Plugging in the Consumer Case Analysis

Plugging in the Consumer Case Analysis

“PLUGGING IN” THE CONSUMER: THE ADOPTION OF ELECTRICALLY POWERED VEHICLES IN THE US INTRODUCTION U. S. consumer interest in non-fossil fuel vehicles is relatively positive. There are several issues that American faced about fossil fuel such as pollution, dependency on oil imports, concerns of how long fossil fuel supply will be worn-out and especially fluctuation of foreign-oil prices and the more expensive cost of fuel for American household. Some actions have been taken both by the policy maker such as formed an air pollution control department to reduce smog (in the City of Los Angeles, CA) and passed the Clean Air Act in 1970.

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Those efforts already reduced the car emission by more than 95%. The car manufacturer also took action by developing more and more efficient internal combustion engine (ICE). There are several alternative technologies of more efficient vehicle such as, Electric Vehicle (EV), Diesel and Fuel Cells. However, a new standard of source of vehicles power has not been established yet. As the result car manufacturer tend to develop several new alternative power sources. Honda for example, while developing Hybrid Electric VehicleHEV (the Insight) it also develop a fuel cells vehicles (FCV).

The purpose of this report is to analyze the business situation regarding the development and marketing of alternative-fuel vehicles in the US and proposing a new product introduction strategy for a hypothetical alternative-fuel car for the period 2012-16. Page 1 of 8 Pages SITUATION ANALYSIS History Awareness in electric propulsion of vehicles is on the rise throughout global automobile industry. The revival of interest in electrification is attributed primarily to public concerns about air quality and the world oil crises.

Furthermore, the combination of several air and energy regulation caused most major vehicle manufacturers to offer a limited number of electric vehicles. However, none of these vehicles was a commercial success. NEEDS AND WANTS EXPLORATION Benefit (Benefit to the customers) Adopting new powertrain technology such as EV and fuel cell, customers will gain benefit such as lower in household’s energy expense, especially when the cost of gasoline increase. For comparison, Nissan Leaf one of popular EV car cost about $2. 0 to drive 100 miles on electricity while driving the same distance using gasoline cost $10 to $12, depending on fuel efficiency and the cost of gasoline. 1 However, due to battery technology constraint, this benefit requires customers to change their habits In order to increase the driving range such as 1. Recharging their cars daily and planning ahead for long trip. 2. Plan the trip for commuting by choosing the downhill route that will help bring the range back up. 1 The News & Observer, John Murawski, 7 March 2011, All-electric Nissan Leaf makes Raleigh debut. Page 2 of 8 Pages . Drive smoothly & conservatively using the accelerator, stay at or slightly under the speed limit, brake gradually to draw the maximum energy recapture from the regenerative braking system. Besides the greater range of EV, customers also expect that EV’s recharge time would become shorter. Currently, EV’s recharge time is ranging from 8 hours with 240-volt charger to 20 hours with 120-volt wall outlet2. Form (The Physical Product) The design of new non-fossil fuel vehicles is expected to be the same as ordinary car. Other expectations are greater range and quicker recharges.

Today’s design of alternative-fuel car is not an issue. Nissan Leaf and Chevrolet Volt, two electric cars that available in the market were in “regular car” design. Therefore, customers do not perceive EV as concept cars which are usually come in a weird design for the mainstream customers. While for the fuel-cell car, both Chevrolet Equinox and Honda Clarity FCX also accepted by the customers in term of their appearance. Technology There is no specific technology that customers need from future vehicles. Customers expect that new vehicle propulsion technology should not make they change their behavior drastically. 2

The News & Observer, John Murawski, 7 March 2011, All-electric Nissan Leaf makes Raleigh debut. Page 3 of 8 Pages IDEA GENERATION, SCREENING AND EVALUATION A number of different powertrain technologies held promise for lowering emission and increasing fuel economy such as: EV and fuel cell. Fuel cell is the most efficient powertrain among other. However, it also still has technological challenge such as bulky and expensive hydrogen-storage system, durability of fuel-cell system, the lack of infrastructure for producing, transporting and dispensing hydrogen to customers and also the high price of FCV compare to another option.

With those issues, there is no intersection between the three components (Benefit, Form and Technology) that will come out as feasible potential new products. As the result, FCV-drivetrain technology will likely require another technology generation before it arrives. EVs are a prominent innovation. The pre-order of Nissan Leaf in the US was successful. About 20,000 limited U. S. models to be released this year have already been claimed in preregistrations. With the price tag of 32,780 and consumers can get a $7,500 federal tax credit, bringing the cost to $25,280.

It will still become too pricey. However, the day-to-day energy savings appears to be the great allure with Leaf drivers3. Moreover, EVs experience a market adoption problem, to move from early adopters to mainstream buyers. In consumer’s perspective, EVs must provide better cost-value ratios and convince consumers that no significant behavioral changes are needed before becoming a large-scale. As complement of what drivers should change to theirs driving habits, there are also several physical adjustment that has to be made by the customers that purchase electric cars such as installed a $2,200 St Petersburg Times, Ivan Penn, 12 February 2011, Nissan Leaf: Trading The Pump for The Plug. Page 4 of 8 Pages household charger costs, which can be partially defrayed with a 30 percent federal incentive4. As the conclusion from screening and evaluation, EV could become the successor of today’s car. BUSINESS ANALYSIS In November 2009, HEV share is 2. 5%. However, consider the large automobile market in the US, 2. 5 out of around 750,000 monthly US sales in November 2009 is almost 20,000 unit of HEV. Such volume will attract automaker to develop EV.

Moreover, the market share of HEV tends to have positive relationship with the price of gasoline. Additionally, 46% of the customers are willing to buy a PHEV with 2,500 cost premium. Nissan Leaf’s price is 35,200. The price can be offset a $7,500 federal tax credit available for electric cars, bringing the total price down to 27,700. With 46% customers desire to pay $2,500 premium, the price of Nissan Leaf would be $25,200. This price will be comparable to Toyota Prius ($25,800) that already sold more than 1 million units.

Therefore, for Nissan Leaf, the obstacle is not the price tag but other factors such as infrastructure and behavior change. DEVELOPMENT Most of automakers’ attention is properly focused on the need for new battery capabilities that will result higher driving range. There should be a breakthrough in EV’s infrastructure. Since EV is still in development phase, the standard of EV recharge station is not 4 The News & Observer, John Murawski, 7 March 2011, All-electric Nissan Leaf makes Raleigh debut. Page 5 of 8 Pages established yet.

There are several alternatives to EV’s recharge station. First is the charging station such as Coulomb Technologies. Second, is Battery switch station such as Better Place. MARKET TESTING In order to move EV’s adoption to the mainstream, there are two target markets that could become the starting point. 1. Early Adopters Early adopters of EVs are those consumers for whom concern for the environment and/or enthusiasm for new technology outweigh the risks, inconveniences, costs, and uncertainty of owning a car powered by emerging technologies.

Even with several problem such as recharging infrastructure, battery reliability, and uncertain resale value. Nissan received 20,000 pre-orders for the LEAF in the United States. Although these numbers are impressive, these indicators do not demonstrate that EVs can achieve mass commercialization, as one cannot assume that the sales will continue at the same rate once the early adopter market is exhausted. 2. Fleet Buyers A promising early market for EVs is corporate and government fleets where a fleet manager is responsible for tracking fuel and other maintenance expenses.

If fuel savings can pay for the extra cost of the EV, these finance-oriented fleet managers may be readily persuaded. A fleet buyer might be interested about EVs if the vehicles can be recharged at central locations and if short and predictable routes do not exceed the electric range of the Page 6 of 8 Pages battery pack. Furthermore, corporate and government buyers of fleets may wish to cultivate a reputation for “green” purchasing behavior, even if the financial case for EVs is not strong. `

COMMERCIALIZATION There are many obstacles facing the mass commercialization of EVs. Therefore, several actions need to perform before EV becomes the mainstream such as: 1. Automakers should introduce better price of the EV not only compare to HEC but also to the ICE vehicles. 2. Government should publish policies that support the adoption of EV such as added strain on power grid, increasing Corporate Average Fuel Economy (CAFE) standard, tax credit, Continuing Cars Allowance Rebate System (CARS).

Without such intervention the adoption rate of EV would be slower. 3. According to a research, consumers assumed that saving would be 25% which is far less than the actual saving that could reach 75%. Therefore, marketing campaign to educate customers that shifting to EV would decrease a substantial amount on their household expenses in the long run would be compulsory. With the simple benefit and cost calculation below, we could give consumers an overview of how much saving they could get. Page 7 of 8 Pages

Nissan-Leaf Cost and Benefit Saving Compare to Other Vehicles Item Car Price* Average mileage per Year Cost/ 100 Miles Operation cost per year 8-year total cost Pre-investment (Home Charger) Total Investment Difference in Total Investment compare to Toyota Camry (a) Difference in Total Investment compare to Toyota Prius (b) Saving in operation cost per 8-Years compare to Toyota Camry**** (c) Saving in operation cost per 8-Years compare to Toyota Prius**** (d) Benefit and Cost Ratio compare to Toyota Camry (c/a) Benefit and Cost Ratio compare to Toyota Prius (d/b) Nissan Leaf (EV) $25,280 10,000 $3 $280 $2,240 $2,200 $27,480 $7,035 $1,680 $7,360 $2,560 105% 152% Toyota Camry** (ICE) $20,445 10,000 $12 $1,200 $9,600 $20,445 Toyota Prius*** $25,800 10,000 $6 $600 $4,800 $25,800 Remark: * : Car price for Nissan Leaf already included $7,500 tax credit ** :

Toyota Camry is chosen due to the popularity of the car in US market *** : Toyota Prius is chosen as the most popular and best-selling hybrid car **** : 8-years period is chosen because Nissan Leaf provides an 8-years battery warranty From the above table we could see that EV provides better benefit compare to Toyota Camry and Toyota Prius. Furthermore, the saving in operation cost per 8-years of the EV will exceed the difference in total investment total investment in both Toyota Camry and Toyota Prius. This kind of calculation should become a marketing campaign of EV to attract more regular customers. 4. Success in fleet markets is key important strategy for helping an emerging technology bridge the gap between early adopters and mass retail customers. Page 8 of 8 Pages


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