Master Thesis
‘The Behavioural approach’
Application of Behavioural Economics towards electric cars and
suggestions for further marketing strategy and business model
design
Rick Schoenmaker 6179320 February 20, 2014 2nd Concept Msc Business StudiesFaculteit Economie & Bedrijfskunde Thesis Supervisor: E. Dirksen MSc Second reader: A.C.J. Meulemans MSc
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Abstract
The economics literature has experienced a shift towards the inclusion of insights from psychology to overcome some of the weaknesses of the traditional neoclassical economic theory. This research will study this behavioural economics approach upon consumer behaviour towards electric vehicles (EVs). Concerning the lack of success of current electric car initiatives, this approach may yield valuable insights in understanding of consumer decision making behaviour on EVs. On basis of this
understanding, possible solution towards market strategies and business models can be provided. The MINDSPACE framework (Dolan et al., 2010) has been used to shape the effects on decision making behaviour by humans towards potential EV acquisition intentions. In accordance of the scope of this project three effects, Messenger, Norms and Defaults have been selected to be projected to the empirical research. Main question to answer; do these effects have a positive effect on the EV buying intentions? Empirical research has been conducted via ‘scenario’ style questionnaires by setting a moderator centred scenario prior to the questions. A control group of respondents received variant A, the group with MINDSPACE stimuli applied scenarios will receive variant B. A sample of 258
respondents, conducted via Facebook,revealed highly significant results and supported the hypotheses on EV buying likelihood by stimuli through Messenger, Norms and Default effects. These results supported the solutions provided to overcome the limited market penetration of Electric vehicles. Solutions towards business models and marketing strategies have been provided to benefit future sales and sustainable embeddedness of Electric Vehicles.
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Table of content
Abstract ... 2 List of abbreviations ... 4 Preface ... 5 1. Introduction ... 6 2. Literature review ... 10 2.1 Electric vehicles ... 102.2 Economic theory and rational choice theory ... 15
2.3 Behavioural economics ... 17
2.4 Strategic utility ... 28
2.5 EVs, behavioural economics and strategic utility ... 33
3. Research design ... 35 3.1 Problem statement ... 35 3.2 Methodology ... 42 3.3 Questionnaire design ... 44 3.5 Validation ... 47 4. Results ... 49 4.1 Descriptive statistics ... 49 4.2 Moderating effects ... 50
4.3 Strengths of combined variables ... 53
5 Discussion... 56
5.1 Main research findings and suggestions ... 56
5.2 Limitations ... 58
5.3 Further research ... 60
6 Conclusion ... 62
References ... 63
Appendix ... 74
Appendix 1 – MINDSPACE MAP ... 74
Appendix 2 – Morphological boxes - Kley, Lerch and Dallinger ... 75
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List of abbreviations
BE - Behavioural Economics
BEV - Battery Electric Vehicle
CO2 - Carbon Dioxide
EV - Electric Vehicle
FCE - Fuel Combustion Engine
GHG - Greenhouse Gasses
HEV - Hybrid Electric Vehicle
NCE - Neo-Classical Economics
PHEV - Plug-in Hybrid Electric Vehicle
TCO - Total costs of ownership
UK - United Kingdom
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Preface
I would like to dedicate this Thesis to my beloved girl and spouse, Marjolein. From the start till the end of this project, we’ve been through many memorable moments, especially to mention our marriage, the birth of our daughter Elle and sadly the decease of my grandma at the age of 91. The finalization of this Thesis will be one of these special moments. I would like to thank Erik Dirksen as my thesis supervisor as per July 2013. Picking up this Thesis after a long time of minor development, Erik was a big help to me to get up to speed and support me in the completion of this Thesis in a simple and straight forward manner. I would also want to thank my family and friends for their support and continuous interest in the matter. This helped me evaluating certain choices and routes. The title of this Thesis ‘The Behavioural approach’ is a variant to term “Dutch approach”, which is a term for various Dutch military tactics and strategies. Despite it does not share much with the topic of this Thesis, it represents rather less ordinary methods to perceive its goals.
As a real car enthusiast, so called ‘petrolhead’, I’m observing the developments in the auto industry from close by and with great interest. Completing the Master Business Studies with a study in this field was quite evident. To be honest, I could be counted as one of those who were fairly sceptic about the future of Electric Cars; would we eventually be able to minimize the drawbacks of Electric Cars as much as possible or will the ‘unlimited’ mobility of Fuel Combustion Engined cars run the Electric Car out of electricity? We don’t know. What we do know is that for some of us the aversion towards Electric cars has been formed by (mis)beliefs, preconceptions and anxiety, rather than pure rational thinking. Car manufacturers might have sleepless nights due to this. A fairly new approach, based on the ‘irrational human’ might give us new insights how to perceive consumers. This is what this Thesis is all about.
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1. Introduction
Concerns about climate change are often topic in the current debate. Global warming effects have been addressed increasingly in the media over the years, with Al Gore’s book “An Inconvenient
Truth” (2006) as predominant example. Transport is one of the sources that contribute to the ‘Global
warming’ as it accounts for roughly 20%. More concerning is the way that this contribution is increasing (Hetland and Mulder, 2007). Producing almost 16% of the global greenhouse gas (GHG)1 emissions, a change to new technologies could have a considerable impact on the reduction of GHG emissions by transportation (Nieuwenhuis, Wells, Zapata, Seitz and Williams, n.d.). This creates pressures from different angles, making the car industry evolve into the use of less polluting energy sources like electricity and hydrogen (Høyer, 2007). Innovations within the hydrogen technology struggle with safety issues and environmentally contradicting use of sources. Thus the introduction of hydrogen technology solutions seem to be far away (Bakker, 2010; Shinnar, 2003).
Therefore electric vehicles (EVs) seem to have ‘card blanche’ to be the only technological stream that could make a significant difference in the future of automobiles. According toLieven et al. (2011) almost all major car manufacturers are demonstrating interest in EVs. From a theoretical perspective EVs have the recipe for a sustainable solution to Fuel Combustion Engine cars (FCEs) by not being dependable on oil reserves, low emissions and increased durability (due to less moving parts in comparison to FCEs) (Egbue and Long, 2012). When taking rising oil prices into consideration, EVs will benefit more and more as their running costs will decrease over time (Thiel et al., 2010; Feng and Figliozzi, 2012). Though, there are some drawbacks on EVs. Acquisitions/upfront costs are high in comparison with FCEs (Chou and Wong, 2002; Neubauer et al., 2012). Also the range of EVs is limited to 25% to 33% in comparison with a FCE equivalent (Chou and Wong, 2002, Feng and
Figliozzi, 2012; Tate et al., 2008). Besides these, the lack of sufficient infrastructure (Egbue and Long,
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2012) is also a problem EVs are confronted with. According to them the existence of charging stations and capacity of current electricity grid towards future electricity demand behaviour is insufficient. According to Egbue and Long (2012), the consumer is sceptic about the actual range and costs due to battery renewal requirement over time. Also consumers seem to be sceptic about the environmental impact of the production of the vehicle and batteries (Delang and Cheng, 2012). Egbue and Long (2012) state that consumers tend to be resistant to new technology that is unfamiliar or unproven to them. Recent EV initiatives like the Nissan Leaf, Mitsubishi i-MiEV, Renault Zoe did not led to the Schumpeter’s creative destruction (Conner, 1991) that would make the FCEs obsolete (yet) as their market penetration is still very small. Cars like the Fisker Karma and Opel Ampera (which were initially invented as full electric cars), have been fitted with range extenders to meet competitive FCE range capabilities. Probably the first question that arises when looking at the benefits of EVs
(especially on the long run) is why these initiatives are lacking success?
From a theoretical perspective this question might be answered (partly) by the economic theory that has been used over time. This neo-classical theory of economics are ‘Mainstream economics’, mentioned by Mueller (2004), “…neo-classical economics has come to dominate the discipline in the 100 or so years it was invented” (Mueller, 2004, p. 61). In his summarizing article, neo-classical economists presume that humans have individual goals which are expressed with a preference ordering. Humans behave rationally which will lead to a maximization of the objective function; decision making is based on the outcome that stands highest in the preference ordering (Mueller, 2004). In research this approach makes it easy to make predictions, but seems to enlarge the gap “between its predictions and what seems to exist ‘in the real world’” (Mueller, 2004, p. 62). Taking the current situation of EVs in mind, there is a noticeable overlap and similarity with this phrase. Therefore we need to look at an economic theory that includes more the context of the ‘real world’. The stream of Behavioural Economics (BE) give us new insights in the more irrational behaviour of the human being, by (partly) neglecting the human rational thinking and including the
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influence of the context and human mind. Behavioural Economic approach is based on the influence of cognitive biases, heuristics, misguided beliefs and emotions on individual decision making (DellaVigna, 2009). Behavioural Economics suggests that the humans lacking in maximizing the utility function, as neo-classical economics used to assume. As mentioned by Etzioni (2010) in an example of limited rationality “...choice-makers stop searching for better options once they are ‘satisficed’. ” (Etzioni, 2010, p. 377). Dolan et al. (2010) pointed to nine of the most present contextual factors that impact on behaviour in a framework called MINDSPACE. Several of these factors do find their origin in previous BE research by Kahneman and Tversky (1979); Camerer et al. (1997), Avineri (2011), DellaVigna (2009). Metcalfe and Dolan (2012) addressed this framework as very valuable for research towards transport behaviour. Transport by EV is just a small portion on the aspect how people move from A to B, which is a small portion in the field of transport behaviour. In this study, we assume that people in EVs will behave by the same general transport principles according to current FCEs. Therefore no attention will be spent on the aspect of transport behaviour. This research has been initiated primarily to find if there is an effect by BE towards potential EV buying intentions. This may lead to the car industry be able to adjust market strategies and business models to overcome some of the problems EVs currently have by entering the market. It contributes to the recent initiative of Metcalfe and Dolan (2012), by introducing BE (the
MINDSPACE framework) into consumer travel behaviour and adjacent research fields. This is supported by them as “understanding the link between behavioural economics and transport has not been fully developed, although there have been some attempts to link some behavioural work with climate change” (Metcalfe and Dolan, 2012, p. 503). These attempts have been provided by Brekke and Johansson-Stenman (2008) and Gsottbauer and Van den Bergh (2010). Secondly, the
MINDSPACE project has been initiated to research influence behaviour via public policy. Several factors do have the potential for influence behaviour via other than governmental mechanism. From an industry perspective this framework is an interesting tool which gives guidance to shape EV business
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models and market strategies. Therefore these MINDSPACE factors will be used in this research as framework of BE. Simultaneously, this research verifies the possibility of a broader use of the MINDSPACE framework. Thirdly, as the BE approach includes several linkages with norms and social approaches towards decision making, marketing strategies and business models need to be changed or extended to increase the adoption of EVs. Kley, Lerch and Dallinger (2011) argue by their holistic approach towards EVs, that the EV concept reaches further than just the EV itself by including socio-technical links.
The audience this thesis is written for consists of car manufacturers and related car importers, those who determine the business model and (local) marketing strategy design. Due to the broadening of the research field of BE, this Thesis is also written for researchers in strategy, marketing and affiliated fields. The main research findings will be projected to business models and marketing strategies, which may lead to new insights in how car manufacturers and car importers could approach the consumer that lead to higher EV sales. As the field of research of BE is still developing and empirical results are rather fragmented and robustly constructed, this research has an explorative character and tries to bridge different theories and results in the fairly new and developing environment of EVs.
In the next chapter the relevant literature about Electric Vehicles, Behavioural Economics and Strategic Utility will be presented. Thereafter the method of research will be described, continued by the results of the empirical study. Next, in the discussion-chapter, several solutions towards car manufacturers and supporting businesses will be provided as well as further research suggestions, limitations and implications of this study, followed by a wrap-up in the Conclusion.
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2. Literature review
In this literature review we are discussing the relevant research in the field. First we take a look at the concept of Electric Vehicles (EV) and the concerns described by the literature. Next, we shift to the concepts of Behavioural Economics and choose the framework this study is based on. Thereafter we introduce the concepts of business models and marketing as strategic utility where the outcomes of the empirical study will be projected on as possible solutions for the car industry.
2.1 Electric vehicles
2.1.1 Definition
The concept of the EV has been defined broadly. By focusing on and/or excluding certain types of EVs, these definitions do not cover the whole concept. A more generic approach has been provided by Tate et al. by the ‘electrification’ of automobiles, concerning “…several technical and commercial challenges that are associated with charging, storing and making use of electric energy to propel automobiles. The term “electrification” means development and integration of systems and components that enable electric energy to be used for transportation…” (2008, p. 2).
Table 1 (next page) describing the differences between Hybrid Electric Vehicles (HEV), Plug-in Hybrid Electric Vehicles (PHEV) and Battery Electric Vehicles (BEV) and the potential benefits according to Egbue and Long (2012). Other studies (e.g. Tate et al., 2008) do also divide the PHEV type into ‘Conversion PHEV’ and ‘Urban-Capable PHEV’, where the Conversion PHEV does include a ‘plug-in functionality’ as addition to the HEV type (like the Toyota Prius Plug-in Hybrid). Urban-Capable PHEVs do include more battery power and capacity than Conversion PHEVs, being capable to drive fully electric powered in urban environments. Urban-Capable PHEVs do include small FCEs as range extender and supporting power supply to meet highway driving capabilities (Tate et al., 2008). In this research both PHEV types have been put together as they have both the ability to drive
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Table 1
Description of electric vehicle types
Vehicle type Description Benefits
HEV Electric vehicles that use an internal combustion engine in addition to an electric motor
Better fuel economy, less expensive to run and lower emissions than conventional FCEs
PHEV Electric vehicles with smaller internal combustion engine and more powerful electric batteries that can be recharged.
Better fuel economy, less expensive to run and lower emissions than similar HEVs and FCEs. Offer flexibility of fuel source
BEV Electric vehicles that derive motive power exclusively from onboard electrical battery packs that can be charged with a plug through an electric outlet
No liquid fuels and zero emissions at tailpipe. Less expensive to run than similar HEVs and FCEs
source: Egbue and Long, 2012, p.718
on batteries solely for a certain range and up to a certain speed. This study is solely focused on BEV vehicles. These types of EVs have the ability to drive solely on electricity, which is the core element of the EV concept described by Tate et al. (2008). In the rest of this study, the BEV type will be denoted as ‘EVs’, or stated otherwise.
2.1.2 History
In the early days of automobile manufacturing, the concept of EV was initiated as substitute for steam drive trains which led to the first EV in 1881. Due to limited refinery technology, the early concepts of the FCE were not within sight at that moment (Wakeland, 1998). When technologies within refineries developed and petrol became available, the EV concept soon lost market share. Battery capacity and power supply performance became obsolete over the increasing performance and ‘ease of mobility’ by FCEs (Wakeland, 1998). It disappeared more or less completely as an alternative propulsion
technology by 1930 (Chan, 2007). The modern conceptualization of the EV has been initiated by the EV1 by General Motors in 1996 (Tate et al., 2008). The EV1 was a BEV type of EV. Without the supportive infrastructure, emission concerns, comparative pricing and range capabilities towards
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FCEs, the EV1 did not become a success and soon after market entrance, General Motors ended production of it (Tate et al., 2008). The often mentioned public response among the EV1 drivers was about ‘range anxiety’; “to their continual concern and fear of becoming stranded with a discharged battery in a limited range vehicle” (Tate et al., 2008, p.3). As the EV1 was supported by a
governmental program (which only supported US manufacturers), it stimulated car manufacturers outside the US (e.g. Toyota and Honda) to develop comparative products (Carson and Vaitheeswaran, 2007). Toyota used a more thoughtful approach and entered the market with a HEV, to avoid several problems the EV1 has been confronted with.
2.1.3 Current figures
Despite offering advantages with increasing future prospects, most consumers are sceptic towards EVs. Sales figures display the shortcoming of an overwhelming market penetration. According to research by EDTA2, the market share of EVs in the US has grown from 2.37 % in 2010 to 3.81 % in 2013. Prospects by PikeResearch3 show a 5.10% share in 2017 in the US and 3.10 % global share. These figures include HEVs, PEVs and EVs. Table 2 (next page) presents the findings of 2013 by EDTA to put this more into perspective. As these figures give rise to ‘a long way to the top’ for BEVs and PHEVs, this research becomes even more interesting when considering the result of Turrentine et al. (2011). They found that 71% of respondents said they are now more likely to purchase a BEV than they were a year ago while only 9% said they are less likely. 88% of respondents said they are
interested in buying a BEV or plug-in hybrid electric vehicle in the next five years. As this research was fairly small (N=450), it is questionable if their results giving a comparable impression of consumers in general. What stands is that it initiates further research towards the decision making behaviour towards buying EVs.
2http://electricdrive.org/index.php?ht=d/sp/i/20952/pid/20952 conducted on February 8, 2014 3
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Vehicle type FCE HEV PHEV BEV
US Marketshare 96,18% 3.19% 0,3155% 0,307% Source: http://www.electricdrive.org1
2.1.4 EV characteristics
EVs do have certain characteristics that change the perception of mobility as we know it by FCEs. As this research focus on the current consumers concerns, the characteristics are listed by the list of biggest consumer concerns towards EVs, as found by Egbue and Long (2012).
The characteristic that arises most concern according to Egbue and Long (2012) is range. Travel behaviour is dependent on the range-capabilities of transport, a vastly determined variable in the whole travel behaviour theory (Metcalfe and Dolan, 2012). BEV battery capacity reaches only 25% to 33% of FCE ranges, resulting in 150 to 200 kilometres / 94 to 125 miles. (Chou and Wong, 2002; Feng and Figliozzi, 2012; Tate et al., 2008).Tate et al. found that certain BEV users, “gave the term “range anxiety” to their continual concern and fear of becoming stranded with a discharged battery in a limited range vehicle” (Tate et al., 2008, p.4). Figures (Pearre et al.,2010, Turrentine et al.,
2011,Vliet et al.,2011 ) show that EVs range (50 – 300 miles) could offer a reasonable amount of utility for daily use; concerning that on almost every public location the EV could be recharged. Turrentine et al. (2011) found people find solutions by themselves to overcome the EV’s limited range and maximize travel behaviour efficiency.
Another characteristic of EVs are their relative high costs in comparison to similar sized FCEs. It also listed as second biggest consumer concern according to the study of Egbue and Long (2012). We can divide ‘costs’ into three sub sections; up front /acquisitions costs, running costs and battery renewal costs. In accordance to Gerssen-Gondelach and Faaij (2012),acquisition costs do increase severely by the type and amount of batteries installed. Running costs can be described as costs for MRT (maintenance, repair and tires) and fuel. According to Van Vliet et al. (2011), MRT costs do not differ significantly between FCEs and BEVs. Fuel costs though, do differ significantly by BEVs having 14% to
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19% of fuel costs in comparison to FCEs. As the durability of batteries in HEVs, BEVs and PHEVs may not last the life-time of the vehicle itself, renewal of batteries is therefore necessary (Anderman, 2007). Research gives a variety of end-life prospects of batteries, but in general hold for 7 to 12 years (Van Vliet et al., 2011; Egbue and Long, 2012; Tate et al., 2008). Different driving behaviour may lead to a battery life-time decrease or increase. Besides acquisition costs and fuel costs, battery renewal costs could have a significant impact on the overall TCO (Total cost of ownership). The initial reasoning for the creation of EVs is the proclaimed decrease of emissions.
Consumers pointed this as the third most important attribute of EVs (Egbue and Long, 2012 p. 721). FCEs emit Green House Gases (GHG) at the tailpipe, including Carbon Dioxide (CO2), Nitro Oxide (N2O) and Methane (CH4). BEVs emissions are indirectly generated via energy suppliers of the electricity grid. Based on the generation capacity projected for the Netherlands in 2015, electricity for EV charging would largely be generated using natural gas, emitting 2.0 to 4.6 times less g CO2eq km−1” than FCEs (diesel/petrol) emits (Van Vliet et al., 2011, p. 2298 - 2302).
Though, these figures do not seem to have the same prosperous results by consumer’s attitude. Delang and Cheng (2012) found consumers have a very small favour of environmental advantages (lower emissions due to electricity use) over the environmental disadvantages of EVs (congestion from vehicle and battery manufacturing and polluting energy sources for electricity). Consumers do also concern the indirect emission performances of EVs, due to production and logistics of batteries. At the end of the EV and battery life, a more complicated process of demolition is involved, which means higher GHG emissions and pollution by battery-acids.
Besides previous concerns, projected mainly on short-term, durability and actuality of technology are projected on the long-term use of EVs. As an industry standard (Christensen, 2000) has not been created yet, consumers act sceptic towards the durability and reliability of EVs (Egbue and Long, 2012, p. 721). This is an integrative issue for BEVs as it “remains a challenge to
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and costs in the medium or even long term” (Gerssen-Gondelach and Faaij, 2012, p. 1). Consumers probably stay sceptic about the possibility that the EV of today might be outpaced by the EV of tomorrow (Graham-Rowe et al., 2011).
Next to the EV itself, facilities, infrastructure and services need to accommodate specific EV needs. Egbue and Long (2012) found 17% of the respondents to have concerns about the supportive infrastructure. Kley, Lerch and Dallinger (2011) do emphasize on the role of infrastructure and supportive services (see Appendix 2) to meet future electricity needs. Van Vliet et al. (2011) found that in case of households with a BEV, household peak load for recharging increases by 54% which may exceed the capacity of the current electricity distribution grid. They suggest that incentives need to be given to accommodate off-peak charging behaviour. Also destinations like work, shopping malls and other public areas will experience increasing peak loads that opt for new infrastructure arrangements.
To sum up the above, sales figures supported by consumer concerns on range, costs, emissions, durability, technology, infrastructure and supportive services, show a rather negative viewpoint on the EV concept. Some of these concerns are contradicted by mobility figures, results of EV prototypes trials, consumer intentions. As the concerns of durability, actuality of technology, infrastructure and supportive services concerns are rather more dependent on technological development (‘product maturity’ and sufficient supportive infrastructure) than consumers’ attitude on the matter, we focus on the costs, range and emission concerns. The other four concerns have been studied in a certain depth by Kley et al. (2011) and will not be studied in this research.
2.2 Economic theory and rational choice theory
As the earlier mentioned sales figures and concerns suggest, the business models and marketing approaches of the current EVs do not seem to deliver the result car manufacturers hoped for. To better understand the consumer concerns, we have to look at the underlying economic theory.
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The creation of modern economic theory has been initiated by the work of Adam Smith (An Inquiry
into the Nature and Causes of the Wealth of Nations, 1776) and David Ricardo (On the Principles of Political Economy and Taxation, 1817). Their approaches led to the understanding of economic
behaviour in a broader sense by the value of a product (the value of a product is dependent on the costs of producing the product) and the distribution of wealth (how wealth is distributed through the factors of production like capital, labour and rent). Especially Adam Smith’s work led to ‘economic liberalism’. Accompanied by the ‘utilitarianism’ of philosophers Jeremy Bentham and Stuart Mill, this classical economic theory embedded the aim for maximizing utility. This is one of the pillars the neo-classical economic theory has been built on. The term neo-classical economic theory was first mentioned by Veblen (1900). Accompanied with the Austrian school, the Marginalist school and later the Keynesian school, the neo-classical school had a significant role in the history of economic theory. Especially as determent for micro economics, where along with the Keynesian school (macro
economics), formed the neoclassical synthesis (Clark, 1998).
Today, we can state that the neo-classical theory of perfect competition has taken a dominant position in the field of mainstream economics, as argued by Conner (1991). In this neo-classical economics, the behavioural assumptions are rather lean and accommodating. These assumptions are adopted from the rational choice theory. The rational choice theory contains the following
assumptions about human behaviour (Denzin, 1990; Elster, 1994; Van Dijk and Zeelenberg, 2009). To maximize his own welfare, the individual takes all available information to himself and use this in a rational and processed way to make a decision, including a conscious consideration and reasoning of all possible advantages and disadvantages. The individual weighs uncertainty about the outcome of his action in a perfect way to expect uncertainty when making its decision and calculates the future in a rational way (trade-off between the effects that may occur in the short term and in the long run). The individual will not be led by emotions or consequences of other decisions over the length of time. The
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rational choice theory is based on assumptions about human behaviour which are often the basis for models and analyzes that form the basis for policies (Van Dijk and Zeelenberg, 2009).
2.3 Behavioural economics
2.3.1 Introduction
From behavioural economics, however, criticism arose on the rational choice theory (Fehr,
Fischbacher, and Gächter, 2002). Behavioural economics tries to integrate economic analysis based on real human behaviour to provide theoretical insights from social psychology to do suggestions how to create better policies or effective economic strategies (Camerer and Loewenstein, 2004).
Simon (1955) and Kahneman and Tverksy (1979) canbe addressed as ‘founding fathers’ of
the behavioural economics stream by building a framework based on observations which argues that consistency in people’s choices is not always present. Simon (1955) tried to address human behaviour as a powerful (but neglected) source in economic decisions making. Despite his ground-breaking thoughts, the economic field was not ready to accept these until Tversky restarted the discussion successfully in 1986. According to Camerer and Loewestein (2005), Adam Smith, who set the fundament for the classic economic approach, has set different statements on irrational human behaviour within economic situations. Though the development of his views over the years, set the basis of the neo-classical economic theory, which attracted more attention and the role of human behaviour faded out very quickly. Dellavigna (2009) argues BE construct of deviations towards the neo-classical model; non-standard preferences, nonstandard beliefs and non standard decision-making. Behavioural economics states that in a number of occasions the behaviour of individuals does not match what the rational choice theory assumes. These individuals often do not have the ability to consider all available information and process these. And when they do try to process all information, they often make mistakes in their logical reasoning. Furthermore, individuals are not rational in the processed information, they have varying preferences and they have biases in their "rational"
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behaviour to predict (Potters and Prast, 2009). Also, individuals do not always seek to maximize their own welfare. For example, Simon states that "Organisms adapt well enough to satisfy, they do not, in general, optimize" (Simon, 1956, p. 129). Individuals often settle down for a pass, instead of striving for maximum results. Individuals do cooperate with other individuals and may take into account social norms and conformity as a condition to do so. This has been broadly studied by Fehr et al. (1998); Hoffman et al. (1994); Kahneman, Knetch, and Thaler (1986a; 1986b). DellaVigna (2009) found that over the last decade the BE concept transformed to an approach that is increasingly familiar and accepted. Moreover, there is increasing agreement across the behavioural sciences that our behaviour is influenced by factors associated with the context we find ourselves in (Dolan et al., 2012).
2.3.2 Cognitive model and context model
The psychological core of the work of Sunstein and Thaler, Kahneman and Tversky, Metcalfe and Dolan and other researchers in the BE field is formed by the two systems of human thought: the automatic system (in psychology known as system 1) and the reflective system (system 2) (Amir and Lobel, 2008). The automatic system of thought is fast, uncontrolled, automatic, associative, effortless, unconscious, affective and instinctive and does not actually correspond to what we put as ‘thinking’ (Sunstein and Thaler, 2009). According to Chaiken and Trope (1999), Evans (2008) and Tiemijer et al., (2009), processes of many, separate thoughts are going simultaneously and most of the time unconsciously in the automatic system. Example: An individual uses the automatic system of thought when he bends or evades when a ball coming at him. The reflective system (also known as the cognitive model) of thought works slower, reflective, effortful, rule-based, rational, deliberate and controlled. An individual uses this reflective system when thinking consciously. Therefore the reflective system has the ability to do systematic and ‘deeper’ analysis, but has on the other hand limited capacity (Chaiken and Trope, 1999; Evans, 2008; Tiemijer et al., 2009). As argued by Dolan et al. (2012) the traditional interventions in public policy towards behavioural change have relied on the
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reflective system, due to “the dominance of standard economic models, and the rational choice paradigm in general (Elster, 1986)” (Dolan et al., 2012, p. 265). The distinction between the two systems of thought can be explained by the understanding that if an individual speaks in his mother language, he uses its automatic system of thought. But when he is trying to make himself understood in a foreign language, he uses his reflective system of thought (Sunstein and Thaler, 2009). This dual process model has been supported by the findings of Rangel, Camerer and Montague (2008) which provided evidence on the automatic processing of information by the separate brain structures.
2.3.3 Behavioural economic frameworks
Since the attempt of Simon (1955), the field of BE has expanded quickly over the years. Yet many researchers tried to build a framework to bundle particular predictable behaviour or effects. Most of these frameworks have a change-by-policy focus. Due to premature aspect of BE, the frameworks are very robust and the predictable irrationalities are discussed separately. Though, several attempts had a great influence on the development of the BE field.
Kahneman and Tverky (1979) introduced the Prospect Theory in their paper as “a critique of expected utility theory as a descriptive model of decision making under risk, and develops an alternative model, called prospect theory” (Kahneman and Tversky, 1979, p. 263). According to this theory, people react differently on messages, depending on how the messages have been formulated. Information that contains signs of benefits/advantages related to certain behaviour can be addressed as positively formulated. Information that contains signs of disadvantages related to certain behaviour can be addressed as negatively formulated. Although before negative formulations were used in healthcare messages, research found that influence of the framing of a message is dependent of the type of healthcare behaviour and the role/outcome of this behaviour. Kahneman and Tversky depict the behaviour on basis of risk taking or risk avoidance. Preventive behaviour like condom use and the use of sun blocker is risk avoiding. They found that formulating a positive message is the most
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effective as individuals want to avoid risks to benefit potential advantages by acting towards the desired behaviour. Kahneman and Tversky found that a negative formulation is the most effective as individuals are prepared to take the risks when potential disadvantages are emphasized (Tverksy, Kahneman and Choice, 1981). Kahneman and Tversky have provided new insights on decision making under risk, or put otherwise, with uncertainty. In relation to the EV, the current biases and sceptics are based on uncertainty of performance and capabilities. According to Kahneman and
Tversky, a positive message may be suited to overcome the sceptics and biases of EVs. Kahneman and Tversky’s work continued and found several distinguished patterns in human behaviour (2002). They address that behavioural economics can be translated to irrational behaviour in the following
patterns/common behaviour: people dislike losses, focus on changes, overweigh small chances, think in discrete bundles, value right now very highly and inconsistently and care about other people. These patterns will be discussed in the MINDSPACE part (Dolan et al., 2010) as their observations in the field cover most of the patterns.
According to Sunstein and Thaler, behavioural economics explains that individuals are bad in making decisions in their own interest. They suggest policymakers (in particular) need to reconsider traditional instruments for behavioural change and adjust in a way that they can ‘push’ individual choices without using coercion. This ‘pushing’ towards choices is called nudging (Sunstein and Thaler, 2009). The theoretical basis for this concept has been formed by behavioural economics. Sunstein and Thaler argue that irrational behaviour stems from abnormalities in the interaction between the reflective and automatic system. For example, when the automated system seduces an individual to a certain irrational act, while in the reflective system is aware that this action is irrational. By using nudging, the automated system can be influenced on the one hand to prevent the individuals turn to irrational behaviour and may on the other hand encourage the reflective system to execute its controlling function much better. The term ‘nudge’ refers to the acronym of ‘Nudges’ which
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complex choices, as the six criteria to apply nudging by policy. These criteria have certain overlap with the effects discussed in the MINDSPACE framework (Dolan et al., 2010). Yet the Nudging method seems to be exclusive for change behaviour by policy as the six criteria suggests narrow application possibilities.
Another attempt to structure Behavioural Economics, or more specific, addressing certain predictable patterns by the irrational behaviour of humans has been offered by Ariely (2008). He found that people are irrational most of the time and they tend to do the same irrational things repeatedly. He found a variety of predictable irrational behaviour, yet without (causal) linkages with other predictable behaviour. Some of his thoughts are hardly linked to the contradictories of the rational choice theory. One of these is the matter of social norms. Ariely mentions that social norms and market norms are not compatible with each other. Companies that pursue social norms to build employee or customer trust and loyalty cannot simultaneously purse market norms like efficiency and cost reduction without causing bitterness and alienation. According to Ariely, most people tend to procrastinate when dealing with problems or making decisions. People need to admit having the problem, before dealing with it. As long the situation has certain space to procrastinate, most people will use this to the very last moment. Ariely found that letting students make their own choices of deadlines for papers and set commitment in advance, the student performance to meet the deadlines increased. On the matter of incentives, Ariely found that giveaways can be expensive. He found that when online shops offer free shipping for larger orders, many people will order more items to meet the free shipping threshold. The offering of ‘free’ gives a great emotional charge and is often perceived as more valuable than it really is. Stereotypes are mentioned by Ariely as powerful ‘statues’ where people want or don’t want to be remembered by. Also, people remember people in context of
stereotypes, accompanied with its prejudices and expectations. Another finding is that ownership lead to more irrational behaviour, and is often independent to logic reasoning. People find it difficult to admit their wrong thoughts or to turn loose on what they think. Therefore they act towards these
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thought at severe costs/consequences. When using comparison for decision making, Ariely suggest that the context is very determined how this easy this comparison can be made. To ‘speed-up’ and making the decision more deliberate, the context should put one or two favourable choices up front, as well as reducing the amount of choices. Maybe the most interesting conclusion Ariely makes for the BE field as a whole, is that people don’t understand and underestimate most factors that affect how they make decisions. People tend to think they act rational, but they often think more irrational.
A recent addition to the set of frameworks in the BE field has been provided by Dolan et al. (2010). They attempt to bundle the nine most robust effects on human behaviour. MINDSPACE is a
mnemonic, like ‘nudges’ by Sunstein and Thaler and incorporates nine robust effects based on
irrational behaviour; Messenger, Incentives, Norms, Defaults, Salience, Priming, Affect, Commitment and Ego. The study is originally focussed towards the way policymakers could influence behaviour in key policy challenges. The path of economics and psychology to change behaviour is often
approached via ‘changing minds’ principle, to change behaviour via information and incentives. According to Dolan et al. (2012), evidence has been found that the contextual determinants, more specific, changing contexts do play a role in changing behaviour. To support the fit between BE and the context of EVs, Metcalfe and Dolan (2012) elaborated about the use of MINDSPACE effects in the field of transport behaviour.
The first effect of the MINDSPACE framework is the ‘Messenger’ effect. People tend to act towards the authority of the source of information. Hofling et al. (1966) found that information given by authority generates compliant behaviour. In their research they found that this ‘power’ of authority stretches very far, even if it leads to stress and injurious behaviour. Webb and Sheeran (2006) argue that authority of the messenger is generated via more formal means, such as when experts deliver a message. They found significant results in change behaviour as health interventions by research assistants and health educators were more effective than those from facilitators and teachers.
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Though, this authority by the messenger does not always lead to change in behaviour. According to Cialdini (2007), we disregard advice from someone we dislike and these may override the authority sensibility. Metcalfe and Dolan (2012) suggest a message provide by person or a role that is generally accepted by the public (like lawyers, researchers, etc.) increases the likelihood people act to this information.
The second effect in the MINDSPACE framework is the ‘Incentives’ effect, generally described by Dolan et al. (2012) as people’s responses to incentives are shaped by mental shortcuts. This effect can’t be attributed by a single behaviour, seven robust behaviour characteristics can be found. As found by Kahneman and Tversky (2002), people dislike losses. Hossain and List found a positive influence in productivity when “conditional incentives were framed as both “losses” and “gains”...” (2009, p. 1). Metcalfe and Dolan (2012) suggest that people might be more sensitive for paying for travel than enjoy the benefit for the same amount. Another effect of incentives is the focus on changes. Camerer et al. (1997) found that reference points matter as shown people set daily income targets, without concerning the efficiency of the targets over a longer period. Despite the arguments of Avineri (2006) about the role of time, those reference points could be important to determine transport behaviour. Research in human desire to gamble on low-probability events (like lotteries) and insuring for low-probability disasters found that people overweigh low probabilities (Gonzalez and Wu, 1999). Thaler found that people value expenses unequally (1999). Thaler (1985) argues that people will travel for 33% discount on a £15 radio (having a £5 discount profit) and will not when 2,38% will be
discounted on a £210 costing fridge (having the same £5 discount profit) . People do prefer the live of today at the expense of tomorrow. Within the field, this has been characterized as hyperbolic
discounting. People value future less when offers in the present are required (Laibson, 1997). Metcalfe and Dolan (2012) suggest that this behaviour is important in the transport and climate change debate as this behaviour might lead to excessive GHG emissions due to the short term focus and inconsistent weighing by humans over time. People care about being treated fair and are intended to give to other
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people when there is no self–interest (Forsythe et al., 1994; Fehr et al., 1993). Metcalfe and Dolan (2012) suggest that the wellbeing of someone else is the function of our wellbeing. They suggest that this function may be stronger to family, friends and neighbours. As a contrasting effect to earlier behavioural effects, incentives may lead to a decrease in intrinsic motivation (Deci et al., 1999). The effect when being externally rewarded for an activity, people are less motivated to perform the activity again in the future when they are not rewarded (Benabou and Tirole, 2003).
The third MINDSPACE effect is about norms. Within a society or group, norms form rules or expected behaviour (Dolan et al., 2012). Especially social norms are formed by behaviour of others. People take their understanding from this and are able to develop and disperse this quickly. The controlling factor of norms can be expressed in social benefit when confirming the norms and social penalties when not complying with these norms (Metcalfe and Dolan, 2012). According to DellaVigna (2009), social norms are capable of putting social pressure on people. Herding behaviour is related to this effect. Cialdini (2003) found that people behave towards a social norm, by setting the norm using a towel renewal sign for the hotel room door. This study found also an increase in compliance when the message of the sign (the norm) was more specified to the characteristics of the people who rent the hotel room. Less significant, but still important results have been found by Allcott (2011). A 2% reduction of energy consumption was found when letting people confront with the energy consumption figures of neighbours. Metcalfe and Dolan (2012) suggest when striving for a
behavioural change in reduction of CO2 emissions, people that are emitting significantly more than the rest should be informed by their non-compliance with the norm and the negative effect of this on society.
The fourth MINDSPACE effect is about defaults. Admittance to a pre-selected option, or default, occurs when people do not make an active choice. Each day we are unconsciously confronted with choices where we go along (unconsciously) with the default option. The effect sizes from studies in ‘default’ effects are very large. These studies stretching retirement saving participation, organ
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donation, car insurance plan, car options and email marketing (Madrian and Shea, 2001; Johnson and Goldstein, 2003; Johnson et al., 1993; Park et al., 2000; Johnson et al., 2003). The importance of defaults is also shared by Thaler and Sunstein (2009). According to Metcalfe and Dolan (2012) green initiatives like efficient homes and vehicles are feasible when setting these as default option.
The fifth MINDSPACE effect is about salience. People’s attention is drawn to what is novel, simple and what seems relevant to us. Our attention is more likely to be drawn to things we could easily encode and understand. A study performed by Chetty et al. (2009) shows that people are less intended (8% sale decline) to buy goods when price tags shows the tax-included price of goods next to the tax-excluded price, rather than sum up the total tax amount at the cash register. The aspect of this study fits the ‘mapping matters’ criteria of Thaler and Sunstein (2009).
The sixth MINDSPACE effect is about priming. People are often influenced by unconscious
or sub-conscious cues. People’s first exposure to sights, words or sensations has an altering effect on people’s behaviour (Hertel and Fiedler, 1994). According to Wilson (2002) and Bargh (2006), priming acts mostly via the ‘automatic’ system which results in unconscious awareness. Dijksterhuis and Bargh (2001) found when people are exposed to certain words; people will act towards the stereotype exposure and behave accordingly to this. According to Metcalfe and Dolan (2012) the priming effect is very robust. Metcalfe and Dolan (2012) suggesting that when people are exposed with images or words of increasing oil prices and emissions, this may affect the decision of which car people will buy.
The seventh MINDSPACE effect is about affect. People’s emotional associations with a
subject can powerfully shape their behaviour. Especially moods influence judgements and are contrary to logic or self-interest (Zajonc, 1980). According to Zajonc, most things contain some emotion and people judge it by adding an adjective to it, like a pretty car or horrible car instead of just a car. For instance, when buying a house, the ‘feel’ when entering it, surpass the value of specifications like location or floor size (Dijksterhuis, Bos, Nordgren and van Baaren, 2006). In comparison to the prospect theory of Kahneman and Tversky, this provoking on feelings (affect) turns out to be more
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effective than pointing out the risks (like the prospect theory).
The eighth MINDSPACE effect is about commitments. People seek to be consistent with their
public promises and are likely to reciprocate their acts. This effect has also been addressed by Ariely (2008) about students setting their own deadlines for papers. Dolan et al. (2012) suggest when costs of failure increase, complying with the obligation is more effective. Maybe some forces from the loss-aversion effect by Kahneman and Tversky (2002) are entangled here. Cialdini (2007) suggests that complying with obligations or commitments is not dependent on penalties or costs when failing. He suggests that just writing down the commitment to undergo, results in increase of likelihood of the commitment being fulfilled. Cialdini also states that when accepting a gift from someone, it acts as a powerful commitment to offer a gift in return. By this reason, free sampling seems to be an effective marketing tool as it builds commitment by customer, to buy the product in the future.
The ninth MINDSPACE effect is about our ego. People behave in a way that makes them feel
better about themselves. This pursuit of a positive self-image leads to a tendency to compare ourselves against others. According to Tesser (1986), this often happens automatically. Our view is often biased and we believe that the average person performs worse than ourselves. The fundamental attribution error by Miller and Ross (1975) points out, we attribute positive things to ourselves and negative things to others. The pursuit of positive self-image is also applicable on the groups we join or want to identify with and goes along with a biased view how the group performs. According to Tajfel and Turner (1979), marketers are aware that contributions where we feel better about ourselves are due to a set of attributions how we view the world.
As mentioned by Dolan et al. (2010), the MINDSPACE effects are not solely positioned
within the contextual model / automatic system. They also use the cognitive model / reflective system for a certain amount. How much the effects lean to the contextual or cognitive model differs by each effect. This view goes in the direction of Avineri (2012), which states that the automatic system alone will not yield in a significant difference towards change behaviour. Despite the supportive character, it
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also needs the reflective system to make decisions. The MINDSPACE framework has been initiated to support governments in their policy making challenges to accommodate change behaviour (Dolan et al., 2010). As their study and further research building on this framework, the focus on the fields of governmental institutions remains. Though, when looking at their application framework; Figure 2, it shows us actions to be carried out to realise change behaviour. Labelled as the 6 Es (Encourage, Engage, Exemplify, Enable, Evaluate and Explore), it constitutes the framework where the
MINDSPACE tools can be applied to change behaviour (Dolan et al., 2010, p. 49). Most of the (sub-) components of this framework refer to mechanisms that are solely provided by policy makers (e.g. legislation, regulation, deliberation), but a few mechanisms could also be carried out by commercial institutions (like product manufacturers). Mechanisms like infrastructure, facilities, design, resources, incentives, information and co-production could be provided by a product manufacturer to enable certain change behaviour by the consumer to increase the likelihood to buy the product.
Figure 2: Application framework of MINDSPACE
source: Dolan et al. (2010, p. 49)
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These mechanisms are directly and/or indirectly provided by the way a manufacturer configures the products’ value creation and value capturing. It’s therefore interesting to retrieve information via the BE effects that are used in the MINDSPACE framework, and use this in business model design as a way to incorporate BE into the field of EV marketing strategies and business models. The angle of the MINDSPACE framework is policy driven, reaching towards behavioural change rather than ‘declaring behavioural paths/trends’. Yet it tends to be more practical than Sunstein and Thaler’s ‘nudging’. Solutions for the different effects can be engaged solely, rather than a set of ‘requirements’ to have a viable solution as in Thaler and Sunstein (2009). Next to this, the width of the framework implicates a possible use ‘beyond’ the policy focus, like commercial use for companies, by aiming marketing strategies and business models towards the sensitive parts of human irrational behaviour. Another advantage by using the MINDSPACE framework, is the attempt of Dolan et al. (2010) to map the underlying interactions and causality, making it more sensible and able to position behaviour in the map (see Appendix 1). Yet the linkages are constructed by expectations rather than research findings, but it therefore has the potential to have these constructed by empirical results in the future. Next to this, multiple effects can be bundled to perceive the desirable change in behaviour. Metcalfe and Dolan (2012) discuss in their article the potential of this framework in a transport context by
delivering possible transport behaviour solutions. Therefore the MINDSPACE framework seems to be best suited to use in the context of EVs and (commercial) solutions provided to the car industry.
2.4 Strategic utility
To translate the empirical findings, the solutions are provided by a set of tools to adopt in the car manufacturers operations, presented as strategy utility. The field of BE is mainly focussed around the individual, hence the scope for the strategic utility is focussed on the individual consumer. The strategy utility incorporates business models (the concept of the product and how the value is created
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and captured) and marketing strategies (how to position the product en perceive customers to buy the product).
2.4.1 Business models
The term business model is a quite ‘young’ term in management and the academic field. Over 15 years, the concept of ‘business model’ entered the academic literature (Shafer et. al., 2005). Despite the fast adoption in business practices, the meaning and the definition of the term business model in the academic field is still part of debate (Zott et al., 2010; Osterwalder et al. 2005; Shafer et al. 2005). Zott et al. (2010) and Chesbrough (2007) agree both on that a business model should explain the value creation as well as the value capture. This is in line with what Teece (2010) describes as the
fundamental nature of a business model. According to him “the essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit” (Teece, 2010, p. 172). Business models are also
employed in regard to strategic concerns, explaining the value creating, competitive advantage and firm performance. In general all concepts answer the questions concerning how the firm’s activities create value for the customer, how these activities yield revenues and how the cost structure is designed (Casadesus-Masanell and Ricart, 2010; Teece, 2009; Osterwalder et al., 2005; Margretta, 2002; Amit and Zott, 2001). But in detail they differ from each other. The ‘black swan’ in this is the article of Amit and Zott (2001). They believe that the revenue model and the business model cannot be in one model as it leads to confusion and ambiguity, therefore they argue that it should be separated in a model of how to create value (the business model) and a model of how to capture value (the revenue model). Margretta (2002) uses a more metaphorical approach explaining how firms work via different stories. According to the literature, the core of the business model incorporates value, revenue and costs. Margetta (2002) is one of the few that addresses a certain amount of attention to the value creation by the customer.
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A more developed approach towards the business model for the electric car is described in Kley, Lerch and Dallinger (2011). They state that the current FCE business models are too narrow to include the concept of EVs. Therefore they build a holistic instrument in terms of shapes and boxes of
components that are influenced by the battery in an electric car. This view enhances the ‘classic’ way of how business models derive from (value creation, revenue and costs) by introducing “the vehicle together with the battery, the infrastructure system and system services which integrate electric vehicles into the energy system” (Kley, Lerch and Dallinger, 2011, p. 3395). Putting it in perspective of business models of EVs, more attention has to be projected towards the value creation by the customer, as it currently struggles with that. A business model should therefore be able to give a clear answer to who the customer is, what the product or service is, how the actual customer benefits and what the distribution channels are. Kley, Lerch and Dallinger suggest this role should be provided by a more service-oriented application of the business model. Figure 4 – I, II and III (Appendix 2) presents the building blocks how car, battery, infrastructure and (supportive) system services can be
configured. Kley, Lerch and Dallinger presume their holistic approach is broadly applicable, from HEV up to BEV. Still, it might not be the complete answer to overcome the current biases and sceptics on EVs. When taking range as an example, the model of Kley, Lerch and Dallinger does not include alternatives for trips that exceed the range of the EVs. Also the distribution of emissions, which contain a certain value according to the sceptics, is not assigned in this model. Therefore the model needs to be extended to fit with the sceptics and biases on the first place and also offer space for solutions that go beyond the boundaries of the electric car itself. In this study, this model will used as a basis, including several empty boxes to assign and position accordingly among the model.
2.4.2 Marketing strategies
To be able to reach and effectively approach customers for EVs, the product needs to be marketed properly in terms of positioning, communication, product characteristics and timing. The context of
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EVs may put the most emphasis on communication and product characteristics, but positioning and timing cannot be neglected. Market strategies can be stated as the way a product will be entered into the market. Miles and Snow (1978) introduced four market strategies and the role of the organization; Prospector, Analyser, Defender and Reactor. Their market strategies has been criticized by Slater and Narver (1993), as not studied thoroughly enough. It’s rather interesting, yet surprising, that the business model theory has been accompanied by product market strategy in a limited way. Zott and Amit (2008) attempt to find a certain fit between business models and product market strategy. According to them an organization needs to make two strategic decisions; “what type of product market positioning approach to adopt, i.e., cost leadership and/or product/service differentiation (Porter, 1985); and when to enter the market (Lieberman and Montgomery, 1988). The answers to these questions are central to our understanding of how firms that operate in competitive product markets create and appropriate value “(Zott and Amit, 2008, p. 29). Yet the effort of Zott and Amit (2008) is less workable in the context of EVs and BE. A more practical, more focused product market strategy needs to be adopted, based on the little nuances and patterns of BE.
Marketing strategies include the way how offering a product to the consumer. According to Kotler et al. (2010), marketing (strategies) underwent major changes over the last 150 years. Kotler et al. denoting different phases: Marketing 1.0, which emerged from the Industrial Revolution, contained product-centric promotions to transfer the product to the consumer. It set consumers to the difficulty to compare prices and quality, based on a “one-to-many” relationship. Companies had a broad customer focus. The second phase, Marketing 2.0, emerged at the ‘information age’. This encompasses the method which set out to satisfy consumers with goods and services that addressed their ‘functional and emotional’ needs (Kotler, 2003). The rise of the internet gave the public access to vast amounts of new information. To differentiate their products, marketers added emotion to their direct communication, with each firm trying to establish relationships with individual customers. The current phase, called Marketing 3.0, extends the consumer focus to their values and social concerns. The basis of this
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development relies on the potential and problems of globalization and the search/quest by the public towards creativity, values, spirituality and meaning. Kotler et al. (2010) argue that consumers express more trust to others and their social networks, than experts. To gain certain trust by customers, firms can build credibility with ‘communitization’ (obtaining a position within target communities), ‘co-creation’ (more than one producer involved in the creation of the product) and ‘brand integrity’. Therefore the mission statements of firms need to be redefined and address social values. According to Kotler et al. (2010), firms need to have the ability to expand on an existing idea. It does not
necessarily require innovation, which is in line with the sustainable advantage by Bower and
Christensen (1995). In practice, marketing 3.0 suggests firms should link products to values, including environmental sustainability and corporate responsibility. Therefore, firms must pursue their beliefs anytime to earn the support of their customers. A way to do this is by philanthropy and cause marketing to differentiate their brands while simultaneously serving the public with products they want. Regarding the sustainable elements of EVs, ‘green marketing’ is a term that fits the current situations. According to Chen (2007) green marketing is based on simultaneously pursuing the objectives of green, clean and profitable. This concept is rather just a thought, without strong tools how to perceive the objects. Therefore current marketing has to rely on the 4 C's tool (customer solution, costs to the customer, convenience, communication) which aims at the marketing objectives of an organization to achieve the customer (Lauterborn, 1990). According to Lauterborn, the 4 C’s tool is an elaboration of the 4 P’s tool, by the shift from production (process) focused industry to customer focussed industry. Lamberti and Noci (2010) make a distinction between transactional, relational and a combination of both as the current distributions of marketing strategies. Transactional marketing implies a focus on market demands whereas the relational marketing will focus on the relation between supplier, firm and consumer. In line with Lauterborn (1990), this study relates to the transactional marketing strategies due to the product-customer fit orientation. Solomon (2008) found different movements in the current market that affect consumers. He suggests, consumer’s priorities
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have shifted where social consciousness marketing is gaining importance. People are more aware of health, ethics and environment and reflect this to goods they will buy. Beliefs and earlier experiences are basis of the consumer’s choices. Also reaching customers via social media seems to be effective as consumers use this to stay current. Addressing consumers by ethnic group, gender, age and product preferences could yield in customer-brand identification. In accordance to Solomon (2008) and Kotler et al. (2010), the social consciousness plays an important role in today’s marketing strategy. Besides product characteristics and distribution, marketing communication has a crucial role in making potential customers aware of the product and other potential customers.
2.5 EVs, behavioural economics and strategic utility
As described by Kley, Lerch and Dallinger (2011), electric cars do require other ways of thinking when building a business model. The importance of the role of new business models to overcome the challenges that green initiatives face has been discussed by Marcus and Fremeth (2009). They extend this by “the role new business models will play in overcoming the challenges of green management is an important one that management researchers should take up” (Marcus, McEvily, and Sutcliffe, 1994 in Marcus and Fremeth, 2009, p. 22). Next to this, Amit and Zott (2001) refer to usefulness of business models as unit of analysis to assess the value creation in a given industry. By this, a well-constructed and conceived business model may lead to the success (value creation) where future actors in the industry are looking for. As the value capturing is entangled with the value creation part of the business model (Casadesus-Masanell and Ricart, 2010; Teece, 2009; Osterwalder et al., 2005;
Margretta, 2002), designing business models towards the behavioural economics approach requires an integrated approach on both value creation and capturing. To bridge the gap between the car
manufacturers’ business model and the irrational behaviour of the customer, marketing strategies need to be set-up precisely to ‘provoke’ behavioural change and increase the buying likelihood of EVs in the end.
34 This will lead to the following theoretical framework:
Theoretical Framework
In the next chapter, this will take as step further where the overall design of the research will be explained, including problem statement, research questions, methodology, research model and questionnaire design.
EV biases / consumer skepticism on EVs
Range Costs Emissions
MINDSPACE - the role of context on behavior MINDSPACE effects as moderator Consumer EV buying likelihood Business models Marketing strategies Solutions to car industry on basis of
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3. Research design
3.1 Problem statement
Research found several biases or consumer scepticism on characteristics of EVs which perform pressure on the consumer buying likelihood in a negative way. Due to the existence of cognitive biases, heuristics, misguided beliefs and emotions on individual decision making (DellaVigna, 2009), a true rational decision by individuals is difficult to make. Presenting EVs when incorporating the MINDSPACE effects may have a positive influence on the buying likelihood of consumers towards EVs. This bundled in the following research question:
How do factors of the behavioural economics affect consumer likelihood of buying EVs?
In the research findings on Behavioural Economic studies, summarized by Dolan et al. (2010) as the MINDSPACE effects, many positive results have been found by stimulating effects on human decision making. Most of the studies within the MINDSPACE framework, laboratory or natural experiments have been used to measure the effects. Neither the timeframe, nor the context of this research project makes it feasible to do field experiments. Therefore the moderating effects will be tested via a questionnaire where different scenarios4 (as derivative of the experiment) will be used to project the moderator. These scenarios describe the context where the moderating effect is
incorporated by. Like experiments, a control group is used to measure the effect size of the moderator. From a theoretical viewpoint, when incorporating the MINDSPACE effects into the scenario’s, should have a positive effect on the buying likelihood of EVs. This leads to the following hypotheses:
4
As no recommendation, nor rejection arguments have been found in the literature on the use of scenario-based questionnaire as alternative for laboratory or field experiment, support or approval for this method has been provided by Dr. U. Gneezy, Epstein/Atkinson Endowed Chair in Behavioral Economics, Professor of Economics & Strategy at RADY UC San Diego School of Management, Ms. E. Keenan, PhD Student in Behavioral Marketing at RADY UC San Diego School of Management, Drs. Ing. A.C.J. Meulemans, lecturer at Universiteit van Amsterdam, Faculty Economics and Business, dept. Strategy and Marketing and Prof. Dr. T.J.S. Offerman, Professor of Behavioral Game Theory at Universiteit van Amsterdam, Faculty Economics and Business.
