Price, place, product, promotion — the four Ps of marketing are drummed into every marketing and business school student as the basics of market strategy. True…but everything is relative and as the energy industry remains subsidized, mandated and subject to government manipulation, it can be difficult to get the four Ps to work in concert with each other.
For those who need a refresher: Price is the monetary value at which the product or service is sold, place is where it is sold, product is what is sold (a product can be a service), and promotion is how the advertising or other activity that stimulates sales.
The It Depends Factor
The best answer to any question is, and always will be, it depends. In terms of marketing strategy, the broad it-depends-factors are company competitors, competing technologies and end users.
Factors falling under the category of end users are switching costs (that is, for whatever reasons, the difficulty end users face switching to a new product or service). Trust is one underlying factor standing in the way of convincing end users to switch and force of habit is another.
For the solar industry, the four Ps are further complicated by vulnerable markets that remain incentivized, subsidized and/or mandated, a competitor (conventional energy technologies lumped together into one bucket), government price setting and price manipulation (tariffs are one example), expectations that electricity will get less expensive overtime, and entrenched electricity renting habits among others.
Solar industry participants complicate all of these factors by incorrectly defining PV modules as commodities, a category that tacitly accepts very little price control as a fact of doing business life. Electricity is a commodity. A high-tech PV module that generates electricity is not a commodity unless the industry producing it insists in defining it as such.
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Look at it this way, a car is a transportation means to an end and if this is all it was to buyers, there would be no market for Tesla, Cadillac, Mercedes, BMW or the Ford F-150 truck. A buyer purely concerned with getting from A to B as economically as possible would not buy a Corvette.
The car industry knows it is selling a value and a way of life, and not simply a method of getting from A to B.
The value of a PV module and a PV system and the clean independent electricity generated by the PV system depends on whether it is marketed as a commodity (examples, utility scale solar and the residential solar lease), or as a way of life (community solar and residential owned solar systems).
Manufacturer shipments of crystalline and thin film technologies grew by 32 percent in 2017 over 2016, to 91.9-GWp over 69.5-GWp the previous year. Cumulatively, shipments of PV technologies reached 376.5-GWp in 2017. Strong growth was due to over-performance of China’s market for solar deployment installations, which reached 53-GWp of installation capacity in 2017.
Price: Status, Captive to Externalities
At the beginning of 2017 prices for PV cells and modules crashed, held down by a variety of factors many of which slid into the year from 2016. In 2016, extremely low pricing at the end of the year led to a 27 percent decrease in the average price to $0.53/Wp. During the last quarter of 2017 the threat of tariffs from the U.S. and India (which together represent 26 percent of global demand) gave cell/module manufacturers a justification to raise prices slightly and inject some breathing room into margins. The global average price for cells/modules in 2017 was $0.49/Wp, an 8 percent decrease over the previous year.
Figure 1 offers average cost, price and shipments from 2007 through 2017. The analysis is based on the price of cells and modules from a manufacturer’s inhouse production to the first buyer (point of sale) in the value chain. The first buyer can be an end user, an installer, a distributor, a developer, an EPC and so on.
Figure 1: Average Cost, Price and Shipments, 2007 to 2017
PV cell and module manufacturers have very little control over its price function. Expectations for low prices have been cemented in and as buyers, which include end users, governments and utilities or a combination, have other options, the acceptance of a price increase (no matter how justified) is unlikely.
Place: Status, Vulnerable to Government Decisions about Incentives, Subsidies and Mandates
Markets live and die in the global PV industry based on the availability of subsidies and incentives and/or mandates to install. As in most countries an end user cannot be forced to install a solar system on his/her home or may not own his/her home, incentives can only do so much to stimulate a market.
Manufacturers making decisions about where to locate manufacturing facilities weight local incentives (both to locate manufacturing and to encourage buying), taxes, labor and other costs, the cost of importing inputs if needed, and the strength of the local market. All PV markets are vulnerable and so all location choices are made with extreme caution.
As for developers and other demand side participants, any market choice is a leap of faith that it will remain strong or develop, that the cost of modules and other components will remain low, that labor and other costs will not spike and that black swan events, such as the U.S. tariff and current trade disputes, will not swoop down and sweep the chess pieces off of the board. Black swan events are extremely difficult to forecast.
Figure 2 offers PV industry supply (cells/modules) and demand (installations) for 2017.
Figure 2: PV Industry Supply and Demand, 2017
Product: Status, High Tech but Often Not Recognized as Such
The research, development and manufacturing of a crystalline or a thin film PV cell is a high-tech enterprise. Unfortunately, as the industry itself has defined its product as a commodity with little differentiation it finds itself in the awkward position of both championing the technology in terms of its efficiency, lifetime and other attributes while explaining it away as a commodity with little differentiating features.
One kilowatt hour cannot be differentiated from another kilowatt hour. The highly technical, finely constructed, decades in R&D PV cell is a work of technological art that offers users clean and reliable electricity from a panel that gleams like a jewel in the sun. Figure 3 offers thin film and crystalline share of global shipments for 2014, 2015, 2016 and 2017.
Figure 3: Thin Film and Crystalline Shipment Shares, 2014, 2015, 2016, 2017
Promotion: Status — All Over the Place and Needing a Creative Reboot
It should be clear by now that promoting a complex, high tech device with a lifespan vastly beyond that of a commodity and that offers energy independence and clean electricity AS a commodity is, well, wrong. Pork bellies are commodities. Pork bellies are consumed and do not last 25 to 30 years. Wheat does not last 25 to 30 years. Kilowatt hours are consumed. Bandwidth is a commodity these days, as are currencies.
The simplest way to describe a commodity is that it is fungible that is, easily replaced, standardized, easily swapped one for another. Wheat is a commodity. The cereal, Wheaties, is not a commodity.
Polysilicon is a commodity. A high tech solar cell, and high-tech solar modules are not commodities. They are differentiated in ways that the industry has given up describing, including by color. The industry’s lack of success at selling the high-tech aspects of solar cells and modules does not relegate the device itself to commodity status.
The promotion of solar modules and the industry itself, has been uneven. On one hand, the industry is selling a clean energy future in the aggregate, energy independence to individual PV system owners and champion cell efficiencies to people who do not understand terminology. On the other hand, many in the industry point to the lack of differentiation as proof of commodity status.
The thing is that it is not true — look closer. The solar module and its cells is a high-tech device that is capable of meeting the electricity demands of its user for decades while, again, gleaming in the sun like a jewel.
Don’t miss Paula Mints’ latest report, available at a discounted price through Renewable Energy World: SPV Market Research Solar Flare Report – Current Issue
Lead image credit: CC0 Creative Commons | Pixabay