The Illusion of Price-Driven Market Transformation

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 high-tech 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." The following graphs (average selling price vs. units shipped) imply that 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 marketplace. For GPS, the intangible drivers of market acceptance were:

1. (1983) In response to an act of international terrorism, President Reagan calls for public availability of GPS
2. (1989) Magellan ships the company's first commercially available GPS product. Other manufacturers soon follow.
3. (1991) The U.S. government announces GPS will be "free" for 15 years
4. (1995) A 24th satellite completes the GPS support infrastructure and provides worldwide coverage
5. (1996) The U.S. government announces GPS will be free for the foreseeable future

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. In reality, there is no guarantee solar electricity will become mainstream when it costs approximately the same as conventional sources.