The Illusion of Price-Driven Market Acceptance

The Illusion of Price-Driven Market Acceptance

Low price is not enough

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:

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

 

 

 

A mainstream technology example

Mainstream 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 acceptance.

This misunderstanding is especially common in solar power and renewable energy. Even with lower and lower cost per watt, solar power is missing two key elements of market expansion: product intangibles and a compelling reason to buy. [The exception to this statement is the Sacramento Municipal Utility District (SMUD) which integrated ALL elements of a complete product into their solar program starting in 1991.]

Consider what happened with the personal computer (PC). Not only did prices go down (and performance went up) but MANY other things helped make the PC a mainstream appliance. One of the biggest factors was the addition of IBM’s backing and reputation to the desktop computing industry (does anyone remember the so-called “IBM compatible PC” standard?) IBM’s blessing along with other “standards” such as the DOS operating system and the ISA/EISA bus (i.e. product intangibles) all combined to reduce the perceived risk of buying a PC.

But the most powerful factor in PC market development was a compelling application called the spreadsheet. Early spreadsheet software (Lotus 1-2-3 and Context MBA) running on the PC provided a quantum leap in capability over the existing ways of manipulating numbers…with adding machines, calculators, pens, pencils and sheets of paper.

It’s true there are future benefits associated with solar such as greater environmental health and sustainability, but that’s like selling green bananas. The promise that someday a green banana will turn yellow is not compelling enough.