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Speeding the diffusion of solar energy innovations
Energy Prmted
Vol. 7. No. 8. pp. 705-715. in Great Britain.
036C-5442/82/080705-l Pergamon
1982
Is03 W/O Press Ltd
SPEEDING THE DIFFUSION OF SOLAR ENERGY INNOVATIONS? AVRAHAM SHAMA Solar Energy Research Institute, Golden, CO 80401,U.S.A. (Received
6 November
1981)
Abstmet-Solar energy innovations are likely to concern public and business policy makers in the decade ahead. Sooner or later, the focus of concern must move from the general to the specific, from the macro- to the micro-environment, from the national level to the regional and state levels. A diffusion of innovations framework is presented and discussed as an approach capable of explaining and increasing the market share of solar energy innovations. Solar domestic water heating systems serve as an illustrative example.
1. INTRODUCTION:
THE SOLAR HIGH POTENTIAL/LOW
ADOPTION
PARADOX
In 1979, a report’ of the Energy Project at the Harvard Business School entitled “Energy Future” was published. Policymakers, journals such as Foreign Affairs and the Harvard Business Review, as well as major newspapers in the country, repeated the message. The White House presented it as the focal point of the U.S. energy policy: conservation and solar America became two primary factors of U.S. energy policy. “The United States can use 30 or 40% less energy than it does with virtually no penalty for the way Americans live . . . and . . . it should be possible to obtain 20% contribution by solar” (Ref. 1, pp. 182,213). This 20% estimate for solar contribution by the year 2000 was identical to the target solar energy contribution set by the White House 20 June 1979. More than three years later, the potentials for conservation and solar energy remain to materialize. Here, we propose an analytical framework capable of increasing the market share of renewable fuels. The explanation for the high potential/low adoption paradox lies in over-reliance on a macro-level, techno-economic approach to energy policy, disregarding both the micro-level and behavioural aspects. For conservation to supply the equivalent of 3040% of energy services, it must be instantaneously2V3(a) adopted by over 75 million U.S. households and millions of businesses, composed of over 250 million people; (b) used in amounts and mixes (with fossil fuels) as required by engineering and economic analysis; (c) affordable by all U.S. households and businesses; (d) physically available to all consumers; (e) perceived as having little or no economic, social, and psychological risks. Similarly, for solar energy innovations to supply 20% of all energy services, they must be4 (a) adopted in one out of every two buildings; (b) used by one out of every ten factories; (c) adopted in one out of every six power plants. It takes little expertise, however, to conclude that these conditions can not be easily and quickly met. The absence of action-oriented use of the diffusion of innovations framework from business and public policies is a major reason for the high potential/low adoption paradox for solar energy innovations. Business and public solar energy policies have been dominated by technical and economic considerations. Although such considerations are important, they focus on aggregate estimates only. The diffusion of innovations theory and research findings focus on the consumer adoption process and attributes of innovations. They serve to identify bottlenecks in the adoption process and prescribe useful actions. This is particularly true when one relies on marketing. Stated differently, informed use of diffusion of innovations theory and research findings can compress the adoption process and accelerate market penetration. tThis paper was prepared at the Hebrew University where the author was a visiting Lady Davis Fellow. The author would like to acknowledge the supportive environment given him at the Solar Energy Research Institute and at the Hebrew University. Responsibility for the opinons expressed in this paper is the author’s alone. Portions of this paper are based on the author’s contribution to Marketing Solar Energy Innovations, Praeger’s Solar Energy and Energy Conservation Book Series, Praeger Publishing, New York, NY 10017,U.S.A. 705
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AVRAHAMSHAMA 2.DIFFUSIONOFINNOVATIONSANDSOLARENERGY:ANOVERVIEW
The diffusion process is defined as “the acceptance over time of some specific item-an idea or a practice-by individuals, groups, or other adopting units, linked to specific channels of communication as a social structure, and to a given system of values or culture”.5 While there are numerous definitions and perspectives to the study of the diffusion process, several elements are common: (a) the innovation, (b) the adopting unit, (c) the communication networks, (d) the acceptance process, and (e) the time element.6M The scope of literature on diffusion is very wide (for a comprehensive review, see Ref. 15). Here, we discuss the basic elements of diffusion of innovations and apply the method to solar energy innovations, including a discussion of specific measures that policy makers and solar energy business executives can use to compress the diffusion process. 2.1 The innovation An innovation is any product, idea, service, or a practice which is perceived as new by the consumer. It may well be accepted by a group of consumers and still be regarded as an innovation by others. Though many consumers in Israel, California and Florida heat water with solar water heating systems, most consumers in the U.S. regard this practice as an innovation. An innovation may go through an appearance-disappearance-reappearance cycle. For example, in the mid 180054,wood supplied over 90% of U.S. energy needs, while today this biomass energy is an innovation to most Americans. Solar water heaters, which were in use in California and Florida in the early WOOS,are another example. Factors comprising an innovation are totally in the eye of the beholder. In spite of differences that one might expect in the perceptions of individuals, innovations are perceived along a small number of attributes. Perceived attributes of solar energy innovations will now be discussed. 2.1.1 Relative advantage. The relative advantage is the degree to which the innovation is superior to prior innovations fulfilling the same needs. Solar energy innovations may be used to provide energy services such as water heating, space heating and cooling, and lighting to different sectors of the economy. In most cases, these services are presently provided by electricity, oil, and natural gas, used in different amounts and commanding different prices in various parts of the country. Furthermore, solar energy innovations include a diversity of services, which may be applied to offer different end uses at different costs. Therefore, the advantage of a specific solar energy innovation must be established relative to other energy services, including other solar energy services. Relative advantage may be established with respect to the cost of obtaining a given energy service. The lower the cost, the clearer the relative advantage and the faster the adoption. Presently, consumers are faced with solar energy services, which are often more expensive than other energy services. This is the result of (a) heavy subsidies given to non-solar fuels, (b) the exclusion of external cost from the cost of fossil fuels, and (c) the small and inexperienced solar industry. Taking these factors into consideration, the cost of solar energy is often cheaper to society than producing fossil fuels. But, even when the cost of solar energy services is high, some consumers would prefer such services over those of fossil fuels.21-23Nevertheless, a large market share would necessitate lower prices to allow more consumers to enter the market. 2.1.2 Risk. Risk is the degree to which economic, physical, functional, and social-psychological harms are perceived in an innovation. Risk must be minimal for an innovation to penetrate the market quickly. Because solar energy innovations represent a departure from the mode of obtaining energy services, many consumers perceive high risk in adopting them. This high perceived risk must be reduced before consumers would enter the market. It can be done by product demonstrations and information. 2.1.3 Compatibility. Compatibility is the degree to which an innovation is consistent with values and experiences of potential adopters. Compatibility is target group and end-use specific. For example, solar water heaters may be consistent with values and experiences of residential consumers but may not fit the industrial requirements for process heat. Compatibility is a function of the fit of an innovation and values of potential consumers. It is usually assumed that the innovation is the only change taking place, while other factors are held constant. In most cases, this assumption is quite realistic. This is not the case with solar energy
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innovations. Estimating their fit with social values measured only a few years ago may be establishing fit against values which no longer exist. The U.S. economic and energy crisis, which began with the oil embargo of 1973, is creating a new social order compatible with solar energy applications. This is particularly true with regard to conserving consumers, who are presently estimated at 16 millions and expected to grow to 60 millions by 1987 and to 120 millions by the year 20Q0.ti 2.1.4 Complexity. Complexity is the degree to which an innovation is difficult to understand and use. The more complex an innovation is, the slower its rate of adoption. Up to 1973, consumers used energy without much understanding of the way it it was produced, measured, and supplied. Energy was cheap and easy to use and waste. With a ten-fold price increase of oil, consumers are rejecting their past patterns of using energy. Cutting waste by caulking, weather-stripping, automatic thermostat-set-backs, and insulation is practiced by as many as 30% of all households.25’26Such conservation practices are making consumers more knowledgeable about energy matters, including solar energy, and are reducing complexity barriers to adoption. 2.1.5 Divisibility. Divisibility is the degree to which an innovation may be tried on a limited basis. Divisability motivates trial and compresses the adoption process. Samples, small package, try-now-pay-later are common techniques used in marketing of many consumer goods commanding relatively low prices. Solar energy innovations are costly. Basic solar water heaters cost as little as $2000. After taking advantage of federal income tax credit (40%) and state income tax credit (lO-30% in states offering such credits), the real cost to consumers is only a few hundred dollars (e.g., $700 in California and $600 in Colorado). But, before final decision to invest in the purchase of solar water heaters, most consumers would prefer small-scale trial, which is not easy to achieve in the case of solar energy innovations. To achieve a purchase-inducing product trial, the Tennessee Valley Authority (TVA) motivated consumers to try solar water heating systems and supplied them with low-interest loans for the purchase of such systems. Another method is to demonstrate solar applications. Showing consumers how an innovation is practiced may increase or decrease purchase motivation. Triability of solar energy innovations is difficult to achieve. But once a positive trial is established for one innovation, consumers may generalize such an experience to other innovations and bring about a fast adoption rate for many innovations, such as passive and active solar heating and cooling, wind machines, and photovoltaics. 2.1.6 Communicability. Communicability is the degree to which results of an innovation can be disseminated easily and effectively. Positive, clear-cut results are effective communication capable of accelerating adoption rate. Cost-effectiveness is often used to persuade consumers to buy a new product. Such information is, however, of limited use to the innovators and early adopters now in the market for solar energy services. Communicating noneconomic information may be just as important among innovators and early adopters. For them, convenience, satisfaction, lifestyle, and social consciousness and acceptability considerations are as important as economic considerations. 2.2 The adopting unit The adopting unit is an individual or a group making the decision to adopt a given innovation. The adopting unit for solar energy innovations may include the family, the architect, the builder, and the bank. For example, when considering the adoption of a solar water heater, all family members may act as the adopting unit. They are interested in different product attributes and exert different degrees of power, including veto power, in the decision process. In the case of the TVA solar program and the Denver Metro Program of the Solar Energy Research Institute, the adopting unit may be composed of the architect, the builder, the sponsor organization, and the family. The greater the number of people composing the adopting unit, the slower is the rate of adoption. Most diffusion studies concentrate on the characteristics of the individual as the adopting unit. Studies using the family or other groups as the adopting units are normally reported to fit early research designs conceiving the individual as the adopter.
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Depending on consumer motivation and background and his or her perception of the innovation attributes, different consumers go through the adoption process at different times and rates. Those who are first to introduce an innovation are the innovators, followed by early adopters, early majority, late majority, and laggards (while some never adopt an innovation). Characteristics of these groups are (see, for example, Ref. 15) listed below. Innovators (2.5% of the market): These are young, of high social and economic status, risk takers, cosmopolitan, and prefer impersonal communication sources. Early adopters (13.5% of the market): These too are young and of high social and economic status, seek respect, and are extremely capable opinion leaders. Once they adopt an innovation, other are sure to follow. Early majority (34% of the market): These are of average social and economic status and love to show and tell their peers of products they purchase. Late majority (34% of the market): These are of below average social and economic status, they are skeptical about adopting new products. Adoption occurs when the price is low enough and the pressures to adopt are strong. Laggards (16% of the market): Last to adopt, these consumers have low social status and income. Their values are very traditional, and they are reluctant to purchase and use new products and services. 2.3 Channels of communication Potential adopters obtain information from two different yet complementary channels of communication. One is mass media: television, radio, newspapers, and magazines. The other is personal sources: peers, friends, the neighbors. The first is effective in reaching a great number of individuals and informing them of an innovation and its possible uses. The second involves a small number of people, but is very effective in convincing individuals to adopt an innovation. In either case, communicating through an opinion leader enhances the effectiveness of the communication channel and the effectiveness of the message. The opinion leader may (1) endorse an innovation on mass media, (2) interpret or discuss relevant mass media messages with group members, or (3) provide persuasive information to a group member. In all such cases, the effectiveness of the opinion leader is a function of his credibility, itself a positive function of his perceived expertise and trustworthiness. Since opinion leaders are usually trustworthy, their perceived expertise determines the limit of their influence on group members. 2.4 The adoption process The adoption process is the psychological stages that potential adopters go through from first hearing about an innovation to their final adoption or rejection of it. Specifically, the process includes: (a) awareness stage during which one learns of the existence of the innovation of solar energy water heaters but has little information of its attributes and functions; (b) interest stage during which the consumer acquires information about the innovation and its functions; (c) evaluation stage during which one compares water heating services provided by solar and non-solar energy sources. A mental trial takes place at this stage, leading to a decision to seek actual trial of the innovation, reject it, or wait and see; (d) trial stage during which the consumer may actually but temporarily use hot water heated by solar energy systems; (e) adoption stage during which the consumer decides on full scale purchase and use of solar water heaters. An important consideration in assuring smooth and speedy adoption is identifying and solving problems which may result in rejecting the innovation. Factors contributing to rejection of solar water heaters relate to (a) attributes of the inovation (e.g., high first cost), (b) personality characteristics of potential adopters (e.g., dislike of change), and (c) a social system in which energy market realities are distorted. 2.5 Time and space Time is of central importance in diffusion studies. Success of an innovation is measured by the length of time it takes the innovation to be adopted by a given population. Adopter categories are defined and classified into different groups depending on when they adopt the innovation. Also time and timing are important in accelerating adoption of a given innovation. Temporal variables are the outcome of consumer motivation, socioeconomic status, and perceived innovation attributes. The ability to predict time of adoption may mask many
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behavioral variables which can be influenced by measures capable of accelerating adoption.‘” Therefore, models which exclude behavioral variables may lead to misdirected measures to accelerate adoption. Researchers employing solar energy market penetration models, which focus on cost and performance as the main variables, often recommend price reduction to increase market penetration. But, since early adopters presently in the market are less interested in price and more in innovativeness, stressing the last attribute is much more effective in increasing adoption.28 In addition, the experience of other countries with solar energy innovations may be helpful to the U.S. In Israel, solar water heaters have penetrated over 40% of the residential market and solar ponds are producing usable energy. Sweden and Denmark developed efficient energy use habits. By analogy, these experiences provide useful information to accelerate the adoption of solar energy innovations and energy conservation in the U.S. 3. DIFFUSION
THEORY AND SOLAR ENERGY INNOVATIONS
Solar energy technologies are innovations in the early stages of their life cycle. As can be seen in Fig. 1, solar water heating systems and wood burning stoves are well into the innovation stage, but photovoltaics and wind machines are still in the pre-market-introduction stage. It was often argued that, by infusing resources into product development stages, it is possible to compress product development activities and accelerate the rate of adoption, that is, to move the diffusion curve from A to B. Resources, however, cannot always substitute for time and motivate purchase. Using such a strategy can backfire and slow product development and adoption rate. Figure 2 depicts the diffusion of innovations process, adopter categories, and marketing and policy variables that may be useful to accelerate adoption. Here again, two diffusion curves are depicted. Curve B compresses the process of Curve A (and perhaps its level as a result of promotional activities). This is the best result that policy makers and marketing management can hope for. Policy and marketing measures can affect the rate of consumer adoption by careful product, price, promotion, and channels of distribution decisions.
Fig. 1. The diffusion of solar energy innovations.
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Fig. 2. Adoption
curve,
policy
measures,
and marketing
strategy:
applications
to solar energy
innovations.
3.1 Product
Superior innovations, which are consistent with what consumers value and are easy to understand, communicate, and try on a small scale, get adopted quickly. Policy and marketing measures must facilitate these perceptions. As can be seen in Fig. 2, management may accelerate adoption by stressing the innovativeness of solar water heating systems before the innovators and early adopters, and relative advantage before early adopters. Product differentiation and market segmentation become important when the early majority enters the market. In addition, a limited line of solar water heating systems is sufficient to achieve market recognition at the innovating stage, but a more extensive line may be necessary later on to appeal to different market segments. Policy measures can also accelerate market penetration by product-related activities. In the case of solar technologies, product policy measures start before market introduction. Support to research and development activities can help develop better products quickly and market introduction activities can start fairly early. Some R&D support has been given by the federal government to almost all solar technologies. Given indiscriminately, the magnitude of government R&D support may help develop solar technologies having limited market potential. Support should be based on expected contribution to whatever policymakers value, e.g., energy independence, clean environment, etc. The Department of Energy sponsored studies to quantify the expected contribution from different solar technologies and shed light on the values
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associated with the use of solar energy.B*30This requirement is logical because it requires that investments in R & D and support to commercialization efforts be based on some measures representing return on investment or profitability to society. However, it can also be dangerous in that it may be based on scant and very biased data. Beginning with market introduction, policy measures supporting procurement, demonstration, consumer trial, standards and labels, and consumer protection can accelerate adoption rate. However, such policy measures may also have a negative impact on adoption rate. 3.2 Price Innovations tend to be more expensive at the market introduction stage, and solar energy innovations are no exception. The cost of domestic water solar heating systems ranges from $2000 to $3000, while energy saved by their use makes only a small reduction in monthly energy bills. Given consumers’ preference for low first cost, perceived reduction of this cost is necessary to increase adoption. Setting high prices to skim the market may be a business mistake. Setting lower prices would increase market penetration and profits through high sales volume is smart business. Even then financial services are required to reduce the burden of first cost. Examples of such services include low down payment and monthly installments as practiced in the automobile industry, and rolling the cost of the solar system into the mortgage loan for the building. Though many experts have made such propositions, the industry has been slow to respond. Yet, it may be significant to note that high energy cost can be used to leverage greater loans to builders.3’ Federal and state policymakers stress price reduction measures. Federal tax credit is 40% of the cost of solar water heating systems, and state tax credit-in states providing such a credit-ranges from lO-30%. Consumers pay the full price of the system and wait as much as a year to receive the tax credit. A more immediate connection between the purchase and the rebate may increase the number of consumers who purchase solar systems. Over-reliance on economic incentives may be a mistake, too. In an extreme and theoretical case, if solar water heating systems are offered free of charge, consumers would suspect their quality and the motivation behind them. Economic incentives alone may have limited value in accelerating adoption. A recent study3* shows that adoption rate increases significantly when economic incentives are part of integrated policies stressing information, consumer protection, product quality, as well as economic incentives. 3.3 Promotion Promotion facilitates sale of products and services by creating awareness, interest, and preference for them. Different messages and channels of communication are selected, depending on the product, its life cycle stage, and its target group. As can be seen in Fig. 2, informative messages are required at the early stages of diffusion, while more persuasive messages are generally more effective later on. Similarly, specialized media such as newsletters and professional magazines are more effective in the innovation and early adopter stages, while mass media may be necessary as the early majority enters the market. Likewise, only light personal selling efforts are required at the early diffusion stages, and more intensive efforts are necessary later on to offset competitive forces entering the market. The promotion budget is usually determined by sales volume. When solar energy innovations are introduced to the market, the only sales figures available are expected sales. But even linking promotion budget to anticipated sales may not create a strong enough stimulus to increase adoption rate. Promotion budget is an investment whose size should be determined by expected profits. This way, a big promotion budget may be necessary to inform and persuade a substantial number of consumers that will set the diffusion on a smooth course. This is of particular importance because as much as 20% of the market has to be aware of the product before adoption takes place.33 Policy makers have traditionally avoided the use of promotion. Only in cases of public health or national security did they make some exceptions. For example, in order for the Department of Energy to support a “Low-Cost/No-Cost” campaign which distributed a shower head flow restricter and a list of 11 other conservation measures in New England in the fall of
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1979, it had to treat it on an ad-hoc basis to motivate state government to follow suit. Indeed, the state of Colorado adopted the Low Cost/No Cost promotion program in the fall of 1980, and other states are said to follow suit. On the other hand, demonstration programs have always been supported by the federal government to promote use of desired products and practices. The federal solar demonstration program included demonstration of active solar heating and cooling, photovoltaics, and wind machines. But, because demonstrating solar energy innovations may take time, a more direct promotion program may be desirable. State and local government, and civic groups are becoming active users of such a direct approach. For example, energy extensions are teaching their students how to install solar water heaters in their homes, and otherwise promote the use of energy from renewable sources. Finally, diffusion may be accelerated by using mandates. Mandates range from mild ones requiring, for example, cost performance information about solar panels, to strict ones requiring, for example, the use of specific passive and active solar energy innovations. Mild mandates coerse consumers less, and they can be flexibly applied. Strict mandates are more coersive and effective in bringing about desired results, but they may be quite dangerous in dictating actions which otherwise would never be taken. 3.4 Distribution Distribution pertains to the flow of an innovation from the producer to the final consumer. It may be a simple system whereby the producer distributes the innovation directly to the adopter, or a complex system whereby the innovation goes through wholesalers and retailers before reaching the final adopter. The specific distribution system is normally determined by the nature of the innovation, forecasted sales, and consumer and producer preferences. Changing the distribution system as market conditions change are part of distribution strategy. Distribution establishes the time and place availability of an innovation. When the market is very small and demand is weak, as is the present case of some market-ready solar energy innovations, a simple and selective distribution system (e.g. producer consumer) may be most efficient. When the market grows and demand strengthens, as may now be the case with solar water heaters in California, Colorado, and Florida, mass distribution may be more efficient in satisfying time and place needs of consumers. It is estimated that as much as 253,000 solar water heating systems are in place presently, and other estimates are much higher. More significant is the exceptionally positive attitudes of consumers toward solar energy systems, 34 indicating high potential if the right product (i.e., solar energy innovation) is offered to the right consumer at the right price and at the right time and place. Experts now claim that the selective, almost intermittent distribution system for solar water heaters hampers their rate of adoption. Consumers have a hard time locating the product, let alone being able to take advantage of comparative shopping to reduce their economic cost and risk, and reduce future feelings of regret or cognitive dissonance.35 Furthermore, as solar energy innovations are used as part of a system (e.g., solar water heater as integrated in the building structure and energy requirements), the delivery of solar innovation poses a challenge to their speedy ditrusion. First, the ultimate adoption unit is normally more than one person. Seconh, different facilitators may be needed before adoption can take place. Finally, the innovation must be available at the right time and place for consideration by the builder, the installer, and the homeowner. Considering the conservative nature of the building industry, these are very serious challenges to efficient distribution of solar energy innovations.“‘37 Policy makers can influence the establishment of effective and efficient distribution channels. The Conservation and Solar Bank and the Residential Conservation Service (RCS) facilitate the establishment of distribution channels for both conservation and solar energy innovations. RCS requires utilities to supply homeowners whose homes are audited with a list of solar energy innovations applicable to their homes, the cost of such innovations, and a list of reputable distributors and installers. On the other hand, other federal programs such as the demonstration program of solar water heaters had little impact on distribution channels. Either way, the timing of such programs is of crucial importance. Starting them too early may have a negative or no impact, and starting them too late amounts to shipping coal to Newcastle.
Speeding the diffusion of solar energy innovations 4. CONCLUSIONS
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AND RECOMMENDATIONS
The absence of marketing use of diffusion from business and public policies is a majol reason for the high potential/low adoption rate paradox of solar energy innovations. So far, business and public policies were dominated by techno-economic considerations which focus on the product. A diffusion framework focuses on both the consumer adoption process, and the product and its attributes. It is action oriented and helps identify bottlenecks, and specify useful actions. The following conclusions and recommendation are based on marketing use of diffusion, and are intended to help those interested in accelerating the diffusion of solar energy innovations. Develop and perfect solar energy products. Business should develop and perfect solar energy innovations before introducing them to the market. As some manufacturers of solar domestic hot water (DHW) systems can attest, introducing products which are not fully ready does more harm than good. By now most manufacturers seem to be aware of this prerequisite to market introduction. In addition, because solar energy innovations may be iterrelated, their interrelatedness should be taken into consideration in developing solar energy systems. For example, passive solar energy measures such as building orientation reduce space heating needs from an active solar space heating system. Simillarly, developing a produce line in any given category of solar energy innovations may be desirable, because different consumers need different products. Government too, may help the development of quality products by well timed support for demonstrations and procurement contracts. Define solar energy products carefully. Consumers do not need energy per se. They need energy services to heat, cool, and light. Solar energy innovations must be defined as promoted as service innovations. This provides wide-scoped definition, and requires more resources and managerial attention to servicing and maintaining solar energy systems. Rely on relative aduantage of solar energy innovations. Attributes unique to solar energy innovations can accelerate adoption among innovators and early adopters who are responsible for success or failure of most innovations. Solar energy is safe, clean, renewable, and provides some energy independence and autonomy. Such attributes justify premium prices. Demonstrate solar energy innovations. Demonstrations inform and educate the consumer, and reduce his perceived risk. This is particularly important with regard to solar energy innovations, because they are different from other energy-providing services. Timing of demonstrations is of critical importance, and the product must be fully ready technically. Target solar energy innovations. Presenting different product concepts, attributes and lines to different adopter categories is essential for speedy market penetration. Targeting is determined by consumers’ needs and the benefits that they derive from a given innovation. The custom home builder may be interested in passive solar systems and solar DHW systems, while farmers in the windy regions of the Northwest are interested in wind energy. Introduce regional policies. Regional differences must be introduced to business and government policies regarding solar energy innovations. Business and government policies are yet to fully realize the importance of regional differences. Only in the past two years policymakers become aware of the possibilities that state and regional solar energy centers afford them. Such possibilities include accurate information about smaller geographical areas, and the use of the centers to implement and “distribute” federal policies. Unfortunately, these lessons may now be quickly forgotten. Help the consumer decision making process. Consumer decision making process follows a number of well delineated psychological stages (awareness, interest, evaluation, trial, and adoption). Different information mix and communication channels are needed at different stages of the process. Factual product information to create consumer awareness of the innovation should be used in the early stages of the process; later, product information must convince the consumer that the innovation can meet his specific energy needs, and create purchase motivation. Similarly, mass media are effective in creating awareness, specialized media are more effective in persuading consumers. Consider the do-it-yourself market. Do-it-yourself markets for solar DHW systems and wind machines may be large enough to justify separate do-it-yourself product lines. These innovations are simple and satisfy consumer interest in cutting cost, and hands-on-experience.
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Energy extentions offering weekend courses teaching how to install solar DWH systems are generating increasing numbers of participants. These participants generate positive and powerful word-of-mouth advertising. Reward the use of solar energy innovations. Cost-reducing economic incentives, are effective only when high prices are barriers to adoption. Psychological rewards are messages which reinforce the purchase and use of solar energy innovations. Neither of these rewards is essential in the innovation stage, but both become increasingly important as the early majority enter the market. Federal and state tax credits are an example of economic incentives, whose impact may have been limited because it is not widely known, and because consumers have to wait up to a year to receive their rebate. A more immediate connection between price and tax credit is highly desirable. Cancelling the solar tax credit will slow adoption as it deters the cost conscious consumers about to enter the market. Ofler financial services. Solar energy innovations represent major costs or investments to the consumer, the availability of financial services is essential to speedy market penetration. Both the Residential Energy Conservation program and the Conservation and Solar Bank are designed to make financial services more available. This, however, is short of a full line of financial services which may be needed. Should these services be cancelled, the negative impact on the rate of adoption is quite clear. Ensure realistic price comparisons. As long as the price of conventional energy services is subsidised, and as long as it does not reflect marginal social cost, potential adopters of solar energy innovations may decide against adoption. Only government policy can change this artificial market bias, and the recent decontrol of oil prices is a step in the right direction. Use penetration price policy. Setting prices relatively low to gain a large market share can accelerate diffusion. A large market share may not only result in market leadership with regard to a given solar energy innovation (e.g., active heating systems), but also with regard to other innovations (e.g., active cooling systems). Ensure appropriate distribution. Distribution channels must be in place before an innovation can penetrate the market. Presently, the absence of credible mass distribution channels for innovations such as solar DHW systems slows penetration at least in some regions of the country. Government, and especially business, should encourage widening the distribution of solar energy innovations both as an adjustment measure to the growing market, and as a tool to expand it. Discourage energy ineficient practices. In addition to rewarding the adoption and use of solar energy innovations, discouraging energy inefficient practices may further enhance solar energy innovations. For example, deregulating oil prices as well as differential pricing such as increasing block utility rates, and demand billing, may change demand for energy services in favor of adopting some solar measures. Promote the use of solar energy innovations. Promotion can speed up adoption of solar energy innovations. To business, promotion is by definition part of the marketing mix offered to consumers. On the other hand, government’s benign attitude toward promotion, even in the case of informing consumers about solar energy policies which affect them, is surprising. More attention to promotional aspects can make solar energy policies much more effective. Use flexible mandates. Mandates to induce the adoption of solar energy innovations must be regarded as an available policy tool. However, strict mandates aggressively advocated and practiced in some states may do more harm than good. Information and performance based mandates can be both flexible and effective in speeding the adoption of solar energy innovations. REFERENCES 1. R. Stobaughand D. Yergin(Eds.), EnergyFuture.RandomHouse, New York (1979). 2. A. Shamaand K. Jacobs, J. Environmental Systems 10,355 (1981). 3. S. Charhart, “Creating New Energy Choices”, Energy Productivity Center, Washington D.C. (1980). 4. MITRE Coruoration. “Preliminary Executive Summary of The National Plan for The Accelerated Commercialization of Sol& Energy” (1979).MITRE Corp., McLean, Virginia, U.S.A. 5. E. Katz. L. Levin and H. Hamilton, Am. Sot. Reo. 28,237 (1%3). 6. F. C. Fliegel and J. E. Kivlin, Am. J. Sot. 72, 235 (1966). 7. E. Mansfield,IndustrialResearchand Technological Innovation. Norton, New York (1968). 8. F. D. Midgley,Innooation and New Product Marketing. Wiley, New York (1977).
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9. E. L. Oslund, J. Advertising Res. It,25 (1972). 10. E. L. Oslund, J. Consumer Res. 1,23 (1974). II. M. Radnor, I. Feller and E. M. Rogers, The Diffusion of Innouations: An Assesement Northwestern University Press, Evanston (197%). 12. E. M. Rogers, Diffusion of Innooations. Free Press, New York (1%2). 13. E. M. Rogers in Handbook of Communication (Edited by Ithiel de Sola Pool and Wilbur Schramm). Rand McNalley, Chicago (1973). 14. E. M. Rogers, In Selected Aspects of Consumer Behavior: A Summary from the Perspective of Difierent Disciplines. National Science Foundation, U.S. Government Printing Othce (1977). IS. E. M. Rogers and F. F. Shoemaker, Communication of Innovations. The Free Press, New York (1971). 16. D. J. Roessner, D. Posner, F. Shoemaker and A. Shama, “Application of Diffusion Research To Solar Energy Policy Issues”, Solar Energy Research Institute (1979)Golden, CO 80401,U.S.A. 17. A. Shama, “Diffusion of Innovations and Marketing and Consumer Research”, Solar Energy Research Institute. working paper (1979) Golden, CO 80401,U.S.A. 18. A. Shama, and K. Jacobs, J. Environmental Systems 10, 355 (1981). 19. K. Warner, Policy Sci. 5,433 (1974). 20. Zaltman and R. Stiff, In Consumer Behaoior: Theoretical Sources (Edited by Thomas Robertson). Prentice Hall. Englewood Cliffs, New Jersey (1973). 21. A. Shama, “Diffusion of Innovations and Marketing and Consumer Reserach”, Solar Energy Research Institute, Workingpaper (1979),Golden, CO 80401,U.S.A. 22. Decisions and Designs Staff. “An Attitudinal Study of the Home Market for Solar Devices”. Decisions and Designs Inc. Washington D.C. (Prepared for the Federal Energy Administration, Washington, DC. 1977). 23. R. H. Bezdek, A. S. Hirshberg and W. H. Babcock, Science 103, 1214(1979). 24. A. Shama, Marketing in a Slow Growth Economy: The Impact of Sfagjation on Consumer Psychology. Praeger, New York (1980). 25. A. Shama and K. Jacobs, 1. Environmental Systems 10,355 (1981). 26. U.S. Department of Energy, Office of Energy Consumption Staff, Residential Energy Survey: Conservation. Energy Information Administration, Washington, DC. (1980). 27. G. Zaltman and R. Stiff, In Consumer Behavior: Theoretical Sources (Edited by Thomas Robertson). Prentice-Hall, Englewood Cliffs, New Jersey (1973). 28. J. J. Gordon, in Marketing Solar Energy Innouations (Edited by A. Shama). Praeger. New York (1981). 29. A. Shama and K. Jacobs, Long Range Planning 15,63 (1982). 30. R. Stevenson, R. Koontz, B. Bryant and B. Burns, “Prioritization of Solar RD&D Budget Allocation Analysis”, Solar Energy Research Institute (1979) Golden, CO 80401,U.S.A. 31. D. Posner and G. Sussman, “Solar Energy and Conservation in Commercial Buildings: A Model of Market Decisions”. Solar Energy Research Institute (1981),Golden, CO 80401,U.S.A. 32. R. Koontz, J. NeuendortIer, B. Green, L. Myring, G. Myring, E. Perwin. N. Gordon and K. Weber. “Impacts of State Solar Initiatives”. Solar Energy Research Institute (1981),Golden, CO 80401,U.S.A. 33. F. Shoemaker, In Marketing Solar Energy Innovations (Edited by A. Shama). Praeger. New York (1981). 34. B. Farhar-Pilgrim and C. Unseld. The National Study of Solar Energy Users. Praeger. New York (1982). 35. U.S. Department of Energy, “Solar Buildings: Market Background Report”. (Draft Final Rep.). Office of Solar Applications for Buildings, Washington, D.C. (1980). 36. A. Hirshberg and R. Schoen, Policy Sci. 5,453 (1974). 37. D. Barrett, P. Epstein and C. M. Haar, Financing the Solar Home: Understanding and fmprooing Mortgage Market Receptivity to Energy Conservation and Housing Innovations. Lexington Books, Lexington. Mass (1977).
Vol. 7. No. 8. pp. 705-715. in Great Britain.
036C-5442/82/080705-l Pergamon
1982
Is03 W/O Press Ltd
SPEEDING THE DIFFUSION OF SOLAR ENERGY INNOVATIONS? AVRAHAM SHAMA Solar Energy Research Institute, Golden, CO 80401,U.S.A. (Received
6 November
1981)
Abstmet-Solar energy innovations are likely to concern public and business policy makers in the decade ahead. Sooner or later, the focus of concern must move from the general to the specific, from the macro- to the micro-environment, from the national level to the regional and state levels. A diffusion of innovations framework is presented and discussed as an approach capable of explaining and increasing the market share of solar energy innovations. Solar domestic water heating systems serve as an illustrative example.
1. INTRODUCTION:
THE SOLAR HIGH POTENTIAL/LOW
ADOPTION
PARADOX
In 1979, a report’ of the Energy Project at the Harvard Business School entitled “Energy Future” was published. Policymakers, journals such as Foreign Affairs and the Harvard Business Review, as well as major newspapers in the country, repeated the message. The White House presented it as the focal point of the U.S. energy policy: conservation and solar America became two primary factors of U.S. energy policy. “The United States can use 30 or 40% less energy than it does with virtually no penalty for the way Americans live . . . and . . . it should be possible to obtain 20% contribution by solar” (Ref. 1, pp. 182,213). This 20% estimate for solar contribution by the year 2000 was identical to the target solar energy contribution set by the White House 20 June 1979. More than three years later, the potentials for conservation and solar energy remain to materialize. Here, we propose an analytical framework capable of increasing the market share of renewable fuels. The explanation for the high potential/low adoption paradox lies in over-reliance on a macro-level, techno-economic approach to energy policy, disregarding both the micro-level and behavioural aspects. For conservation to supply the equivalent of 3040% of energy services, it must be instantaneously2V3(a) adopted by over 75 million U.S. households and millions of businesses, composed of over 250 million people; (b) used in amounts and mixes (with fossil fuels) as required by engineering and economic analysis; (c) affordable by all U.S. households and businesses; (d) physically available to all consumers; (e) perceived as having little or no economic, social, and psychological risks. Similarly, for solar energy innovations to supply 20% of all energy services, they must be4 (a) adopted in one out of every two buildings; (b) used by one out of every ten factories; (c) adopted in one out of every six power plants. It takes little expertise, however, to conclude that these conditions can not be easily and quickly met. The absence of action-oriented use of the diffusion of innovations framework from business and public policies is a major reason for the high potential/low adoption paradox for solar energy innovations. Business and public solar energy policies have been dominated by technical and economic considerations. Although such considerations are important, they focus on aggregate estimates only. The diffusion of innovations theory and research findings focus on the consumer adoption process and attributes of innovations. They serve to identify bottlenecks in the adoption process and prescribe useful actions. This is particularly true when one relies on marketing. Stated differently, informed use of diffusion of innovations theory and research findings can compress the adoption process and accelerate market penetration. tThis paper was prepared at the Hebrew University where the author was a visiting Lady Davis Fellow. The author would like to acknowledge the supportive environment given him at the Solar Energy Research Institute and at the Hebrew University. Responsibility for the opinons expressed in this paper is the author’s alone. Portions of this paper are based on the author’s contribution to Marketing Solar Energy Innovations, Praeger’s Solar Energy and Energy Conservation Book Series, Praeger Publishing, New York, NY 10017,U.S.A. 705
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The diffusion process is defined as “the acceptance over time of some specific item-an idea or a practice-by individuals, groups, or other adopting units, linked to specific channels of communication as a social structure, and to a given system of values or culture”.5 While there are numerous definitions and perspectives to the study of the diffusion process, several elements are common: (a) the innovation, (b) the adopting unit, (c) the communication networks, (d) the acceptance process, and (e) the time element.6M The scope of literature on diffusion is very wide (for a comprehensive review, see Ref. 15). Here, we discuss the basic elements of diffusion of innovations and apply the method to solar energy innovations, including a discussion of specific measures that policy makers and solar energy business executives can use to compress the diffusion process. 2.1 The innovation An innovation is any product, idea, service, or a practice which is perceived as new by the consumer. It may well be accepted by a group of consumers and still be regarded as an innovation by others. Though many consumers in Israel, California and Florida heat water with solar water heating systems, most consumers in the U.S. regard this practice as an innovation. An innovation may go through an appearance-disappearance-reappearance cycle. For example, in the mid 180054,wood supplied over 90% of U.S. energy needs, while today this biomass energy is an innovation to most Americans. Solar water heaters, which were in use in California and Florida in the early WOOS,are another example. Factors comprising an innovation are totally in the eye of the beholder. In spite of differences that one might expect in the perceptions of individuals, innovations are perceived along a small number of attributes. Perceived attributes of solar energy innovations will now be discussed. 2.1.1 Relative advantage. The relative advantage is the degree to which the innovation is superior to prior innovations fulfilling the same needs. Solar energy innovations may be used to provide energy services such as water heating, space heating and cooling, and lighting to different sectors of the economy. In most cases, these services are presently provided by electricity, oil, and natural gas, used in different amounts and commanding different prices in various parts of the country. Furthermore, solar energy innovations include a diversity of services, which may be applied to offer different end uses at different costs. Therefore, the advantage of a specific solar energy innovation must be established relative to other energy services, including other solar energy services. Relative advantage may be established with respect to the cost of obtaining a given energy service. The lower the cost, the clearer the relative advantage and the faster the adoption. Presently, consumers are faced with solar energy services, which are often more expensive than other energy services. This is the result of (a) heavy subsidies given to non-solar fuels, (b) the exclusion of external cost from the cost of fossil fuels, and (c) the small and inexperienced solar industry. Taking these factors into consideration, the cost of solar energy is often cheaper to society than producing fossil fuels. But, even when the cost of solar energy services is high, some consumers would prefer such services over those of fossil fuels.21-23Nevertheless, a large market share would necessitate lower prices to allow more consumers to enter the market. 2.1.2 Risk. Risk is the degree to which economic, physical, functional, and social-psychological harms are perceived in an innovation. Risk must be minimal for an innovation to penetrate the market quickly. Because solar energy innovations represent a departure from the mode of obtaining energy services, many consumers perceive high risk in adopting them. This high perceived risk must be reduced before consumers would enter the market. It can be done by product demonstrations and information. 2.1.3 Compatibility. Compatibility is the degree to which an innovation is consistent with values and experiences of potential adopters. Compatibility is target group and end-use specific. For example, solar water heaters may be consistent with values and experiences of residential consumers but may not fit the industrial requirements for process heat. Compatibility is a function of the fit of an innovation and values of potential consumers. It is usually assumed that the innovation is the only change taking place, while other factors are held constant. In most cases, this assumption is quite realistic. This is not the case with solar energy
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innovations. Estimating their fit with social values measured only a few years ago may be establishing fit against values which no longer exist. The U.S. economic and energy crisis, which began with the oil embargo of 1973, is creating a new social order compatible with solar energy applications. This is particularly true with regard to conserving consumers, who are presently estimated at 16 millions and expected to grow to 60 millions by 1987 and to 120 millions by the year 20Q0.ti 2.1.4 Complexity. Complexity is the degree to which an innovation is difficult to understand and use. The more complex an innovation is, the slower its rate of adoption. Up to 1973, consumers used energy without much understanding of the way it it was produced, measured, and supplied. Energy was cheap and easy to use and waste. With a ten-fold price increase of oil, consumers are rejecting their past patterns of using energy. Cutting waste by caulking, weather-stripping, automatic thermostat-set-backs, and insulation is practiced by as many as 30% of all households.25’26Such conservation practices are making consumers more knowledgeable about energy matters, including solar energy, and are reducing complexity barriers to adoption. 2.1.5 Divisibility. Divisibility is the degree to which an innovation may be tried on a limited basis. Divisability motivates trial and compresses the adoption process. Samples, small package, try-now-pay-later are common techniques used in marketing of many consumer goods commanding relatively low prices. Solar energy innovations are costly. Basic solar water heaters cost as little as $2000. After taking advantage of federal income tax credit (40%) and state income tax credit (lO-30% in states offering such credits), the real cost to consumers is only a few hundred dollars (e.g., $700 in California and $600 in Colorado). But, before final decision to invest in the purchase of solar water heaters, most consumers would prefer small-scale trial, which is not easy to achieve in the case of solar energy innovations. To achieve a purchase-inducing product trial, the Tennessee Valley Authority (TVA) motivated consumers to try solar water heating systems and supplied them with low-interest loans for the purchase of such systems. Another method is to demonstrate solar applications. Showing consumers how an innovation is practiced may increase or decrease purchase motivation. Triability of solar energy innovations is difficult to achieve. But once a positive trial is established for one innovation, consumers may generalize such an experience to other innovations and bring about a fast adoption rate for many innovations, such as passive and active solar heating and cooling, wind machines, and photovoltaics. 2.1.6 Communicability. Communicability is the degree to which results of an innovation can be disseminated easily and effectively. Positive, clear-cut results are effective communication capable of accelerating adoption rate. Cost-effectiveness is often used to persuade consumers to buy a new product. Such information is, however, of limited use to the innovators and early adopters now in the market for solar energy services. Communicating noneconomic information may be just as important among innovators and early adopters. For them, convenience, satisfaction, lifestyle, and social consciousness and acceptability considerations are as important as economic considerations. 2.2 The adopting unit The adopting unit is an individual or a group making the decision to adopt a given innovation. The adopting unit for solar energy innovations may include the family, the architect, the builder, and the bank. For example, when considering the adoption of a solar water heater, all family members may act as the adopting unit. They are interested in different product attributes and exert different degrees of power, including veto power, in the decision process. In the case of the TVA solar program and the Denver Metro Program of the Solar Energy Research Institute, the adopting unit may be composed of the architect, the builder, the sponsor organization, and the family. The greater the number of people composing the adopting unit, the slower is the rate of adoption. Most diffusion studies concentrate on the characteristics of the individual as the adopting unit. Studies using the family or other groups as the adopting units are normally reported to fit early research designs conceiving the individual as the adopter.
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Depending on consumer motivation and background and his or her perception of the innovation attributes, different consumers go through the adoption process at different times and rates. Those who are first to introduce an innovation are the innovators, followed by early adopters, early majority, late majority, and laggards (while some never adopt an innovation). Characteristics of these groups are (see, for example, Ref. 15) listed below. Innovators (2.5% of the market): These are young, of high social and economic status, risk takers, cosmopolitan, and prefer impersonal communication sources. Early adopters (13.5% of the market): These too are young and of high social and economic status, seek respect, and are extremely capable opinion leaders. Once they adopt an innovation, other are sure to follow. Early majority (34% of the market): These are of average social and economic status and love to show and tell their peers of products they purchase. Late majority (34% of the market): These are of below average social and economic status, they are skeptical about adopting new products. Adoption occurs when the price is low enough and the pressures to adopt are strong. Laggards (16% of the market): Last to adopt, these consumers have low social status and income. Their values are very traditional, and they are reluctant to purchase and use new products and services. 2.3 Channels of communication Potential adopters obtain information from two different yet complementary channels of communication. One is mass media: television, radio, newspapers, and magazines. The other is personal sources: peers, friends, the neighbors. The first is effective in reaching a great number of individuals and informing them of an innovation and its possible uses. The second involves a small number of people, but is very effective in convincing individuals to adopt an innovation. In either case, communicating through an opinion leader enhances the effectiveness of the communication channel and the effectiveness of the message. The opinion leader may (1) endorse an innovation on mass media, (2) interpret or discuss relevant mass media messages with group members, or (3) provide persuasive information to a group member. In all such cases, the effectiveness of the opinion leader is a function of his credibility, itself a positive function of his perceived expertise and trustworthiness. Since opinion leaders are usually trustworthy, their perceived expertise determines the limit of their influence on group members. 2.4 The adoption process The adoption process is the psychological stages that potential adopters go through from first hearing about an innovation to their final adoption or rejection of it. Specifically, the process includes: (a) awareness stage during which one learns of the existence of the innovation of solar energy water heaters but has little information of its attributes and functions; (b) interest stage during which the consumer acquires information about the innovation and its functions; (c) evaluation stage during which one compares water heating services provided by solar and non-solar energy sources. A mental trial takes place at this stage, leading to a decision to seek actual trial of the innovation, reject it, or wait and see; (d) trial stage during which the consumer may actually but temporarily use hot water heated by solar energy systems; (e) adoption stage during which the consumer decides on full scale purchase and use of solar water heaters. An important consideration in assuring smooth and speedy adoption is identifying and solving problems which may result in rejecting the innovation. Factors contributing to rejection of solar water heaters relate to (a) attributes of the inovation (e.g., high first cost), (b) personality characteristics of potential adopters (e.g., dislike of change), and (c) a social system in which energy market realities are distorted. 2.5 Time and space Time is of central importance in diffusion studies. Success of an innovation is measured by the length of time it takes the innovation to be adopted by a given population. Adopter categories are defined and classified into different groups depending on when they adopt the innovation. Also time and timing are important in accelerating adoption of a given innovation. Temporal variables are the outcome of consumer motivation, socioeconomic status, and perceived innovation attributes. The ability to predict time of adoption may mask many
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behavioral variables which can be influenced by measures capable of accelerating adoption.‘” Therefore, models which exclude behavioral variables may lead to misdirected measures to accelerate adoption. Researchers employing solar energy market penetration models, which focus on cost and performance as the main variables, often recommend price reduction to increase market penetration. But, since early adopters presently in the market are less interested in price and more in innovativeness, stressing the last attribute is much more effective in increasing adoption.28 In addition, the experience of other countries with solar energy innovations may be helpful to the U.S. In Israel, solar water heaters have penetrated over 40% of the residential market and solar ponds are producing usable energy. Sweden and Denmark developed efficient energy use habits. By analogy, these experiences provide useful information to accelerate the adoption of solar energy innovations and energy conservation in the U.S. 3. DIFFUSION
THEORY AND SOLAR ENERGY INNOVATIONS
Solar energy technologies are innovations in the early stages of their life cycle. As can be seen in Fig. 1, solar water heating systems and wood burning stoves are well into the innovation stage, but photovoltaics and wind machines are still in the pre-market-introduction stage. It was often argued that, by infusing resources into product development stages, it is possible to compress product development activities and accelerate the rate of adoption, that is, to move the diffusion curve from A to B. Resources, however, cannot always substitute for time and motivate purchase. Using such a strategy can backfire and slow product development and adoption rate. Figure 2 depicts the diffusion of innovations process, adopter categories, and marketing and policy variables that may be useful to accelerate adoption. Here again, two diffusion curves are depicted. Curve B compresses the process of Curve A (and perhaps its level as a result of promotional activities). This is the best result that policy makers and marketing management can hope for. Policy and marketing measures can affect the rate of consumer adoption by careful product, price, promotion, and channels of distribution decisions.
Fig. 1. The diffusion of solar energy innovations.
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AVRAHAM SHAMA
Fig. 2. Adoption
curve,
policy
measures,
and marketing
strategy:
applications
to solar energy
innovations.
3.1 Product
Superior innovations, which are consistent with what consumers value and are easy to understand, communicate, and try on a small scale, get adopted quickly. Policy and marketing measures must facilitate these perceptions. As can be seen in Fig. 2, management may accelerate adoption by stressing the innovativeness of solar water heating systems before the innovators and early adopters, and relative advantage before early adopters. Product differentiation and market segmentation become important when the early majority enters the market. In addition, a limited line of solar water heating systems is sufficient to achieve market recognition at the innovating stage, but a more extensive line may be necessary later on to appeal to different market segments. Policy measures can also accelerate market penetration by product-related activities. In the case of solar technologies, product policy measures start before market introduction. Support to research and development activities can help develop better products quickly and market introduction activities can start fairly early. Some R&D support has been given by the federal government to almost all solar technologies. Given indiscriminately, the magnitude of government R&D support may help develop solar technologies having limited market potential. Support should be based on expected contribution to whatever policymakers value, e.g., energy independence, clean environment, etc. The Department of Energy sponsored studies to quantify the expected contribution from different solar technologies and shed light on the values
Speeding the diffusion of solar energy innovations
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associated with the use of solar energy.B*30This requirement is logical because it requires that investments in R & D and support to commercialization efforts be based on some measures representing return on investment or profitability to society. However, it can also be dangerous in that it may be based on scant and very biased data. Beginning with market introduction, policy measures supporting procurement, demonstration, consumer trial, standards and labels, and consumer protection can accelerate adoption rate. However, such policy measures may also have a negative impact on adoption rate. 3.2 Price Innovations tend to be more expensive at the market introduction stage, and solar energy innovations are no exception. The cost of domestic water solar heating systems ranges from $2000 to $3000, while energy saved by their use makes only a small reduction in monthly energy bills. Given consumers’ preference for low first cost, perceived reduction of this cost is necessary to increase adoption. Setting high prices to skim the market may be a business mistake. Setting lower prices would increase market penetration and profits through high sales volume is smart business. Even then financial services are required to reduce the burden of first cost. Examples of such services include low down payment and monthly installments as practiced in the automobile industry, and rolling the cost of the solar system into the mortgage loan for the building. Though many experts have made such propositions, the industry has been slow to respond. Yet, it may be significant to note that high energy cost can be used to leverage greater loans to builders.3’ Federal and state policymakers stress price reduction measures. Federal tax credit is 40% of the cost of solar water heating systems, and state tax credit-in states providing such a credit-ranges from lO-30%. Consumers pay the full price of the system and wait as much as a year to receive the tax credit. A more immediate connection between the purchase and the rebate may increase the number of consumers who purchase solar systems. Over-reliance on economic incentives may be a mistake, too. In an extreme and theoretical case, if solar water heating systems are offered free of charge, consumers would suspect their quality and the motivation behind them. Economic incentives alone may have limited value in accelerating adoption. A recent study3* shows that adoption rate increases significantly when economic incentives are part of integrated policies stressing information, consumer protection, product quality, as well as economic incentives. 3.3 Promotion Promotion facilitates sale of products and services by creating awareness, interest, and preference for them. Different messages and channels of communication are selected, depending on the product, its life cycle stage, and its target group. As can be seen in Fig. 2, informative messages are required at the early stages of diffusion, while more persuasive messages are generally more effective later on. Similarly, specialized media such as newsletters and professional magazines are more effective in the innovation and early adopter stages, while mass media may be necessary as the early majority enters the market. Likewise, only light personal selling efforts are required at the early diffusion stages, and more intensive efforts are necessary later on to offset competitive forces entering the market. The promotion budget is usually determined by sales volume. When solar energy innovations are introduced to the market, the only sales figures available are expected sales. But even linking promotion budget to anticipated sales may not create a strong enough stimulus to increase adoption rate. Promotion budget is an investment whose size should be determined by expected profits. This way, a big promotion budget may be necessary to inform and persuade a substantial number of consumers that will set the diffusion on a smooth course. This is of particular importance because as much as 20% of the market has to be aware of the product before adoption takes place.33 Policy makers have traditionally avoided the use of promotion. Only in cases of public health or national security did they make some exceptions. For example, in order for the Department of Energy to support a “Low-Cost/No-Cost” campaign which distributed a shower head flow restricter and a list of 11 other conservation measures in New England in the fall of
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1979, it had to treat it on an ad-hoc basis to motivate state government to follow suit. Indeed, the state of Colorado adopted the Low Cost/No Cost promotion program in the fall of 1980, and other states are said to follow suit. On the other hand, demonstration programs have always been supported by the federal government to promote use of desired products and practices. The federal solar demonstration program included demonstration of active solar heating and cooling, photovoltaics, and wind machines. But, because demonstrating solar energy innovations may take time, a more direct promotion program may be desirable. State and local government, and civic groups are becoming active users of such a direct approach. For example, energy extensions are teaching their students how to install solar water heaters in their homes, and otherwise promote the use of energy from renewable sources. Finally, diffusion may be accelerated by using mandates. Mandates range from mild ones requiring, for example, cost performance information about solar panels, to strict ones requiring, for example, the use of specific passive and active solar energy innovations. Mild mandates coerse consumers less, and they can be flexibly applied. Strict mandates are more coersive and effective in bringing about desired results, but they may be quite dangerous in dictating actions which otherwise would never be taken. 3.4 Distribution Distribution pertains to the flow of an innovation from the producer to the final consumer. It may be a simple system whereby the producer distributes the innovation directly to the adopter, or a complex system whereby the innovation goes through wholesalers and retailers before reaching the final adopter. The specific distribution system is normally determined by the nature of the innovation, forecasted sales, and consumer and producer preferences. Changing the distribution system as market conditions change are part of distribution strategy. Distribution establishes the time and place availability of an innovation. When the market is very small and demand is weak, as is the present case of some market-ready solar energy innovations, a simple and selective distribution system (e.g. producer consumer) may be most efficient. When the market grows and demand strengthens, as may now be the case with solar water heaters in California, Colorado, and Florida, mass distribution may be more efficient in satisfying time and place needs of consumers. It is estimated that as much as 253,000 solar water heating systems are in place presently, and other estimates are much higher. More significant is the exceptionally positive attitudes of consumers toward solar energy systems, 34 indicating high potential if the right product (i.e., solar energy innovation) is offered to the right consumer at the right price and at the right time and place. Experts now claim that the selective, almost intermittent distribution system for solar water heaters hampers their rate of adoption. Consumers have a hard time locating the product, let alone being able to take advantage of comparative shopping to reduce their economic cost and risk, and reduce future feelings of regret or cognitive dissonance.35 Furthermore, as solar energy innovations are used as part of a system (e.g., solar water heater as integrated in the building structure and energy requirements), the delivery of solar innovation poses a challenge to their speedy ditrusion. First, the ultimate adoption unit is normally more than one person. Seconh, different facilitators may be needed before adoption can take place. Finally, the innovation must be available at the right time and place for consideration by the builder, the installer, and the homeowner. Considering the conservative nature of the building industry, these are very serious challenges to efficient distribution of solar energy innovations.“‘37 Policy makers can influence the establishment of effective and efficient distribution channels. The Conservation and Solar Bank and the Residential Conservation Service (RCS) facilitate the establishment of distribution channels for both conservation and solar energy innovations. RCS requires utilities to supply homeowners whose homes are audited with a list of solar energy innovations applicable to their homes, the cost of such innovations, and a list of reputable distributors and installers. On the other hand, other federal programs such as the demonstration program of solar water heaters had little impact on distribution channels. Either way, the timing of such programs is of crucial importance. Starting them too early may have a negative or no impact, and starting them too late amounts to shipping coal to Newcastle.
Speeding the diffusion of solar energy innovations 4. CONCLUSIONS
713
AND RECOMMENDATIONS
The absence of marketing use of diffusion from business and public policies is a majol reason for the high potential/low adoption rate paradox of solar energy innovations. So far, business and public policies were dominated by techno-economic considerations which focus on the product. A diffusion framework focuses on both the consumer adoption process, and the product and its attributes. It is action oriented and helps identify bottlenecks, and specify useful actions. The following conclusions and recommendation are based on marketing use of diffusion, and are intended to help those interested in accelerating the diffusion of solar energy innovations. Develop and perfect solar energy products. Business should develop and perfect solar energy innovations before introducing them to the market. As some manufacturers of solar domestic hot water (DHW) systems can attest, introducing products which are not fully ready does more harm than good. By now most manufacturers seem to be aware of this prerequisite to market introduction. In addition, because solar energy innovations may be iterrelated, their interrelatedness should be taken into consideration in developing solar energy systems. For example, passive solar energy measures such as building orientation reduce space heating needs from an active solar space heating system. Simillarly, developing a produce line in any given category of solar energy innovations may be desirable, because different consumers need different products. Government too, may help the development of quality products by well timed support for demonstrations and procurement contracts. Define solar energy products carefully. Consumers do not need energy per se. They need energy services to heat, cool, and light. Solar energy innovations must be defined as promoted as service innovations. This provides wide-scoped definition, and requires more resources and managerial attention to servicing and maintaining solar energy systems. Rely on relative aduantage of solar energy innovations. Attributes unique to solar energy innovations can accelerate adoption among innovators and early adopters who are responsible for success or failure of most innovations. Solar energy is safe, clean, renewable, and provides some energy independence and autonomy. Such attributes justify premium prices. Demonstrate solar energy innovations. Demonstrations inform and educate the consumer, and reduce his perceived risk. This is particularly important with regard to solar energy innovations, because they are different from other energy-providing services. Timing of demonstrations is of critical importance, and the product must be fully ready technically. Target solar energy innovations. Presenting different product concepts, attributes and lines to different adopter categories is essential for speedy market penetration. Targeting is determined by consumers’ needs and the benefits that they derive from a given innovation. The custom home builder may be interested in passive solar systems and solar DHW systems, while farmers in the windy regions of the Northwest are interested in wind energy. Introduce regional policies. Regional differences must be introduced to business and government policies regarding solar energy innovations. Business and government policies are yet to fully realize the importance of regional differences. Only in the past two years policymakers become aware of the possibilities that state and regional solar energy centers afford them. Such possibilities include accurate information about smaller geographical areas, and the use of the centers to implement and “distribute” federal policies. Unfortunately, these lessons may now be quickly forgotten. Help the consumer decision making process. Consumer decision making process follows a number of well delineated psychological stages (awareness, interest, evaluation, trial, and adoption). Different information mix and communication channels are needed at different stages of the process. Factual product information to create consumer awareness of the innovation should be used in the early stages of the process; later, product information must convince the consumer that the innovation can meet his specific energy needs, and create purchase motivation. Similarly, mass media are effective in creating awareness, specialized media are more effective in persuading consumers. Consider the do-it-yourself market. Do-it-yourself markets for solar DHW systems and wind machines may be large enough to justify separate do-it-yourself product lines. These innovations are simple and satisfy consumer interest in cutting cost, and hands-on-experience.
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AVRAHAM %AMA
Energy extentions offering weekend courses teaching how to install solar DWH systems are generating increasing numbers of participants. These participants generate positive and powerful word-of-mouth advertising. Reward the use of solar energy innovations. Cost-reducing economic incentives, are effective only when high prices are barriers to adoption. Psychological rewards are messages which reinforce the purchase and use of solar energy innovations. Neither of these rewards is essential in the innovation stage, but both become increasingly important as the early majority enter the market. Federal and state tax credits are an example of economic incentives, whose impact may have been limited because it is not widely known, and because consumers have to wait up to a year to receive their rebate. A more immediate connection between price and tax credit is highly desirable. Cancelling the solar tax credit will slow adoption as it deters the cost conscious consumers about to enter the market. Ofler financial services. Solar energy innovations represent major costs or investments to the consumer, the availability of financial services is essential to speedy market penetration. Both the Residential Energy Conservation program and the Conservation and Solar Bank are designed to make financial services more available. This, however, is short of a full line of financial services which may be needed. Should these services be cancelled, the negative impact on the rate of adoption is quite clear. Ensure realistic price comparisons. As long as the price of conventional energy services is subsidised, and as long as it does not reflect marginal social cost, potential adopters of solar energy innovations may decide against adoption. Only government policy can change this artificial market bias, and the recent decontrol of oil prices is a step in the right direction. Use penetration price policy. Setting prices relatively low to gain a large market share can accelerate diffusion. A large market share may not only result in market leadership with regard to a given solar energy innovation (e.g., active heating systems), but also with regard to other innovations (e.g., active cooling systems). Ensure appropriate distribution. Distribution channels must be in place before an innovation can penetrate the market. Presently, the absence of credible mass distribution channels for innovations such as solar DHW systems slows penetration at least in some regions of the country. Government, and especially business, should encourage widening the distribution of solar energy innovations both as an adjustment measure to the growing market, and as a tool to expand it. Discourage energy ineficient practices. In addition to rewarding the adoption and use of solar energy innovations, discouraging energy inefficient practices may further enhance solar energy innovations. For example, deregulating oil prices as well as differential pricing such as increasing block utility rates, and demand billing, may change demand for energy services in favor of adopting some solar measures. Promote the use of solar energy innovations. Promotion can speed up adoption of solar energy innovations. To business, promotion is by definition part of the marketing mix offered to consumers. On the other hand, government’s benign attitude toward promotion, even in the case of informing consumers about solar energy policies which affect them, is surprising. More attention to promotional aspects can make solar energy policies much more effective. Use flexible mandates. Mandates to induce the adoption of solar energy innovations must be regarded as an available policy tool. However, strict mandates aggressively advocated and practiced in some states may do more harm than good. Information and performance based mandates can be both flexible and effective in speeding the adoption of solar energy innovations. REFERENCES 1. R. Stobaughand D. Yergin(Eds.), EnergyFuture.RandomHouse, New York (1979). 2. A. Shamaand K. Jacobs, J. Environmental Systems 10,355 (1981). 3. S. Charhart, “Creating New Energy Choices”, Energy Productivity Center, Washington D.C. (1980). 4. MITRE Coruoration. “Preliminary Executive Summary of The National Plan for The Accelerated Commercialization of Sol& Energy” (1979).MITRE Corp., McLean, Virginia, U.S.A. 5. E. Katz. L. Levin and H. Hamilton, Am. Sot. Reo. 28,237 (1%3). 6. F. C. Fliegel and J. E. Kivlin, Am. J. Sot. 72, 235 (1966). 7. E. Mansfield,IndustrialResearchand Technological Innovation. Norton, New York (1968). 8. F. D. Midgley,Innooation and New Product Marketing. Wiley, New York (1977).
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