healthy as the market grows.  In effect, he is calling for experiential branding of solar products and services.  But it is awfully tempting to minimize price, if you just brought on new capacity and need cash for next quarter.

Advertisements

To each his own ball game

David Churbuck is an exceptional writer.  Here is a sample from his recent post on scoring baseball.

I never think to bring a sweatshirt in this summer of damned rain, sunspot anomalies, and El Nino disturbances that makes the sighting of a lost snowflake a distinct possibility one of these evenings. I take my card – with the Kettleer’s Gothic Germanic Script on one side, the ad from UBS Wealth Management Services of Hyannis utterly out of place during this Deprecessionary Summer. And I settle in, arriving 15 minutes early to get a prime spot in the top row of the old bleachers (the pipe railing is a nice back rest and the old gents who have the Knowledge sit there). Popcorn bag gets wedged on the springy green foot plank of the bleachers so it won’t blow over and shower the miscreant delinquents under the stands with my dinner. Moxie gets saved for the end of the bag when the popcorn salt makes it imperative.

Then the card gets filled out. First the opponent.

image

He goes on to compellingly describe his discovery of the true baseball fan’s art of recording and analyzing every detail of a game.  And there I am lost.

His enjoyable post brings to mind the axiom “to each his own,” as throughout, I kept thinking “no way would I do this.”

Often, people don’t appreciate things because they haven’t gotten below the surface.  Witness NASCAR (here, the baseball connoisseurs gasp that I would dare draw this parallel to the Sacred American Tradition, and begin to plot my dismemberment).  On the surface, NASCAR is a bunch of loud cars, purposefully limited to a clunky design style referencing moonshine running getaway cars, going around an oval hundreds of times.  Not so interesting.  But wait!  Study the driver and team histories, the latest dirt on who bumped who and who threw their helmet, and don a pair of headphones that pipe in the driver-to-spotter-to-crew chief radio chatter about tire wear, and you really get it!  I’ve sampled this, and I still can’t make myself watch.  But clearly many do, and have the flags on their porches to prove it.

It seems that America specializes in obsessive behavior.  The term “all in” seems to describe anyone who meets the minimum requirements for participation.  For instance, I know of no one who claims to be a cyclist who is without $3000+ of gear and who doesn’t look like Lance Armstrong when saddled up.  My friend is psyched to be driving to Florida (12 hours?) to acquire a bike worth $4000 for less than $2000.  And don’t show up to rock climb without a massive rack of gear and tape over the rips in your fingertips.

image image

I can get as obsessive about a new interest as anyone.  I’ve recently dipped my toe in the water of disc golf, which my kids label my latest “phase”, and now own 11 highly necessary discs with different flight ratings.

But man, as much as I appreciate the cultural import of baseball and genuinely seek common ground with its adherents, keeping an encoded score sheet (and cross referencing it with the published box score later!!) about a game that requires frequent trips to the concession stand to keep me at the park, sounds like self-inflicted water boarding.  I’m starting to appreciate my brother’s conditions of participation in sports: “OK, I’ll go, but only if you don’t try to help me improve, or suggest better equipment.  I just want to have fun.”  Ironically, this is the same brother who scored baseball games as a kid.

Well, back to pruning my Japanese maples.  Did I mention I have six varieties, including dissectum and palmatum cultivars?

image

Strengthening Solar, part 3

This will complete my summary of how the market for solar energy can be strengthened through demand development.

The true source of module pricing pressure is project developers seeking the minimum price that can be paid to maximize internal rate of return. Forcing manufacturers to compete on price and performance will lead to wholesale margin compression, precipitating a shakeout of high-cost, undifferentiated suppliers.

GreenTech Media Research, 2009 Global Photovoltaic Demand Analysis and Forecast, March 31, 2009

The ruination of entire sectors of the economy has been due to such price-based competition.  So it is my sincere hope that the solar industry can avoid “commoditization.”

As parts 1 and 2 of Strengthening Solar hopefully established, enhancing and reshaping demand can improve both volume and margins for the solar industry.  This can come about through good marketing.  Unfortunately, the industry is already in a tough place with oversupply, rapidly decreasing prices/margins, and low marketing budgets.  Even I wouldn’t ask a solar CEO to authorize a multiplication of the marketing budget, and I’m not shy about that sort of thing.

What the industry can successfully do is band together for the sake of the whole category.  It should pool marketing funds to build demand – emotionally fueled demand – for solar electricity.  This is not without precedent:

As Baba Shiv of Stanford, and many others, have shown in research, a branded, emotional value proposition will result in higher margins and growth.

Eventually, specific purveyors of solar offerings will need to invest in brand distinction among competitors, but for now, the solar category itself needs to be branded.  Solar electricity can be desired over other sources, even though there is no perceivable difference in the consumed product (a flow of electrons, a bright light bulb).  I assure you, Jim Rogers of Duke Energy can tell you about emotional power, observing the occupants of his front yard, who would rather have solar than the new Cliffside coal plant.  People can be encouraged to care where their electricity comes from, and that drives choice and margin.

Think about it:  people didn’t connect labor ethics with clothing until recent years.  Now, a shoe company using children to make shoes would be gone in a week, even if they were cheaper.

There is a fixation with “grid parity” price (the price at which solar vs. traditional sources is equal).  Thus, the markets are being trained not to pay a premium for solar — to value it only for the watts delivered (there is some mention of avoiding fossil fuel cost increases, etc., but price is the top of mind issue).  Again, sophisticated research has shown that people devalue things sold on price.  There is much more to recommend solar energy, and these merits can be amplified through an industry-wide campaign.

If the industry can focus on the health of the market, all participants will benefit, vs. racing to the bottom in a price war.  Think of the solar market as a pie, with diameter (volume), and depth (margin).  Right now, it’s small and thin, a tartlet.

image

Even if today’s stronger solar companies invest their limited advertising budgets to consolidate share, they may only end up with a slightly larger portion of a tartlet, vs. banqueting on a much bigger pie later.  The upside for the market is SO large, it makes more sense to focus on growing the pie, both depth and breadth (= profit).

image

So, I’d like to suggest the creation of a program, sponsored by a body of solar industry players (such as SEIA).  The program would be funded through a set-aside of a small portion of revenue, and perhaps underwritten by the federal government’s clean energy stimulus funds.  It would act to understand the motivations of the customer, develop top-of-mind awareness among the right target audience, increase consideration rates, raise the image of solar, and drive leads to installers.  Pull to go with the government’s policy push.  Net:  more people would desire solar at higher prices.  Yum yum.

I have specific ideas on how this program would work, and will happily discuss with people of serious intent.  Please comment here, or reach me at craig (at) inventivebranding (dot) com.

Good looking clean energy

I ran across this cool product.  It is an LED street light, with a wind turbine and solar module, mounted on the same pole, over the light.

image

This product, sized to fit in a residential neighborhood,  is sold by a company called Urban Green Energy.  It generates electricity when the sun is shining and/or wind is blowing, and stores it in a battery to power the light.

As designers strive to create a more sustainable future, we’re thrilled to see designs that integrate a variety of renewable energy technologies into objects we encounter in everyday life. This innovative hybrid wind and solar powered street lamp is just such a solution – not only does it use renewable energy to provide light, it’s a stylish update to an everyday object that is capable of operating completely off-grid.

I imagine it could also be configured to supply power to the grid in its neighborhood.  It’s much nicer looking than any off-grid solar powered device I’ve seen installed, but I think it would look better with one less technology.  I also think it’s funny that “green” products are often painted or logoed in green, presumably so we get the environmental point.

Here is another similar concept (which exists in real life), a “tree” with solar cells on top of the round pods, and lights below.

image

This activity is encouraging, as aesthetic appeal will help clean energy devices move out of the early adopter phase (the people who want their solar panels or wind turbine to be obvious, like their Prius).  I hope a lot of the best industrial designers will move into this space.

Strengthening Solar, part 2

In part one, I suggested that the solar industry, with such vast upside, has a problem with demand.  There is not enough demand at today’s sustainable price points to consume the rapidly increasing supply.  Price subsidies will help, but to maximize profitable growth, more people need to understand and desire solar power.

The following is an oft-used way of looking at how potential customers move from awareness through purchase — the funnel.  Each portion of the funnel can be measured.  For example, Consideration is the percentage of the market population which is seriously considering purchasing.  People cannot consider unless they are aware (the top of the funnel), and people will not purchase (bottom of the funnel) without considering.  These stages are mathematically related, and can therefore be used to diagnose problems or prescribe remedies in markets.

image

The notes to the right are my assessment of the current situation in the solar market.  I haven’t made the measurements, but these are directional projections based on other data.  My summary view of solar demand health:

a. top-of-mind awareness (this is highly correlated to sales) is low; general awareness is good;
b. consideration rate (percentage of those aware who also consider buying) is low;
c. there is little understanding of product offerings, prices, and financial mechanisms;
d. knowledge of suppliers and buying process is poor;
e. rationale for purchase is vague;
f. social or emotional motivators are not powerful.

Marketing can be employed to improve these factors of market health. Imagine if: solar occupied a place in the forefront of potential customers’ minds; those people had a specific idea of why it is good, how much it costs, and how to buy; a higher portion looked into purchasing; and a higher percentage of those shoppers bought.  The result, in economic terms, would be a reshaped demand curve and a move to the right.

image

This moves the intersection with the supply curve to a point where both quantity and price are higher.  The industry sells more at higher prices.

image

Unfortunately, there is currently very little end-user marketing investment. Low margins and technology focus have led solar manufacturers to keep marketing budgets small.  Also, the installer channel is nascent, lacking  marketing expertise and resources.

So am I suggesting that already stretched players add a few (marketing) expense to drive long term profitability?  The purist in me really wants to, but no.  I’ll outline a more viable idea in Part 3.

Dear Google: how to market Chrome OS

image

Asking people to use a new OS is like asking them to change how their car works – steer with a joystick instead of a wheel, brake with the right pedal instead of the left.  Not welcome, or easy.  Here are three things you can do to increase probability of success of Chrome OS.

  1. Use your brand power to help the PC OEMs.  They want differentiation, and they want low cost, but they will shy from the trouble of a new OS without the branding carrot.  I know you actively avoid creating Googzilla, but if you want the OEMs to prioritize Chrome OS over alternatives, give them a reason beyond a hole in the head shiny new OS.  I.e., surround the PC with a glowing Google brand endorsement halo.  I’m talking about visible branding, and spending actual marketing money.  This can’t be your tried and true “build it and they (geeks) will come” strategy:  geeks are not the netbook target, and you are too omnipresent to be coy.
  2. Set up demos in Best Buy, under a very visible Google brand.  Microsoft is trying to emulate Apple’s retail experience, because people want to experience cool stuff that Just Works.  So show them the cool stuff you can do with Google.  Show them the hidden gems in search, Docs, Gears, Wave, Trends, Maps, etc.  Most people don’t have time to just happen upon this stuff.
  3. Work with Apple to enable iTunes on Chrome OS.  People use netbooks for social media and content consumption (like music).  This gap is a non-trivial barrier to Linux on netbooks.

OK, 1 and 2 above are not very Googley.  They are counter-cultural for you, and therefore a risk to your brand position.  But if you want to play in the OS space, you’ve got to have distribution through PC preloads, and the above are dependable approaches.  But here are some slightly more Googlicious ideas that would help you stay on-brand.

  1. Write an open letter to potential buyers explaining what is good about Chrome OS and asking them to try it.  People like to be asked.  Gmail’s launch, in which people had to ask you for permission, was clever, but you’ve outgrown it.  People root for the winners, until they win a lot;   then they fear and vilify them.  The only remedy is transparency, authenticity, and no evil.
  2. Create and promote an online demo that realistically enables users to experience Chrome OS.
  3. Offer a conversion tool.  Something that will help people move onto the cloud.
  4. If it can be done in a non-gimicky way, run servers directly related to Chrome OS on renewable energy, consistent with your corporate pledge.

I’ll be interested to see what happens.

del.icio.us Tags: ,,

Strengthening Solar, part 1

I’ve been studying clean energy – and solar in particular.  Solar appeals to me for its technical elegance and ability to address a number of challenges we face.  The upside for the category is stunning:  today’s $30B solar sector accounts for only 0.15% of the world’s electrical generating capacity, while total consumption from all sources is projected to rise 77% by 2030.  And due to its environmental benefits, it is well aligned with public and political sensibilities.

image

However, the industry is at an important juncture which threatens its profitable growth.  Fortunately, marketing can be applied to help.  I’ll propose an approach in three posts.  First, an assessment of the problem.

Like many high tech industries, solar companies and advocates pay much attention to technical advancement and cost (the most output per dollar wins, right?).  New levels of electrical generation efficiency and lower cost are achieved on a regular basis.  Cost per kilowatt hour is a particular focus for manufacturers, as solar electricity is currently more costly than alternatives, even with solar manufacturers lowering prices aggressively.  Lobbyists and politicians have been working on bridging this gap through a variety of pricing interventions, but the gap is projected to remain for a few years, and buyers are holding out.  In fact, I submit that they are being trained to buy on price.

We can envision a kinked demand curve, where quantities demanded vault higher once “grid parity” prices are achieved (equal price to alternatives).

image

[Source of charts: me, deducing from much industry data.  I’m not an economist, but I play one on my blog.]

There is another issue.  A great deal of new production capacity has been brought online, exceeding quantities demanded, even at subsistence level prices.

image

Since there is a surplus, we can anticipate prices and margins will fall further. Government incentives may not be sufficient to enable supply and demand to balance at sustainable margins, which will force solar suppliers out of business, leaving the remainder with scorched earth (low margins and a commoditized category).  Sources of investment capital consider this a Bummer, and are largely opting out of new solar deals, stalling innovation and growth.

Unless we believe that governments will make up the remaining pricing gap in a sustainable way*, some other variable must change to promote profitable growth.  Here it is:  in order for purchasers of electricity to increase usage of solar, they must desire solar electricity over other sources, and be willing to pay a premium.  Demand itself needs to shift.  This can be accomplished through marketing.  Further, if customer desire can be fostered, margins will be sustained even after unsubsidized grid parity cost is achieved.  More to come in part two.

*Note:  Even where governments have created compelling incentives through feed-in tariffs, there is reason for concern that pushing supply without a balance of demand “pull”  leads to an unhealthy market. Witness Spain, where extremely high feed-in tariffs led to fraudulent installation claims, oversupply, and now a cap on incentives that will shrink the 2009 market to perhaps 20% of last year’s sales.

del.icio.us Tags: ,,