May 2011: Take a consumer-centric view when pricing your microgeneration product

By , May 10, 2011 9:28 pm

May 2011, Market Intelligence Article for Sustainable Business Magazine, reproduced with permission.

Peter Winters, President, Haddock Research & Branding

Double-click on the offprint below to see it in a larger size.

 

Pricing is a crucial element of the marketing mix for microgeneration companies. When pricing their products, companies should try to understand the specific decision-making of their target customers. This decision-making will be different for different types of microgeneration system. This article was written with the commercialisation of the Ceres Power micro-CHP prototype in mind and using primary research data we have collected about it.

 

The commercialisation of a microgeneration product is characterised by a long, risky voyage of many steps and travel metaphors. To cross the ‘valley of death’, the company will require sound decision-making as to the best route, choice of travel-partners, and confidence with adverse investor conditions. Overall, a strategic road map will be needed to move the company from the land where they are ‘developing something they know how to build’ to ‘marketing something that people will want to buy’. At product launch, the company should have a very clear idea about how their microgeneration product could help their potential customers, using appropriate pricing and taking into account a dynamic market environment.

In 2008, BERR[1] published a valuable overview about the growth potential of microgeneration[2] to spur progress in this sector. Centrica has taken on this challenge and early in 2011, began recruiting for a Head of Microgeneration to help the company ‘develop a market leading business in Microgen’[3]. One of his[4] responsibilities will be to conduct research to determine the price-volume curves of a particular type of microgeneration device. This article is about suggesting additional ways of understanding how such products should be priced, likely complimentary to the pay-back-period, conjoint and accounting approaches which are sometimes used[5].

To help companies become more consumer-centric, a powerful approach is to understand ‘the consumer journey’. This is about understanding how members of their core target market go about selecting the specific type of product that the company plans to sell. I mentioned this approach in my March 2011 article with respect to pharmaceuticals and offsets[6], and as a much discussed approach in marketing circles, I would like to acknowledge some fellow travellers who have influenced me over the past week.

First is Eileen McCormack, marketing director of AstraZeneca Canada who, after a recent pharmaceutical conference[7], told me that mapping out the patient journey is the foundation for a good marketing strategy plan: understanding all the steps, the decision makers and the influencers on the buying decision means that you understand the market dynamics. Another is social media expert Michael Coulson[8] from Sequentia Environics, who described how they do very detailed ethnographic research amongst a small number of the key audience to understand what really makes them tick. With this in mind, let me outline a personal consumer journey for installing my first ground source heat pump[9] in Sussex, back in 2006.

Influenced by a Sunday lunch conversation with my sister-in-law, where she said that none of us actually did anything about climate change, I looked in earnest about how I could switch my house away from oil. Living in a village, I was one of the 14%[10] of English people with homes unconnected to mains gas. I developed a mind-map plan for this project and my main financial justification was to do with concern about tight energy supplies and oil-price shocks. It also took into account getting best value for money between different suppliers, the likely price direction of technology developments and working out the best way to pay for it. Once the system was installed, the most common question I got asked by neighbours was my estimated pay-back-period. It made me feel I had not done due diligence, yet in truth, pay-back-period had little to do with my financial reasoning for the system. Indeed, given what has happened to the price of oil since then, any estimate would likely have been inaccurate. According to a BERR survey[11], I am in the 26% of early-adopters who are unable to estimate the pay-back-period of their microgeneration product.

In a nutshell, when pricing their products, companies should try to understand the specific decision-making of their target customers. This will be different for different types of microgeneration system. It is about understanding how their customers would choose the ‘risk of purchase’ compared to the ‘risk of not-purchase’[12].  As psychologist Leora Swartzman said at the same conference, the notion of regret is a powerful marketing tool. Can you get target customers to consider the regret they may feel of not buying your microgeneration product?  The sooner they act, the sooner they start saving money and to be insulated against the risk of oil or gas price rises.


[1] Although BERR published the report, it has since been amalgamated with DEFRA into DECC. This report is now available on the BIS website, currently accessible at http://www.berr.gov.uk/whatwedo/energy/sources/sustainable/microgeneration/research/page38208.html

[2] ‘The growth potential for Microgeneration in England, Wales and Scotland’, (2008), Element Energy & TNS,

http://www.berr.gov.uk/whatwedo/energy/sources/sustainable/microgeneration/research/page38208.html

[3] The job specification for ‘Head of Microgeneration – Energy Technology and Innovation’ posted by British Gas in March 2011.

[4] The use of the masculine gender includes the feminine and is employed solely to facilitate reading.

[5] ‘The growth potential for Microgeneration in England, Wales and Scotland’, (2008), Element Energy & TNS,

http://www.berr.gov.uk/whatwedo/energy/sources/sustainable/microgeneration/research/page38208.html

[6] ‘Think about consumer pain when marketing offsets and electric cars’, Market Intelligence article for Sustainable Business Magazine, March 2011, http://low-carbon-marketing.com/march-2011-think-about-consumer-pain-when-marketing-offsets-and-electric-cars.php/

[7] In a panel discussion at the 2011 Canadian Pharma Market Research Conference, April 12/13 2011, Toronto, http://pharmamarketresearchconference.com/canada.html, the point which particularly interested me was when Eileen McCormack had found the ‘patient journey’ approach very useful when first starting a program of research for a product. When I later followed-up with her about this, she explained that “mapping out the patient journey is the foundation for a good marketing strategy plan: understanding all the steps, the decision makers and the influencers on the buying decision means that you understand the market dynamics”.

[8] Michael Coulson has been responsible for running the Globe and Mail ‘Catalyst’ community which I mentioned in my December 2010 article, which has recently won a number of industry awards – http://sequentiaenvironics.com/blog/464/sequentia-community-program-wins-3-golds-at-the-ace-awards .

[9] In 2005, it was estimated that there were 546 ground source heat pump systems installed in the UK; See ‘Potential for Microgeneration Study and Analysis, Final Report, 14th November 2005, slide 22, http://www.berr.gov.uk/files/file27558.pdf

[10] ‘Climate change and the home’, Environmental Choices 2008, Haddock Research, slide 74,

[11] The Growth Potential of Microgeneration in England, Wales and Scotland, Appendix 4, Survey of Early Adopters, Page 1, 21st – 23rd January, 2008, TNS, http://webarchive.nationalarchives.gov.uk/+/http://www.berr.gov.uk/files/file46424.pdf

[12] One of the strategies that microgeneration companies should consider is how to get consumers to actively consider the risks of inaction. They need to get consumers to challenge ‘business as usual’. In line with the notion that you should ‘never waste a good crisis’ (see ‘Clinton: Never waste a good crisis’, 6 March 2009, Reuters, http://www.independent.co.uk/news/world/americas/clinton-never-waste-a-good-crisis-1638844.html ) there is an argument that microgeneration companies should monitor the level of risk consumers feel about climate change, oil prices and other external factors which might impact their interest in microgeneration devices.

There is specific evidence from Environmental Choices that people who are more concerned about the risk of climate change are significantly more likely to be ‘an Enthusiast’ for a mCHP boiler (see ‘Green energy companies and micro-CHP’, Environmental Choices 2008, Haddock Research,

The product profile was based on the prototype being developed by Ceres Power.

In the survey, respondents were presented with the product profile of a mCHP boiler. In England, amongst a nationally representative sample of 650 owner-occupiers on mains gas, 17% were ‘Enthusiasts’ for this mCHP boiler as defined by finding the description of the mCHP boiler ‘very appealing’ and that they would be ‘very likely’ to install. Respondents were also asked how they felt we should deal with any risk associated with climate change. 38% of this group think that we should focus on making changes now, 43% think there should be a balance between making changes now and dealing with problems if and when they occur, and 20% think we should deal with problems if and when they occur, or did not have an opinion on the matter. Amongst those who think we should focus on making changes now, 25% are Enthusiasts for the mCHP boiler, significantly more than the proportion who are Enthusiasts in the other groups – 13% and 10% respectively.

Further discussion about how people’s perception of climate change risk aligns with their concern about climate change, and how Climate Citizens are more likely to be Enthusiasts for this microgeneration device has been covered in my January 2011 and April 2010 articles respectively.


 

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