Establishing an International Sales Channel in
a Booming Market of Disruptive Technology
A Company Project for:
The Amsterdam MBA program
Master of Business Administration Company Project Student Sywert Schadenberg - 10048847 Date September 30, 2016
Establishing an International Sales Channel in
a Booming Market of Disruptive Technology
The Amsterdam MBA program
Master of Business Administration Company Project Amsterdam Business School - University of Amsterdam Amsterdam, the Netherlands, September 30, 2016 Written by Sywert Schadenberg
Contact email B.S.Schadenberg@gmail.com
Executive Summary
This research project for the design of a sales and distribution strategy is conducted for a scale up company in the renewable energy industry. This is a market in rapid change since the world started embracing sustainable energy for environmental and economic reasons. The study focusses on electric power solutions market in off-the-grid environments.
The company is Off-Grid Factory, an independent privately owned internationally operating company in the Netherlands with global ambitions. It wants to establish a dealer network within 6 months allowing for 2 year growth plans and has recently started engaging with suppliers of components to aim for markets in Africa, Latin America and the Middle East. Theories from strategy, business disruption and marketing are employed to analyze the company versus its competition. The study shows the importance of building a loyal dealer network that is capable, willing to cooperate and loyal. Dealerships are sustainable when based on trust and commitment, and training dealers leads to successful sales operations. When developing a dealer network, the company needs to be mindful that opportunism can lead to destructive acts which will harm the relationship and possibly ruin the business. Depending on market conditions and maturity, either direct end user relations or dealer interaction or a combination are ideal. In markets with rapid and unpredictable change, firms with dynamic capabilities have the advantage, this company has the challenge of organizing such dynamic capabilities. Competitive Advantage Theory says customers need to experience some superiority of suppliers providing benefits. This company’s core
competence of designing standard systems, potentially suffices such competitive advantage. The proposed target segment for the company is the basic need segment, families without connection to an electric grid, and the first region is Sub-Saharan Africa, attractive for its current market conditions and its expected growth in the near term. Revenues are to be made by selling the hardware or by a model of pay per usage of power. Management decisions that will need to be made are: market of choice, target segments, marketing mix, distribution method, dealers and a channel support program. A timeline is provided for decisions for the channel strategy with a dealer network, for decisions on the channel development program and for decisions on product development, trading and marketing.
Contents
Preface ___________________________________________________________________ 1 I. Introduction ____________________________________________________________ 2 The role dealers play in the evolving energy market _________________________ 2 A.
The company _______________________________________________________ 3 B.
The scope of the study ________________________________________________ 3 C.
II. Underlying theory _______________________________________________________ 4 III. Methodology __________________________________________________________ 13 A. Research design ____________________________________________________ 13 B. Framework and tools ________________________________________________ 14 IV. Analysis of the organization ______________________________________________ 17 The company Off-Grid Factory _________________________________________ 17 A. Strategic competitiveness ____________________________________________ 22 B. Strategic partnerships _______________________________________________ 23 C. Competition _______________________________________________________ 25 D.
Conclusion of internal organizational analysis _____________________________ 25 E. V. The market ____________________________________________________________ 26 Technology ________________________________________________________ 26 A. Demand __________________________________________________________ 32 B. Supply ____________________________________________________________ 39 C. Conclusion ________________________________________________________ 49 D.
VI. The challenge for Off-Grid Factory _________________________________________ 51 The goal __________________________________________________________ 51 A. What is needed?____________________________________________________ 51 B. Next steps _________________________________________________________ 51 C. Conclusion ________________________________________________________ 56 D.
VII. The opportunity ________________________________________________________ 57 Market developments _______________________________________________ 57 A.
Conclusion ________________________________________________________ 58 B.
VIII. Recommendations ______________________________________________________ 60 Set of recommendations for channel strategy design _______________________ 60 A.
Foreign entry mode selection criteria ___________________________________ 62 B.
Guidelines for the creation of a channel development program ______________ 64 C.
Management decisions to be made, with timing __________________________ 66 D.
IX. Bibliography ___________________________________________________________ 69 X. Appendices ___________________________________________________________ 72 A. Off-Grid Factory versus competition ____________________________________ 72 B. Overview of competencies ____________________________________________ 73 C. Clarification of a quadrillion British Thermal Unit (BTU) _____________________ 74 D. Exempt: Liter of Light and The Solar Bottle Bulb ___________________________ 75 E. Operational Protocols for Strategy Implementation ________________________ 76
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Preface
We are on the eve of a revolutionary global turn in the production of energy. This is a fascinating era in which the world is recognizing the potential of wind and solar power as alternatives to burning fossil fuels.
When I met Arnoud van Putten in 2015, we discussed the opportunities that the market of energy offers and the challenges that his company faces to embark on a strategy to grow. The company has great ambitions and has proven success in various international projects. Up until now, this was done by working from the Netherlands and travelling a lot. But in order to grow, the company needs local partners: there is major value in building strong relationships with local dealers, even in this era of increasing direct end user supply. The company needs a practical guide to build a sales model by selecting dealers in order to grow its international sales. My MBA thesis to conduct a company project, demonstrates a
perfect match. I would like to thank both Arnoud and his business partner Pieter Klimp for the opening they gave me to conduct this study. It has given me lots of energy to be part of a team of strategic minds who are ready to change the rules of the game in this industry. The partners, clients and people in the industry that provided me with key information and backgrounders were crucial for a proper understanding of the industry and its players and allowed me to get key insights in the potential of solar technology disruption the market. A special thank you to Rudy Müller, CEO of Phocos, who hosted me in Germany and gave me spirit to bring this study to a higher level.
In acknowledgement, I thank my supervisor Edward Huizenga. Not only did Edward give me new insights into marketing and new developments in innovation, how enterprises organize for knowledge sharing and on customer journey and lifetime value during the Marketing Strategy course of the MBA program, we also had vibrant sessions of feedback and brainstorming that stimulated me to take the company project even a step further.
Amsterdam, September 30, 2016 Sywert Schadenberg
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I.
Introduction
The role dealers play in the evolving energy market A.
This research project is conducted in the renewable energy industry, for the design of a sales and distribution strategy of a scale up company. The energy market is changing rapidly, now that the world is embracing sustainable energy for environmental and economic reasons.
While internet and communication technologies have significantly increased the abilities to establish direct relations with end users, the importance of building a loyal dealer network that is capable, willing and loyal in its promotion of the company’s offerings to end users remains essential.
When selling internationally, to other continents, local requirements and conditions make it imperative to work with seasoned professionals with knowledge of customer desires in addition to country specifics and legalities. Setting up a profound network of dealers takes considerable time. It requires a deep understanding of local markets, of how businesses buy, where they would prefer to buy, the conditions under which dealers sell their products to business customers, how they acquire their products and what drives these resellers. This study will help a company that sells solutions to consumers and businesses on multiple continents of the world, to establish, nurture and develop a dealer network to grow its business in a sustainable manner. The project will provide a practical guide on how to set up and manage a dealer network successfully.
The project focusses on the electric power solutions market in off-the-grid environments, where power networks are not available or inadequate as a dependable resource for electrical power supply.
Objective for the company is to establish a dealer network within 6 months that allows for 2 year growth plans. A channel strategy is timely, since the subject organization has recently started engaging with suppliers of components in Europe and the US, to aim for end user markets in Africa, Latin America and the Middle East. Off-Grid Factory has recently signed an exclusive agreement with Phocos, the leading German manufacturer of solar technology power components, to assemble systems that are composed using Phocos components. This
3 potentially lucrative opportunity requires a sales and channel marketing strategy with a supporting channel program to engage these dealers and grow the business.
Business issue is the lack of marketing knowledge and competence in channel management within the company and the need to develop a channel strategy in order to achieve its business objectives.
The company B.
The Off-Grid Factory is a turn-key partner for realizing autonomous power projects, not connected to the power grid (off-the-grid), mainly fueled by the renewable sources solar and wind, and sometimes backed up by diesel engines for the emergency case of a lack of both wind and sun or the presence of sufficient battery storage. The company analyzes the customer needs of specific clients or sometimes a target audience of multiple clients and designs an integrated power system that is based on the most optimal combination of sustainable natural energy sources, wind and sun. Off-Grid Factory is an independent privately owned company in the Netherlands with global ambitions.
The scope of the study C.
The deliverable of this study is a set of guidelines and recommendations for the
construction of a sales channel strategy with a dealer network. The study aims at providing Off-Grid Factory with ample guidance on how to organize its sales mode, which channels to select, which dealers to involve and how to nurture and grow this sales channel.
Key deliverables of the project
• Set of recommendations for designing channel strategy and building dealer network; • Regional entry mode selection criteria and
• Guidelines for the creation of a channel development program.
The company is well underway of making the next steps into selling its solutions on different continents in the world. This has significant impact on the future of the company, the
importance of this sales model is high. In terms of timing, the study is essential for the company to start planning its assembly of products, the organization of its back office and the preparation of its engagement and communication to the channel, its suppliers and to end users.
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II. Underlying theory
For the theoretical layering of the study, the following literature is used, listed per topic: Background theories on strategy and marketing
The global edition of the book Principles of Marketing by Philip Kotler and Gary Armstrong, published in 2015, was used as a general reference guide for marketing strategy theories and models. Similarly, Marketing Management and Strategy, published in 2006, by Peter Doyle and Philip Stern was used as a general backgrounder for marketing strategic issues. Hollensen’s book on Global Marketing, 2016, is referenced for the section of local marketing execution versus global management, planning and orchestrated branding. When a
company wants to operate in more than one country “during its global window of opportunity”, the marketing programs must adapt to the needs and preferences that customers that have a different level of purchasing power, as well as a different language, culture and climate. Global coordination is required and synergies can be achieved by sharing best practices.
The books Visionary Marketing, published in 2009, and Marketing, Strategy and Organisation, building sustainable business, published in 2013, both by Moenaert and Robben published by Editions Lannoo. The authors stress the importance of analyzing the internal and external environments of the company in order to assess where and how companies compete to develop a strategic marketing plan. The most important of these analyses focus on the customer, the customer value proposition, the business model, and the industry and macro environments in which the company competes. A CODA model is built on the basis of Abell Framework for strategy definition. CODA stands for Customer’s Outlook on Differentiating Advantages, with four types of competitive advantages: product or service, customer process, price and image, this model echoes the earlier work on delivering superior value for the customer by Treacy and Wiersema (1993) on Value Disciplines. After Mintzbergs’ scope strategies, the authors say companies may choose to follow one of the four strategies: Non-segmentation strategy: where the company defines one customer value proposition which is marketed to all the selected target segments; Segmentation strategy: after identifying the target segments, the company sets a different customer value proposition for each target segments; Niche strategy: the company opts for
5 one segment and develops a customer value proposition; Customization strategy: the
offering is customized for each customer. The necessity of having a competitive advantage is highlighted in the words of Jack Welch, former CEO of GE: “If you don’t have a competitive advantage, don’t compete”.
For Competitive Advantage, the original article by Jay Barnes was used, where Barnes highlights that in the process of filling in the “internal blanks” created by SWOT analysis, managers should answer four key questions about their resources and capabilities, the so-called VRIN/O: do they add value, are they rare, are they not imitable and
non-substitutional, and is the company organized to exploit the full potential of its resources and capabilities?
In the article by Prahalad and Hamel, ‘The Core Competence of the Corporation’, the importance of identifying the core competence of the firm and then build the strategy around that core competence. To cherish this competence and grow the essence of what the company is really doing well, makes it successful in its endeavors. Only then the
company can achieve a state of sustained competitive advantage (SCA), though we have to mindful that it is questionable whether such advantages will last forever, as described as one of the eight critiques on RBV in the article by Kraaijenbrink et al (2010). It emphasizes the reason to have dynamic capabilities in dynamic environments, in order to be less static and at risk of losing the advantage to competitor imitation.
Concluding, the Competitive Advantage Theory presumes that the customer would need to experience some superiority of the supplier that provides him with benefits. Without any advantage of one supplier over another, there is lack of buying reasons and the customer buys a competitive offer that does have advantages. A company can excel in more than one element over competition, in the eyes of the customer. Advantages are often perishable, reason the more for companies to keep reinventing.
6 Source: Accenture, 2013
Figure A: Big Bang Market adoption versus technology adoption lifecycle
Theories on disruptive technology
“A disruption displaces an existing market, industry or technology and produces something new and more efficient and worthwhile. It is at once destructive and creative.” says Harvard Business School professor and disruption guru Clayton Christensen. On disruptions in
businesses, a lot has been theorized in the last decade.
Big Bang Disruption by Downes and Nunes was first published in 2014. The authors argue that the famous bell curve has lost its value as a planning tool and that for the adoption of
better and cheaper innovations, a radically different model should be used. They criticize Geoffrey Moore’s technology
adoption lifecycle which is based on the Diffusion of Innovations by Rogers (2005), by claiming that the
bell curve is dead and replaced by what they call a shark fin, more like a cliff shaped adoption cycle, with a nearly vertical slope, see figure A.
The book explains that Big Bang Disruptions often have very short lives. For disruptors, the real challenge is to create more than one, but they admit that very few enterprises have series of disruptions. Big Bang disruptors don’t follow the traditional rules of competition. They don’t target high-end customer segments with a premium alternative. The markets would know only two kind of buyers: trial users and everyone else. And the greater the pressure for better and cheaper products or services, the bigger the bang. For electrical power, the book mentions “smart grids”, that collect usage and demand information in real time using a variety of sensors and other component technologies. Analysis of that
information can not only help end users become more efficient, but also improve design of the products and services. This view on connecting devices and recording data is shared by
7 many strategists and technology trend watchers, that from now on, all devices will become connected as part of the internet of things.
Major societal developments are seen for instance in the way that consumers deal with food waste, and how governments deal with waste treatment when societies are getting more environmentally conscious. This leads to significant changes in the behavior of people and governments that are elected by the people follow the behavioral patterns of society and adjust legislation.
By way of an example of how an organization builds its innovation agenda, Huizenga (2014) analyses how Royal DSM, the Dutch global science-based company active in health,
nutrition and materials, manages this. DSM had four major trends on its Innovation Agenda: • Food and Nutrition Security - enabling availability right amount and quality of food; • Health - innovations in both preventive as well as curative care;
• Energy Security - enabling the availability of a sustainable energy supply an
• Sustainable Manufacturing and Materials Security - Providing materials resources in a circular, closed loop, mode of operation.
The steering and controlling of the knowledge infrastructure of DSM requires an intelligent governance structure. At DSM’s, this is done by the Chief Technology Officer (CTO) and the Chief Innovation Officer (CIO), it ensures the execution of DSM’s knowledge vision. Multiple organizational instruments are implemented, supporting the knowledge flows. The
organizational model consists of a coherent set of measures, clearly showing a competence orientation, managed by seven key organizational instruments that ensure a lateral flow of knowledge within the organization:
1. The portfolio of core competences and ‘know-how to scale’. 2. The Strategic Council.
3. A Corporate Science Council and its knowledge principles. 4. A DSM Science Network model.
5. The guidance by the Core Competence Area Plan. 6. The central business role for the Innovation Center.
8 Any company that has the ambition of innovating in any direction, should adopt some form of governance structure and this DSM example has proven successful in the complexity and size of the organization. For smaller organizations like OGF, some steps could be combined. Background theories on marketing channels
Marketing Channels, by Coughlan, Anderson, Stern and El-Ansary, published by Prentice Hall in 2001. A particularly interesting phenomenon of new industries is introduced, the vertical integration that is required because of the unfamiliarity with the technology. It is difficult to persuade buyers and dealers of the new technology by the uncertainty that the business brings. For the inception of new technologies, the tight partnership or integrated
cooperation is essential. When the industry grows, the tasks for production, distribution and resale are better defined and each reach economies of scale, leading to a more separated relationship between the manufacturer, the distributor and the local dealers. Another interesting topic discussed is the ability to use power in influencing the behavior of the channel, for instance by margin reduction and reward withholding. In some channels, coercive powers are being exercised, obviously not beneficial to the longevity of the relationship. Such excessive usage of powers can be seen in dominant power structures where manufacturers face little competition and dealers are dependent on supply. Reward power can have a positive stimulation of good behavior, although the behavior is than triggered by the financial benefit, not by the joint gains, which would be instigated by high commitment as discussed by Black (2008).
The article in the Journal of Marketing Channel Selection for Industrial Products: A Framework, Method and Application, by Kasturi Rangan et al. In this article, the 8 key functions of the channel are discussed in the light of the best fit for the customer, a direct contact with the manufacturer or an intermediate distributor in between. The functions are Product information and product customization, if these are complex and important than a direct contact is preferred. If product quality needs to be assured, than it is important to have direct relations. With high volumes and large lot sizes, direct contact makes more sense. If assortment and one-stop shopping counts for the buyer, than a distributor adds value, same accounts for availability and after sales service. And lastly, logistics are easier to handle for distributors, while for the manufacturer, this is more complex, particularly
9 considering distances. Depending on the market to operate in, hybrid models can also make sense.
Background theories on multi-channel strategies
For a multi-channel strategy, the following two articles are studied to address challenges in the arena:
Firstly, the article The multi-channel challenge: A dynamic capability approach by Wilson and Daniel, published in the Industrial Marketing Management, Elsevier in 2006. The term Dynamic Capabilities is defined by David Teece in 1997 as the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. It was influenced by Gary Hamel's multinational strategy research leading to Core Competences of the Corporation. In markets with rapid and unpredictable change, the firms with dynamic capabilities have the advantage to shift resources to meet the demands, hence the start of the surge for agility in companies. From this theoretical flow, it can be concluded that in dynamic markets, it is beneficial for companies to have the capabilities to actively review their route to market, align this route with different segments, create innovative channel combinations, develop customer value propositions en route, integrate processes like IT, organize for innovation and motivate multi-channel behavior.
Second, the article Multi-channel strategy in business-to-business markets: Prospects and problems, by Roosenbloom, published in the Industrial Marketing Management, Elsevier in 2006. Although this article is primarily written for business-to-business markets, it doesn’t hinder to get an understanding to compare with markets where consumers are targeted. In this article, multi-channel strategy is predicted to become the norm, a number of issues is discussed: the importance of creating a seamless experience for customers by integrating online channels with conventional ones, the augmented ability to reach more customers via more channels, the issue of having to find the optimal channel mix, the opportunity of creating synergy with multi-channel, the importance of strategic alliances, the significance of gaining sustainable competitive advantage, the issue of complex supply chains in multi-channel strategies and potential conflicts that can be significant obstacles to build a
10 successful multi-channel strategy. Conflicts that may potentially be avoided by automated systems that assure channel members receive their fair share of margins for product sold in the multiple channels.
Theories on building sustainable dealerships
To help build a sustainable dealership and to construct a channel development program, the following articles are referenced:
The article Trust and Commitment: Reciprocal and Multidimensional concepts in Distribution
Relationships by Gregory Black published in SAM Advanced Management Journal in 2008.
This article discusses the dimensions of trust and commitment and the importance of building long term marketing relationships between buyers and vendors. Committed partners show more willingness to invest in valuable assets. The long term channel
relationship is important since there is a significant switching cost involved. Trust is a major determinant of commitment and both are reciprocal. There must by trust before
commitment can be achieved. Trust and commitment encourages managers to work closely together, to seek long-term benefits instead of short-term profits, and take higher risk actions because they believe the partner will not be opportunistic. Relationships evolve over time towards higher-levels, from cognitive or calculative states to affective or attitudinal states. Attitudinal commitment makes channel partners act beyond their contracts and view their own goals as secondary to the goals of the relationship. If this happens consistently, then they partners start viewing their partner a part of themselves and include them in future plans and strategies.
The article Make Your Dealers Your Partners by Fites, published in the Harvard Business Review in 1996. Donald Fites discussed the importance of partnerships in dealer supplier relationships with the example of the firm Caterpillar that he leads. Fites explains that the success of the company was built on strong relationships with independent dealers. Lessons to learn are: local dealers can get closer to customers than a global company can, dealers serve as a source of market information and intelligence, as consultants and problem solvers. Dealers can add value to the product by providing services. An outstanding distribution organization requires training and development. Quality of relationship goes
11 beyond contractual agreement, trust matters: share gain and pain; strive for continuity and communicate constantly. When a company adds products to its line, it should consider whether it fits the distribution systems and whether the dealer adds value to the product in the eyes of the end user. For Caterpillar, an information system is critical, to monitor all its machines around the world to minimize downtime and to gain insights for innovation. The article Building Loyalty in Business Markets by Narayandas, published in the Harvard Business Review in 2005. Narayandas argues that satisfaction in business markets does not correlate to loyalty. But the “Loyalty Ladder” is much more complicated than simply
measuring satisfaction levels. Loyalty is more than a commitment to continue buying a product or service. Loyal customers want to grow the relationship, provide word-of-mouth endorsement, resist competitors’ offers, are willing to pay premiums, seek collaboration on new product development and may even invest in the company. Companies should seek to become partners where buyers view suppliers as value-adding partners and look for long-term commitment.
Theories on keeping relationships strong
In order to provide guidelines on how to proceed with the new dealers, the following articles will provide examples of cases where channel relationships went sour and guidance on how to avoid this:
The article Examining the Impact of Destructive Acts in Channel Relationships by Dibbard, Kumar, and Stern, published in the Journal of Marketing Research in 2011. This study shows the consequences of actions or policies that are viewed destructive to the working
relationships in the channel. Such destructive acts (DA) can be done by suppliers and by dealers. Suppliers may add new distributors or sell directly through internet, potentially harming existing dealers. Or they drop products from product lines, making dealer inventories obsolete. Dealers in turn can reduce space dedicated to suppliers causing damage to suppliers’ sales, profit or reputation. Factors that influence dealer responses are the DA intensity, the supplier attribution to it or the self-attribution, and the relationship characteristics such as the quality and the dependence. There are four possible responses: disengagement, constructive discussion, passive acceptance and venting. The more intense the supplier’s DA, the more likely the dealer responds by disengaging or venting rather than
12 with constructive discussion or acceptance. This can affect not only the relationship but also the dealers’ performance.
The article Poisoning Relationships: Perceived Unfairness in Channels of Distribution by Samara, Palmatier and Dant, published in the Journal of Marketing in 2011. The authors refer to the many studies that have been done on the negative factors that conflict, opportunism and unfairness have on business. The study conducted shows that perceived unfairness does indeed act as relationship poison, that directly damages channel
relationships, aggravates the negative effects of conflict and opportunism and undermines the benefit of using contract in managing the distribution channel. Unfairness can cause the use of a contract to harm, rather than help the relationship.
The bottom line of the distribution strategy theories is that partnership with dealers who serve local customers is essential. The power position of one party should ideally not be exercised, it is better to look for benefits of the partner that help sustain the relationship and mutual growth of the business. Depending on the market conditions and maturity, either direct end user relations or dealer interaction or a combination of both are ideal. Local dealers can get closer to customers. In market with rapid and unpredictable change, the firms with dynamic capabilities have the advantage to shift resources to meet the demands. A sustainable dealership is based on trust and commitment. Trust determines commitment and both are reciprocal. Commitment leads to willingness to invest in assets. Training and development of the dealers leads to successful sales operations. Opportunism can lead to Destructive Acts which are harmful to the relationship and possibly ruin the business.
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III. Methodology
A. Research design
The research is designed in terms of Robert Yin’s Case Study Research design (2003) with a qualitative component using literature research, single person interviews and panel
discussions; and a quantitative component using data from reports by renowned
international institutions and consultancy firms. The subject is a single case study on the company, comparing it with different industries, its players and with best practices in other markets. Frameworks of existing theories are being assessed and applied to the subject, aiming to get insights and making predictions on the outcome for the particular subject. For the internal analysis, the two founding partners were asked to provide information, and internal reports and presentations were used to gain insights. In addition, the company was reviewed from the outside by interviewing business partners and clients and analyzing the company’s online presence and positioning.
Desk research was conducted in order to complete the data gathering of the organization, the markets it operates in, the position it takes in those markets and the resources, capabilities and core competencies will be filtered, to be able to determine if there is sufficient competitive advantage to win in the marketplace of choice. This is a Resource Based View (RBV) to get to the core capabilities and a potential competitive advantage. RBV is an approach that emerged in 1980s and 1990s, after the works published by Wernerfelt, “The Resource-Based View of the Firm”, Prahalad and Hamel “The Core Competence of The Corporation” and Barney, J. “Firm resources and sustained competitive advantage”. The company will need to create value in unique manner, without competition doing the exact same thing. Without a distinct advantage, it will have no use competing in those markets. Part of the research consisted of conducting interviews with its business partners, suppliers, dealers, distributors, and business customers, these were conducted mainly at the annual InterSolar trade fair, the world’s leading exhibition for the solar industry and its partners. One-on-one Interviews were held in a semi structured way with the Director Owner and with his business partner Pieter Klimp, with strategic partner CEO Rudy Müller of Phocos and with Christian Lorenz of strategic partner OutBack in which the market situation and the
14 Source: Moenaert, 2016
Figure A: Abell model for business definition
company strategy were discussed and three brainstorm sessions were held with the company leadership team in which strategic directions for the company were deliberated. The yearly Phocos Strategic Leadership team meeting was attended where a lively
discussion was held about the engagement of OGF with Phocos, the relationship and the deliverables needed of the partner members.
B. Framework and tools
In analyzing the marketing strategy of the company, a number of models were used. The three most used frameworks are:
• the business definition model by Abell; • the product levels by Kotler and
• the channel selection model for new industrial products by Rangan et al.
The business canvas model by Osterwalder was used in brainstorm sessions with the two partners Van Putten and Klimp to define where the company stands and it provided some insights into the key strengths but also showed several gaps and gave an insight in what needed to be explored further in order to win in the marketplace of choice.
Business model
The business model can be defined by the framework of Abell. In this model in figure A, three questions are asked. Who the company wants to serve, with what type of offer and how it wants to do this.
The CODA framework, the Customer’s Outlook on Differentiating Advantage by Moenaert and Robben to
understand the customer perspective on the company’s core capabilities as provided by Moenaert in 2009 at first seemed interesting to compare and apply in this study but it appeared to have too much overlap with the existing Abell model, so the study will apply the Abell model to analyze the business of OGF.
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Figure C: Product levels by Kotler
Source: Prentice Hall, 2007 Product offering
OGF is in the process of defining what exactly it should offer, Kotler (2015), discussed the three levels of product (figure C): the core benefit is provides, the solution to the problem or need, the actual product that is being offered and the way the product is supplied, unpacked and installed and how it operates in real life. Using this model will give OGF good insight into the different layers of the products with the options available to distinguish from competition and the levels to which OGF could gain advantages.
These are all part of the choices that are to be made for the Product in the marketing mix that should accommodate for the requirements of the local market situation.
Channel structure
From Channel Selection for New Industrial Products: A framework, Method and Application by Rangan et al, criteria can be found on which to assess the choice the channels to deploy, figure E.
16 Hibbard, Kuman and Stern (2001) studied the impact of destructive acts in marketing
channel relationships and use following conceptual model for this. The model could help the organisation in future to understand consequences of actions or policies that are viewed destructive to the working relationships in the channel. Destructive Acts (DA) by suppliers are for instance the addition of new local dealers or selling directly through internet. Or the drop of products from product lines, making dealer inventories obsolete.
Factors in the model above that influence dealer responses are the DA intensity, the supplier attribution to it or the self-attribution, and the relationship characteristics such as the quality and the dependence.
There are four possible responses: disengagement, constructive discussion, passive acceptance and venting. The more intense the supplier’s DA, the more likely the dealer responds by disengaging or venting rather than with constructive discussion or acceptance. This can affect not only the relationship but also the dealers’ performance.
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IV. Analysis of the organization
The company Off-Grid Factory A.
The Off-Grid Factory is a turn-key partner for realizing autonomous power projects. It
analyzes the customer needs of a specific clients or at times larger target groups and designs systems based on the most optimal combination of sustainable natural energy sources, wind and sun that provide a sufficient level of energy to fulfill the customer needs.
Background
The Off-Grid Factory (OGF) is a separate legal entity, a private company limited by shares, in Dutch a BV, which is closely liaised to the company Hoekstra-Suwald, a company with a long history in development and installment of wind mills, both locally in the Netherlands as well as abroad.
Hoekstra-Suwald has been supplying wind and sun energy systems for over thirty years. At the end of 2014, in November, the Off-Grid Factory was spun off from the Hoekstra-Suwald Company as a separate entity, allowing it to explore its own potential independently. It has two more sister companies, The Sun Factory and The Wind Factory, by which the group of entities calls itself the Factory Group.
OGF designs, develops and supplies energy systems that primarily, but not solely are meant for autonomous, meaning not connected to existing electrical power grids. In some
instances, the clients’ specific conditions would allow for a grid connected solution, in which case the configuration is adjusted accordingly if desired.
Business definition
The business model can be defined by the framework of Abell. OGF fulfills the needs of home and medium business customers for their homes and businesses with portable to large home systems and is now moving towards a business model where it offers standardized models of autonomous power generation. Standard systems, that are composed of A-brand component manufacturers. Most of these manufacturers are not offering full solutions themselves, primarily because they are specialised in a specific
category of the solution, rather than providers of multiple solutions. If these manufacturers would provide a full solution, they would become dependent on the product quality and
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Figure A: Abell business definition applied on OGF
service levels of the supplementing manufacturers. And this is exactly the field in which OGF will be playing, a quality level will depend on the weakest link in the chain of components of the system, making the supplier OGF vulnerable as it does not own and control each
element of the supply chain.
In Figure A the business model definition is applied to OGF. The company aims for
consumers, communities and businesses in agriculture. In terms of customer’s needs, OGF will focus on providing solutions ranging from small, larger up to medium sized that could provide sufficient energy for smaller communities. In practice, there is not really a limit to the number of houses or businesses connected to the mini grid, but larger setups will attract a different array of competition, in which it is harder for OGF to win deals in a tougher competitive climate.
The technologies offered range from simple kits and solar systems to the assembly of components for specifically requested purposes. It deliberately does not want to manufacture components itself, as it would then compete with its suppliers making the relationship complex. Besides, the company lacks economies of scale to produce
components at competitive pricing. In future, manufacturing might be a field to explore. Company goal
The aim of the company is to build a profitable business of providing off-grid solutions in the renewable energy market. It aspires the position of knowledge expert in the field of off-grid energy and to achieve thought leadership in this line of business as this will help them
19 establish the company, build a network of partners that bring in leads and thus grow the business. The company targets at configuring standard systems that are made up of components that classify as the highest quality globally, coming from well-established A-brands and not using the often inferior materials available from the Far East, such as Chinese-made.
The headquarters of Hoekstra and its associated companies is in Suwald, in the Friesland province of the Netherlands, where in the last 30 years, many agricultural companies have invested in wind energy by acquiring a wind mill by Hoekstra. In this facility, around 50 employees work on energy systems both grid-connected as well as off-grid. The site is equipped with machinery to develop, assemble and repair wind and sun energy systems, but also heat pumps and climate control.
Additional office space is rented in Amsterdam for OGF, which has the more international orientation and is thus closer to Schiphol Airport for travel abroad and can benefit from the international positioning of Amsterdam.
The positioning of the Off-Grid factory is to service markets for sustainable energy solutions, primarily in off the electric grid conditions globally, with a focus on growing regions and segments in Latin America, Africa and the Middle East. It has recently reoriented its values and formulated a vision and mission statement:
Vision
The vision of OGF is that there will be freedom of energy. In tomorrow’s world, fossil fuels will be history and renewable energy will become the norm. We believe that people should be able to generate sustainable energy and be independent from the grid, not to have to rely on existing or non-existing systems, external suppliers and other external influences. Mission
OGF wants to be the experts in autonomous energy systems, globally supplying autonomous solutions in renewable energy, by developing new systems that use state of the art, yet proven productivity-components in order to enable clients to develop and grow their businesses. From the generator to the outlet and everything in between. It analyzes the client needs and designs a total energy system which is based on the most optimal combination of natural energy sources like wind and sun. Its knowledge and expertise
20 allows for the provisioning of reliable energy to its clients and it gives them freedom in their living and working environments.
Core values
OGF has selected four key values that signify the core of its behavior and mentality: reliability, realism, simplicity and sustainability.
• Reliable: it wants to be a reliable business partner to both our customers and to our suppliers. Delivery of reliable energy systems, to depend your business on.
• Realistic: it truly believes in having ambitious goals and we embrace innovation, but the solutions it offers are achievable and efficient, it bases its offering on components that have a proven productivity.
• Simple: In its approaches, communications and product systems, it keeps it
comprehensible and intuitive. It searches for simplicity and keeps the focus on the core functionality. The core of the product is energy production in a sustainable manner, this needs to work flawlessly, without complicated manuals for instruction.
• Sustainable: both in the solutions it offers as well as in the relationships it builds, it focusses on a solid future. It aims at building up a trustful and open business relationship with respect for each other’s values.
Organizational setup
OGF can be type casted as a young organization which was born in a well-established environment of experienced organization in this line of business. The organization is now scaling up from a startup.
Management consists of two active partners and one silent partner. Arnoud van Putten is CEO and main shareholder, responsible for business development and Pieter Klimp is partner in business development and minority shareholder.
The company uses facility resources of the Hoekstra Suwald Company and pays fees for delivery of these shared services such as human resources, finance, legal and fiscal matters and pays rent for the use of office space. Human resources for engineering, manufacturing, marketing, servicing and repair are contracted likewise from Hoekstra Suwald and paid for on an interim basis.
21 Arnoud van Putten; 50% Pieter Klimp; 25% Piet Gosse Hoekstra; 25%
Figure B: Ownership division of OGF
Figure C: a system configuration by OGF using Phocos components.
Ownership
Shareholders of the Off-Grid Factory are depicted in figure B: Arnoud van Putten, with a 50% share ownership; Pieter Klimp, with 25% share ownership and Piet Gosse Hoekstra, with 25% share
ownership. Hoekstra is currently selling its Hoekstra-Suwald Company to a French company that is active in wind energy amongst other
activities. Hoekstra will join this new company owner and stay in service for the next two years. This makes Hoekstra de facto an employee of a competitive organization when the NewCo will offer services in the same line of business as OGF. CEO and main owner Van Putten and its active business partner Klimp have expressed the desire to move on without the minority share ownership of Hoekstra. In such an event, the shares could be bought back by OGF taking a loan as debt for some 25% leverage of the existing full equity position. Alternatively, the existing owners could buy the shares from Hoekstra or a third party could buy the shares from Hoekstra. Hoekstra has indicated his desire to stay on board and become more active for the firm.
Activities
Off-Grid Factory is active in the design, consultancy and sale of solar energy production technology. This includes the hardware components such as Photovoltaic (PV) panels, electrical power inverters, batteries, cables, housing, wall mounting and accessories as shown in figure C. It also sells its services in the form of
calculating drawings and designing systems to fulfill the customer energy needs. And it sells installation services and repair, all of which are outsourced to either dealers, installation companies or to
its related Hoekstra Suwald sister organization. This will likely change with the sale of the Hoekstra Suwald organization to the new French owner. It is more opportune and advisable for OGF to sell such services using its own propriety dealer network rather than bringing clients under the roof of competing companies. In terms of revenue, the company was only established some 18 months ago, and has thus not achieved substantial revenue streams.
22 Strategic competitiveness
B.
To identify the core competencies from the resources, the capabilities which truly matter are surveyed and then the competencies are filtered out which have sustainable advantage, in terms of value, rareness, imitability and substitutability. To compare competitive forces from this analysis, the company would need to conduct a more in-depth investigation of the environment and its main competitors. One of the factors that has brought the company success so far, is in the designing of dedicated systems for clients. Now that the market grows and demand is increasing, OGF experiences that several clients share the same needs, giving rise to the assumption that the market may be ready for standardized systems. The core competence of OGF is designing systems that fulfill the requirements of specific clients or segments with comparable needs. The designing ability is closely linked to the engineering capabilities of the Group. Without access to these shared human resources in the group, OGF would not have dedicated core competencies in this field.
Supporting this core competence are key strengths of the organization:
• The Off-Grid Factory is well established as a leading supplier of standardized off-grid power systems with the suppliers of off-grid power solutions and with its inner circle of clients related to those suppliers;
• The two partners Van Putten and Klimp form a strong team with personal dedication and motivation to build a company of dimension with a leadership role in
standardized systems and
• The company is financially healthy, with no default risk given its full equity ownership: it has the ability to acquire debt in order to grow its business. Underdeveloped, weaker elements of the organization are:
• No established iconic brand name, next to the organization name Off-Grid Factory; • Lack of a decent sales model, with a channel strategy and a set dealers offering
Off-grid Solutions to market and
• Limited human resources, this would need to be overcome by acquiring talent in engineering, sales and marketing.
23 Strategic partnerships
C.
OGF has two key strategic partnerships with manufacturers of high quality components for electrical power systems in off-grid technology, with Phocos and with OutBack Power. Phocos
The first strategic partnership has been formalized with Phocos AG, a German company, world leading manufacturer of solar-powered charge controllers and various components for off-grid power supplyi. Its product spectrum is wide, ranging from charge controllers to lighting systems to DC appliances such as refrigerators and freezers. The products developed
and produced by Phocos are eco-friendly, energy-saving and well accepted solutions in the market for off-grid solar energy systems.
Phocos sets its sights mainly on off-grid applications, solar-powered isolated applications without connection to a power grid infrastructure. Its mission is to deliver high-quality, off-grid power solutions that maximize system reliability and minimize total cost of ownership. With millions of products in service worldwide, the company offers a wide variety of PV system components that have been used to bring light and electricity to some of the most remote places on earth.
Phocos solar-powered charge controllers can be used to provide reliable energy supply in street lights, SCADA systems, RVs, boats and other applications such as telecommunications and heavy-industry operations.
Phocos headquarters are located in Ulm, Germany and there are 11 Phocos offices worldwide to service the off-grid market needs.
The partnership with Phocos consists of an exclusive import and distribution right of Phocos products in the Netherlands and a commitment to jointly develop specific regional
opportunities, which have currently been identified in Somalia, South Sudan, Iraq and Syria. These countries have a particular high demand for off-grid power solutions but some also
24 bring substantial risks, considering the current geo-political situation and ongoing complex wars involving multiple parties.
The partnership can be considered beneficial to OGF for its established position as a recognized manufacturer of quality off-grid products and its knowledge of local markets with the propriety offices in Latin America: Bolivia and Brazil, in the US, in India, in Africa: Kenya and South Africa and in Asia Pacific: Bangladesh, China, Australia and Japan. Production of Phocos products is done on the sites in Bolivia, China and India. The managers of these local subsidiaries were present at the Global Annual Strategy
Meeting held on June 23rd in Munich and several separate interviews have been conducted with these regional managers to explore the capabilities of the organization in relation to the opportunities and threats of the respective local markets.
OutBack Power
A second strategic partnership that has been mounted is with OutBack Power, a company headquartered in Arlington, US. Part of the Alpha Group, Outback is the leading designer
and manufacturer of advanced power electronics for renewable energy, backup power, marine and mobile applications. OutBack offers products for harsh environmental
conditions and applications where product reliability is essential. Whether the application is village micro-grids in Africa, rural electrification projects in Latin America, remote off-grid cabins in Alaska, or a suburban home in Southern California, OutBack Power has “set the bar for delivering high quality, cutting edge power conversion electronics”, according to
OutBacki. Its vision is to be the first choice in renewable energy power solutions by
manufacturing reliable and durable products while building long term relationships and its mission is to provide energy independence through innovative technology.
A main capability of OGF can be found in the expertise that the organization has built up via its group knowledge in the Factory Group, it has shown leading capabilities in addressing specific client needs in rural areas without sufficient grid connectivity.
25 Competition
D.
Direct competition in standardized systems is still relatively insignificant, only a few parties are starting to develop a small number of standard models.
The rise and establishment of newcomers will need to be closely monitored, when the next technology life cycle phase will be entered. In this so called The Bowling Alley, unsuccessful players will leave the market and successful players will grow fast.
The manufacturers of components may start building standard models, and considering the fact they are by now established brands, they have a head start in this market.
Value Added Resellers or system integrators such as the German Multinational Off-Grid Europe are direct competitors that pose an immediate competitive threat to OGF.
Conclusion of internal organizational analysis E.
In comparing OGF versus the key competing providers of solar power technology in Europe, looking at the orientation, the market segments and the core competencies, an overview is depicted in table I, appendix A.
Off-Grid Europe can be identified as the main competitor of OGF, considering its orientation, its product offering and its focus on market segments. Interestingly, this company has created a unique feature in its offering, a proprietary monitoring & control system, which it calls the Off-Grid Controller. This feature helps the company gain insights in the usage of its products, wherever they are being employed, particularly with a view to gathering big data, this could be a key differentiator, and if applied properly, this can be considered a core competence of importance.
It can be concluded that OGF has a core competence in designing standardized systems for off-grid power solutions, configured for optimal power efficiency in off-the-grid conditions. This may be potent enough to bring the organization a competitive advantage in the growing market where consumers are interested in standardized products that provide a proven productivity. An overview is made in appendix B, table II, with the competencies and their perceived customer benefit, uniqueness, sustainability and profitability, all drivers for creating differentiation.
26
Figure D: Technology Life Cycle model by Moore
Figure E: Phase characteristics
V. The market
The demand for off-grid solar power systems is continuously on the rise in the world’s various industries. The demand is also very high in the rural regions of developing and emerging economies. This trend is due to lower installation and operation costs, sustainability and the convenience of mobile application options (Phocos, 2016).
Technology A.
In analyzing the life cycle of Solar energy technology, it can be recognized that analyzed generation is still in the Early Market phase of the technology life cycle (fig. D and E), as described by
Geoffrey Moore in Crossing the Chasmi. In this phase, innovators buy products. Customers are visionaries under the influence of technology enthusiasts. Products are still immature, whole product has to be built from scratch for each customer, including a significant amount of “special work” unique to that customer’s requirements.
Source: Chasm Institute, 2016
27 Source: NASA, 2016
Figure F: Global Land-Ocean Temperature Index
Off-grid power generation is not new, in rural areas and in situations where despite
domestication no dependable electrical power grid is available, diesel powered combustion engine generators are applied. In this era of environmentally consciousness, more and more users of such power generators are transitioning to more sustainable ways of generating electricity.
Ever since 1910, the world has been warming up significantly (figure F) and when Al Gore published his movie An Inconvenient Truth in 2006, the enormous implications that this change will have on the planet, this can be considered a turning point in public opinion on putting an end to the origin of this change that was now scientifically backed by enough evidence, the carbon dioxide emission caused by fossil (mainly coal) fueled power generation.
28 Source: IPCC, 2016
Figure G: Global Warming Projections
Projections of many different renowned institutions showed that the world would warm up fast if no action was taken to put a hold to carbon dioxide emissions:
The Intergovernmental Panel on Climate Change (IPCC) is the leading international body for the assessment of climate change. It was established by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) in 1988 to provide the world with a clear
scientific view on the current state of knowledge in
climate change and its potential environmental and socio-economic impacts.
The use of diesel fuelled power generation became synonymous with contribution to global warming, not a particularly attractive label anyone in need of power in off-grid situations, usually rural places. And here, the tech enthusiasts, the innovators in early market, are often nature lovers who camp in the outback.
Wind energy has been utilized for over 30 years and will continue to be interesting for applications in areas that are windy enough. Thermal solar power generation has also been utilized for decades now, and this technology is likely to stay, in combination with solar photovoltaic technology, whereby the solar beams are used to heath up water in combination to generating electricity.
Solar power is gaining popularity and enjoying a huge momentum. On July 26th of 2016, the airplane Solar Impulse finished its 40,000 kilometers around the world travel without a drop of kerosene, fully powered by solar energyi.
Big Bang Disruption in the energy market
As discussed in the theoretical framework, market disruption displaces an existing market, industry or technology and produces something new and more efficient and worthwhile. It is imperative to recognize that this is exactly what is happening in today’s energy market. Over the last several years, the demand for power has fallen while the supply of renewables
29 (including solar) has risen, driven down power prices, and depressed the penetration of conventional power sources (McKinsey, 2016).
Manufacturing energy instead of burning something up sounds logical and resonated well in society. But what has truly caused a global mind shift is not the awareness of global
warming and the consciousness that has made people around the world reconsider their energy generation and consumption, but it is the financial incentive.
The disruption is caused by the decline in the price of Photovoltaic (PV) cells, placing solar technology as a viable alternative to fossil fuel generated power. The cost benefit was either provided by governmental subsidies or by the competitiveness of new sustainable power generation methodologies over fossil sourced power generation, the prices of wind and sun generated electricity have been dropping so intensely, that from an economical point of view, businesses and consumers but also governments and entire nations are turning towards sun and wind as their main sources of power generation. The PV industry and its ongoing efficiency improvement has been so disruptive to the market, that even oil
producing countries in the Middle East are shifting their energy generation industries from gas to sun sourcing.
What are the alternative technologies to generate electricity? Fundamentally, there are seven methods of converting forms of energy into electricity:
- Static electricity, from the physical separation and transport of charge such as lightning;
- Electromagnetic induction with an electric generator, dynamo or alternator transforms kinetic energy into electricity;
- Electrochemistry, transformation of chemical energy into electricity, as in a battery, fuel cell or nerve impulse;
- Photovoltaic effect, the transformation of light into electrical energy, as in solar cells; - Thermoelectric effect, the direct conversion of temperature differences to
electricity, as in thermocouples, thermopiles, and thermionic converters; - Piezoelectric effect, from the mechanical strain of molecules or crystals and - Nuclear transformation, the creation and acceleration of charged
30 Most electrical power generating stations use the electromagnetic induction where the energy of motion is generated by fossil fuels coal or natural gas.
The cost of energy created by wind and solar drops. These two technologies become the cheapest ways of producing electricity in many countries and in most of the world in the 2030s. Onshore wind costs fall by 41% and solar PV costs fall 60% by 2040 (BNEF, 2016). Cheaper coal and cheaper gas will not derail the transformation and decarburization of the world’s power systems, is the common belief. By 2040, zero-emission energy sources will make up 60% of installed capacity. Wind and solar will account for 64% of the 8.6TW of new power generating capacity added worldwide over the next 25 years, and for almost 60% of the $11.4 trillion invested. (Bloomberg New Energy Finance, BNEF, 2016).
Ideally, solar energy that cannot immediately be used for domestic appliances, can be fed to the power grid. However, these grids are not always capable of handling the increased supply from individual homes as recently in Groningen the Netherlandsi, when entire streets invested in solar panels. The Dutch Petroleum Corporation (NAM) compensated Dutch households in the Groningen province for damages the exploration of gas has caused. Each house with proven damages is allowed to improve the value of their house with energy saving measures for the worth of €4000, and many owners installed solar panels. The solar panels produce most energy around mid-day, but consumption is lowest at this hour. This causes peaks in the grid that cannot be dealt with, at which point the solar power switches off automatically, resulting in inefficiency of the system. An alternative to returning
electricity to the grid, one could store the energy locally for times to use.
Storage of power is still relatively expensive, although battery prices are coming down. The rise of electric vehicles further squashes the cost of lithium-ion batteries, boosting power storage and working with other flexible capacity to help balance renewables (BNEF, 2016). The efficiency of using sunlight for electricity is increasing: Australia's UNSW sets sunlight-to-electricity efficiency record of 34.5% ii. Solar energy is 50 times more productive than biomass (firewood and charcoal) energy production (Here Comes the Sun, VPRO, 2008).
i http://nos.nl/artikel/2118256-te-veel-zonnepanelen-in-groningen.html
31 Source: US Energy Information Administration (EIA) 2010
Figure H: Primary Energy Use, World marketed energy use by fuel type
The primary energy use in the world is projected to continue to grow, see figure H. Explanation on the measurement Btu and what is a quadrillion Btu, see appendix C.
As new wind and solar capacity is added worldwide, generation using these technologies rises nine fold to 10,591 TWh by 2040, and to 30% of the global total, from 5% in 2015 (BNEF, 2016).
With the increase in renewable generation comes a fall in the run-hours of coal and gas plants, contributing to the retirement of 819GW of coal and 691GW of gas worldwide over the next 25 years. The remaining fossil plants will increasingly be needed, along with new flexible capacity, to help meet peak demand, as well as to ramp up when solar comes offline in the evening. Despite a global renewables boom, fossil fuels will maintain a 44% share of generation in 2040 - down from two-thirds in 2015.
A breakthrough or “Big Bang Disruption” will happen as soon as there is a financial benefit, when the price of generating electricity with solar and wind drops below that of gas. In Big Bang Disruptions (2015) it is referred to the new “smart grids”, which collect the usage information in real time using a variety of sensors and other component technologies. Using the analysis of that information helps improve the design of the products and
services. From now on, all devices will become connected as part of the internet of things, a view on connecting devices and recording data that is shared by many strategists and
32 Source: World Banks program Lighting Global, Off-grid Solar Trends Report, 2016
Figure N: Daily income per capita per African country
technology trend watchers today. The same would apply for mini grids and even off-grid, where user generated data is helpful both for the user to improve its efficiency but also for the designers of products and services who can now optimize the design with insights from real user data.
Demand B.
The demand for off grid power generation is analyzed by looking at different applications and consumption patterns, end user segments are identified and regions are compared. In addition, the role of government is reviewed.
Applications and consumption
In the Off-grid Solar Trends Report of 2016 of the World Bank Lighting Global program, it is estimated that although most people living off the grid are poor, 47 million households in Africa and Asia have no electricity but enjoy an annual income of $2-$10/day per five household members. The report suggests that these households are likely to be able to afford not just simple solar lanterns, but also larger solar home systems and appliances. In Ethiopia, Kenya and
Uganda, it is likely that more than half of the off-grid population have this income, see figure N.
Lighting expenditure in Africa is estimated to cost $100-140 a year per household. And phones tend to be charged by small business owners at fees reported between $0.15–0.25 per charge, according to Lighting Global (2016).
33
Figure O: Doing homework with a kerosene lamp versus doing homework with a solar light (source: Phocos).
Figure P: Solar Bottle in action
Domestic home appliances: basic functionality such as lighting, phone charging and refrigerator electrification in low income households not connected to a (dependable) power grid in mainly rural areas. In this report, this buying group will be referred to as the basic need buyer. In Figure O, the difference can be seen that a solar light makes versus the traditional kerosene lamp.
In this particular market of basic need, Huizenga (2014) provides the by now famous example of the soda bottle that shed light in the shacks of the poor in shantytowns in the article Liter of Light and The Solar Bottle Bulb (see appendix D and figure P here to the right), where even simpler technology made a big difference before solar PV was made available to the market.
An Operational Protocol has been made in appendix E, containing key elements for a quick start of a product market combination, it includes an explanation of product categories with a separate overview of solar lights sold in Sub-Saharan Africa, the highest volumes are in the very basic models.
34
Figure Q: Typical topics on Off Grid Survival
Leisure applications: for recreational purposes, PV panels on caravans, boats, yachts but also campsites and mountain huts.
These tech enthusiasts, the innovators, are for instance travelers to remote areas where camping is made more comfortable with the use of autonomous power generation, as can be found on blogs and websites such as OffGridSurvival in figure Q.
35 Source: renewableenergyworld.com, 2016 Source: Offgridsurvival.com, 2016
Figure R: Wind power in combination with solar power
Figure S: A military tarp with solar panels
Industrial, business users and governmental bodies buying for communities, are in the market for electrification of lightning or communication poles, sometimes in hybrid solutions with wind and solar power combined, see figure R.
In this market of industrial buyers, we also see the military acquiring solar solutions for the replacement of diesel fueled generators, with clear advantages of being odorless, smoke free and noiseless in operation which prevents from detection, see figure S.
End user segments
The market of autonomous solar and wind power generation can be segmented into two major groups, that each consists of sub segments.
• Business and collective use in communities, agriculture, telecom, oil and the military. • Consumer, basic needs in lighting and phone charging and recreational, luxury segments
