As you already know, the residential solar market is in transition. The industry is shifting from a third-party ownership (TPO) model that favors companies such as SolarCity, Vivint and Sunrun, to a customer-owned model that favors local and regional suppliers. Meanwhile, government subsidies are in a state of flux and the price of solar equipment continues to drop.
Along with these shifts in financial structure is an inconspicuous change in customer characteristics. Extended sales cycles, difficulty finding new customers and expenses growing faster than income are all indications of a transition from a market made up of visionary early adopters, to a market dominated by pragmatic mainstream buyers.
This shift in business model and customer characteristics has already had a profound effect on the solar industry. Bankruptcies, consolidations and outright industry exits have become everyday news. And although this sounds like a dire situation, most folks overlook the fact that, in the last 15 years, 52% of Fortune-500 companies have disappeared. This means companies (even really big well-known brands) aren’t always providing what customers want to buy. In residential solar, many currently-successful companies will fail, and companies that are virtually unknown will become market leaders. It’s difficult to predict a winner under these conditions, but the companies that recognize the needs and requirements of mainstream buyers and tailor their offering to meet those requirements, will be the winners.
Everyone in residential solar wants to “crack the code.” The first to discover the right combination of products, services, and business/management processes will have the advantage in an enormous untapped market. And when a mainstream market forms it often happens very quickly, which allows its initial leaders to become very, very successful.
The overall penetration rate of rooftop solar is still relatively low, which means there is a massive new market of prospective buyers. The winner(s) will receive all of the benefits that accompany the position of “market leader.” And complimentary suppliers will be fighting over the right to become your business partner.
The spectacular growth of solar that has been interpreted as a ramp in sales leading smoothly up the curve is in fact an initial blip caused by innovators and early adopters, and not the first indications of an emerging mainstream market. What must be recognized is the fundamental difference between a sale to an early adopter and a sale to the early majority. Before a majority of homeowners agree to buy in, the solar product available today must be augmented with a variety of intangible attributes. Although price plays a role, cheaper solar is not the answer.
Once residential solar products become “complete” in the mind of a mainstream audience, a new reality will emerge. Instead of relying on lower costs to drive market adoption, and scrounging for sales leads that yield poor results, the solar supplier will use intangible product attributes to attract new customers, technology leadership will no longer be mandatory, and profit margins will be more than adequate. This process of adding intangibles to the solar product offering must continue (and increase) as vendors penetrate deeper into the residential solar market.
I have seen comparisons made between residential solar and the ubiquitous personal computer. The intent is to provide an analogy of how solar technology can become adopted by a mainstream audience.
I think this is a reasonable comparison, plus I did a lot of perception research during the time PCs were first being adopted by mainstream users, so let’s consider what happened in the personal computer industry. Not only did prices go down and performance went up (sound familiar?), but many other things helped make the PC a mainstream appliance. The biggest factor was the addition of IBM’s backing and reputation to the desktop computing industry.
There are both tangible and intangible attributes to every product. A consumer buys a perception as part of every tangible product. IBM didn’t make a single hardware or software component in the “IBM Compatible” PCs made by Dell, HP, Acer, Toshiba, etc. IBM only added perception….and it was the most important attribute of that product. The most common misunderstanding I see is the belief that price and business efficiency drive market adoption.
The IBM-compatible PC standard was a de facto set of specifications that included the form factor (ATX, AT), the BIOS and it’s extensibility through ISA (now dead) and later PCI, and above all: an implied compatibility with the IBM world of computing. IBM’s blessing along with other “standards” (i.e. product intangibles) combined to reduce the perceived risk of buying a PC. This is what must happen for solar to be accepted and adopted by mainstream homeowners. And fortunately there are a few small areas across the country where this approach is being implemented.
I’m not sure if this is a blessing or a curse, but I happened to be a member of the Crossing The Chasm development team along with Geoff Moore all the way back in 1989-1991 while working at Regis McKenna Inc. So having helped create the Crossing The Chasm framework, it is sometimes painful to see the occasional misinterpretation or misapplication of the Crossing The Chasm methodology.
After recently watching several members of the solar industry misinterpret Crossing The Chasm at InterSolar North America, I thought it might be helpful to: re-visit the foundation of the Crossing the Chasm framework, provide a rough first-look estimate of solar market penetration, and then offer a few suggestions about how to recognize the unique characteristics of solar market adoption.
Crossing The Chasm (CTC) is a theory that seeks to explain how, why, and at what rate disruptive or discontinuous ideas and technology spread. It is fundamentally a study of the psychological characteristics of buyers. The underlying thesis of Crossing The Chasm is that innovations are absorbed into any given user base in stages, corresponding to their psychological and social profiles.
Because adoption rates are based on psychological profiles — personality, values, opinions, attitudes, interests, and lifestyles – the exact point at which a technology penetrates a given group, or crosses the chasm, can be very difficult to measure. And it is important to recognize that Crossing the Chasm does not say that transitions from one group of buyers to the next are smooth or well defined.
Many organizations use a technology adoption curve (shown below) that indicates early adopters are on BOTH sides of the chasm. This is because exact buyer-transition points are nearly impossible to identify. So be careful when trying to pinpoint the specific date or timeframe in which a market chasm has been crossed.
An Initial Look At Solar Market Penetration
If you look at the breakpoints of a bell curve that is used to represent technology adoption, you will see that innovators represent 2.5% of an available market, early adopters represent 13.5% of an available market, and the early/late majority represents a whopping 68% of the available market. So it is sometimes possible to get a VERY ROUGH estimate of market penetration by using simple mathematics.
Let’s look at residential solar as an example. The U.S. Government Census says there are approximately 72 million single-family detached homes in the US, and NREL says 25% of those are “solar compatible” so the available market for residential solar in the US is around 18 million houses. An early market made up of innovators (2.5%) and early adopters (13.5%) represents 16% of the available market, so in rough numbers, once you pass 2.88 million residential solar installations (or 16% of 18 million), you can say you’ve probably crossed the chasm.
BUT WAIT! It’s not quite that simple. As Pamela Cargill has pointed out numerous times, the markets for residential solar are highly localized. For example, the same math exercise applied to Sacramento County, CA yields the following: there are approximately 310,000 detached single-family houses in the Sacramento area and if 25% of them are solar compatible, that means the available market in Sacramento County is roughly 77,500 houses. Brent Sloan at SMUD tells me there are approximately 14,000 single-family homes with solar in SMUD’s service territory, which means 18% of the available market has adopted solar. (Remember, innovators and early adopters represent only 16% of an available market) So our preliminary “first look” analysis indicates residential solar has crossed the chasm in the Sacramento area. However each location or area in the US must be analyzed separately.
Public Policy Blurs Solar Adoption
On top of the inherent difficulties in measuring localized, psychographic behavior, you must factor in the effect of public policy and incentives, which act to BLUR market dynamics. The psychographic sequence that is the foundation of Crossing The Chasm (innovator – early adopter – early majority – late majority) can be skewed by government or utility programs designed to encourage or accelerate the adoption of solar. A solar-friendly utility that satisfies a compelling reason to buy by offering a complete product — familiar buying experience, a standardized system, tax credits, credible references, attractive financing, streamlined permitting/interconnection, etc., etc. — will reduce risk in the eyes of a mainstream customer so that adoption occurs before it normally would in a purely commercial setting or market.
My colleagues — Steven Strong, Don Osborn, Don Aitken — and I first discovered this skewing of solar adoption when conducting a review of SMUD’s PV Pioneer Program in 1999. People who fit the psychographic description of the early and late majority were among the first to sign up for residential solar because the combined effect of SMUD’s multi-faceted solar program lowered risk so dramatically, it caused pragmatic buyers to adopt solar early, rather than late. (Keep in mind that SMUD’s PV Pioneer program was ten times more comprehensive than anything a utility offers today. So the reduction in perceived risk by the customer was truly unparalleled)
The bottom line is solar adoption is influenced by a unique set of artificial variables, making buyer-transition points even harder to recognize. And marketing solar requires an in-depth understanding of the Crossing the Chasm model, plus the willingness to adapt to skewed adoption patterns.
For those who supply or install residential solar products, you will need to analyze the local market(s) you serve, and gauge the impact of local policy initiatives, then adapt your product offering and marketing messages to match the local environment in a way that satisfies the needs and motivations of targeted buyers.
And of course a similar analysis can be done for utility-scale solar, which should start with some understanding of the “available market.”
If you have questions about Crossing The Chasm as it relates to solar, I would be happy to answer them.
Most of us learned at a very early age that it’s not a good idea to kick sand in the face of the biggest kid in school. Unless you enjoyed getting pounded into the ground like a tomato stake, the best strategy on the playground was to avoid physical confrontation with those who are twice your size.
This simple lesson in life also applies to the practice of marketing.
The number one rule of marketing is never attack an entrenched competitor in his or her area of greatest strength with an emerging technology. (especially not with an emerging technology like solar)
Yet that is exactly what many people in the solar industry actually do by promoting solar as a “reliable” source of electric power.
Every week I hear a solar vendor or clean energy lobbyist or solar advocacy group proclaim that the solar industry needs to emphasize “reliability.” Well like it or not, reliability is a key strength of solar’s biggest competitor…the electric utility industry. So claiming reliability as an advantage of solar is like challenging Lance Armstrong to a race immediately after learning to ride a bicycle.
Not only does solar provide something that people already have (electricity), but their current supplier (the electric utility industry) has created an enduring public perception of being the most reliable source of electric power. The utility industry spent more than 70 years building their reputation and all electric utilities are perceived as having specific advantages — reliability, unlimited capacity, plug-in ready, and constant availability.
Utilities are the 900-pound gorilla of the electric supply “playground” and power from the grid is perceived by the public as the safest, most reliable choice.
Those of us in the solar industry know that PV is in fact very reliable. But utilities have already captured the reliability square on the game board. They own that part of the playground. And it’s a waste of time and money trying to compete against a 70-year-old public perception that utility power is the most reliable. There are many other ways in which to successfully compete against electric utilities.
One more thing. Next time you are playing basketball at the local gymnasium, don’t challenge LeBron James to a game of one-on-one. The results won’t be pretty.
Most of us think of Thomas Edison as an inventor. But if you look closely, you’ll see Thomas Edison had an expert understanding of technology adoption and marketing strategy.
Edison made the first public demonstration of his incandescent light bulb on December 31, 1879. And in 1882 Edison dramatically accelerated the adoption of electric power and light to the early majority using specific techniques designed to humanize his new invention.
Edison’s strategy for accelerating the adoption of electric light was based on minimizing disruption to people’s lives. Since gas lamps were the dominant method of indoor lighting, Edison designed his electric lights to look and operate almost identically. His initial electric lights provided 13 watts of light, almost the same as the 12-watt gas lamps he wanted to replace. The new electric lamps looked almost exactly like those same gas lamps.
Recognizing that many commercial and residential landowners in New York had invested considerable capital in gas infrastructure to light their buildings, Edison chose to run his first electrical wires through existing gas lines, fitting directly into the system people already understood for the delivery of light.
Edison’s technology was new, but the form and function were decades old. In fact, Edison’s strategy of adapting his technology to systems people were familiar with, and minimizing disruption of the customer’s habits, led to accelerated acceptance and adoption.
Edison’s other ingenious marketing strategy was in selecting the location of his first customers — financial institutions in lower Manhattan. Seeing the windows of the financial district aglow by night demonstrated electric lighting technology to the metro population living across the Hudson River in New Jersey.
Because the financial community was seen as a credible source of innovative new products, Edison helped meet the reference requirements of the early majority, who then shared the idea with their local communities. This endorsement of electric power and light, as demonstrated by a credible (and influential) reference in a visible location, had tremendous influence on the rest of the country.
Technology organizations of all types can learn from Edison’s techniques. The more a supplier works to reduce disruption, lower perceived risk, and provide credible references, the faster adoption will occur.