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What Consumers Can’t Tell You
About Themselves
An analysis of the needs and preference structures of electric and hybrid car users in the Netherlands from the service design perspective of a consumer-‐
facing tech-‐startup
Submitted by: Neeti Mishra Supervisor: Dr. Sebastian Kortmann
Submission Date: 31 August 2016
Abstract
The plug-‐in electric vehicle has promising benefits both for the environment and for consumers’ pockets. However, the electric vehicle industry does have inherent weaknesses that distress, if not deter, drivers. Good2Go, with its tech-‐based solution, intends to reduce the range anxiety and inconvenience that plug-‐in drivers currently suffer from.
But technological innovation can be misleadingly fascinating. Far too many innovators fall in the trap of falling in love with their idea. And paradoxically, the most innovative services fail because their proposition is too good for the current generation of customers. This underscores the importance of understanding consumer behavior to avert investment in ideas that will have no takers.
This paper studies electric and hybrid car drivers, in order to obtain meaningful insights for Good2Go’s service. Given the limitations of conventional segmentation techniques, it uses the framework of jobs to be done in defining the service’s consumer base. Thereafter, in exploring consumer preferences for attributes of a service such as that of Good2Go, it uses a conjoint analysis technique. This technique takes into account the cognitive limitations of consumers, which restrict their ability to articulate their own true preferences.
Based this research, recommendations are made about the value proposition and the key consumer insights around which to design Good2Go’s marketing strategy.
TABLE OF CONTENTS
I. INTRODUCTION: THE PROJECT 1
II. PROJECT APPROACH AND METHODOLOGY 3
A. PROJECT’S AGENDA 3
B. RESEARCH METHODOLOGY 4
C. PROJECT OUTLINE 4
III. BACKGROUND AND FOUNDATION 7
A. THE EV INDUSTRY 7
1. ELECTRIC MOBILITY: WHAT THE FUSS IS ALL ABOUT 7
2. INDUSTRY DRIVERS: INCENTIVES AND TCO 8
3. ADOPTION OF ELECTRIC MOBILITY: ON THE RISE 10
4. CHARGING INFRASTRUCTURE: A NEED-‐GAP PRESENTS ITSELF 11
B. ENTER: GOOD2GO 12
1. THE SERVICE 12
2. THE IMPORTANCE OF CUSTOMER INTIMACY AT GOOD2GO 14
3. THE CUSTOMER 14
IV. UNDERLYING THEORY 16
A. CONSUMER: THE COMPASS FOR INNOVATION 16
B. MOTIVATION AS A SEGMENTATION CRITERIA 17
C. CONSUMER: AN UNTRUSTWORTHY GUIDE 18
D. TRADE-‐OFFS REVEAL UTILITIES 20
V. SEGMENTATION FRAMEWORK: JOBS TO BE DONE 22
A. SEGMENTATION BY JOB 22
1. WHAT’S WRONG WITH THE CONVENTIONAL CRITERIA 22
2. BENEFITS OF SEGMENTING BY JOB 22
B. APPLICATION OF THE FRAMEWORK 24
1. WHERE TO LOOK: THE POTENTIAL CONSUMER 25
3. SYNTHESIZING INSIGHTS 27
VI. FRAMEWORK FOR CONSUMER PREFERENCES: CONJOINT ANALYSIS 30
A. CONJOINT ANALYSIS 30
1. CONJOINT ANALYSIS & ITS BENEFITS 30
2. PART-‐WORTHS: A NOTE ON UTILITY 31
3. CONJOINT APPROACHES 33
B. APPLICATION OF THE FRAMEWORK 34
1. FACTORS AND LEVELS 34
2. ASEMAP RESULTS 35
VII. MANAGERIAL IMPLICATIONS 38
VIII. LIMITATIONS 42
IX. CONCLUDING ADVICE TO MANAGEMENT 43
X. REFERENCE 45
XI. APPENDIX 51
I.
Introduction: The Project
The challenge for this company project is to test the appeal of the various features for an innovative, new tech-‐based start-‐up. On the face of it, the entrepreneurs’ service idea meets an apparent need; there is undoubtedly a mismatch between potential electric and hybrid car users and the charging infrastructure available to them. Good2Go was established to fill this gap. However, its hypothesis remains untested.
From the point of view of the service’s potential users, is there a substantial need gap? Does the inconvenience caused by this need gap justify subscribing to and paying for a premium service? To answer these questions, the research delved into the consumer mindset and unveiled the motivation behind users’ purchase of current charging alternatives. It examined their charging behavior and attempted to understand what the job to be done was. And finally, it deciphered which attributes of such a service would be most important to its consumers and encourage subscription.
The right service, designed with a thorough understanding of consumer behavior, will be key to the success of the startup-‐initiative. Testing its assumptions and consumers’ responses to service features is therefore a necessary first step. This stage of gauging the potential consumers’ level of interest will also be crucial for the start-‐up, when it comes to pursuing investors and raising capital.
Designing the features of such a service carefully to ensure its uptake is, of course, more significant than just the impact on the entrepreneurs’ financial statements. As fuel becomes progressively more expensive and its impact on
the earth’s climate, more apparent, many European cities are turning their attention to electric mobility as the solution. Electric vehicles are not only cheaper to run, but also produce a lower carbon footprint (Leurent & Windisch, 2011). Even as practical designs of mass-‐produced hybrids like the Prius and, more recently of luxury electric vehicles by Tesla have become
Societal Relevance Significance
popular, a lack of availability of charging stations acts as a disincentive to using electric mobility. In this scenario, if a service, such as that of Good2Go, can bridge the gap between the demand and supply of charging infrastructure, it can potentially have a substantial and fast-‐paced impact on the air quality in cities.
But the odds seem to be stacked heavily against a start-‐up initiative offering an innovative new service via a mobile application. The numbers are not vague; ninety percent of all mobile applications do not make money; four out of five start-‐ups lose money for their investors. In review of the innovations that make it, there is unambiguous support for consumer research as a critical success factor (Van der Panne et al., 2006). However, academic research on the psychology of judgment and decision-‐ making reveals a fundamental truth: people don’t always know what they want (Kahneman, 2011). Moreover, if asked directly, they are likely to say they want everything. But equally problematic is the fact that too many options actually dissuade consumers from buying (Scheibehenne et al., 2010). So it is really up to the entrepreneur to decipher their needs and preferences. And that is the real challenge for this project.
Demystifying the Consumer
II. Project Approach and Methodology
In trying to offer guaranteed charging for electric cars anytime and anywhere in the city, Good2Go is attempting to create a new service category. Anthony et al. call such a case the
back-‐scratcher. As Federal Express and instant messaging technology did in the past, Good2Go
aims to make it easier for people to get an important job done (charge their car) when they are frustrated by their inability to do so (Anthony et al., 2006).
Venturing into a new space, of course, means that the company must investigate customer needs in a completely new light. Plug-‐in drivers have never paid for the convenience of having someone else charge their car. The paper henceforth will ascertain if this need for convenience is real and of value.
A. Project’s agenda
To assist Good2Go in building a sustainable business, this project has undertaken the task of understanding the needs and preferences of its potential customer base. This task, however, has some prerequisites.
The first step in identifying customer preferences is developing an understanding of who the customer is. This is a particularly critical exercise for a company that focuses on the value discipline of customer intimacy because it is required to create an offering tailored almost to the individual level. The task of understanding the customer’s identity will involve representing customers as hypothesized groups of users, based on patterns of motivations. Subsequently, the agenda shifts to interpreting the preferences of these customers. This will require the application of a relevant framework that tests how plug-‐in drivers value different features, functions and benefits that will make up Good2Go’s intended service.
B. Research Methodology
This project used both primary and secondary research for its objectives. Extensive use has been made of published data and research papers about the electric vehicles industry and its consumer base.
Thereafter, qualitative as well as quantitative methods were used for primary research. In order to apply the requisite framework for consumer segmentation (jobs-‐to-‐be-‐done framework), and to articulate the service attributes and their levels for subsequence preference analysis (conjoint analysis), the first step was to conduct an exploratory research through a series of in-‐person and telephonic interviews with drivers of electric and plug-‐in hybrid cars. Thereafter for the conjoint analysis, a computer adaptive (online) survey was used to generate the quantitative results that indicated utilities of various service features or attributes.
C. Project Outline
The structure of this research paper is as follows: III. Background and Foundation
This chapter gives an overview of the electric-‐vehicles industry, its growing importance today, key industry drivers and current adoption figures. It further deconstructs the issue of charging infrastructure and the need-‐gap that this has created.
The chapter also presents the company Good2Go and its service idea. It explores the value disciplines that the company has to choose from and suggests the importance of customer intimacy. The chapter then details the secondary research on electric vehicle drivers and alludes to the fact that when it comes to understanding its users, Good2Go has its job cut out for it.
IV. Underlying theories
The underlying theories behind the frameworks used to meet the project’s objectives are presented in this chapter through literature review. The chapter starts by exploring the reasons for success or failure of innovations, suggesting the importance of breaking down consumer needs and motivations.
Thereafter, the theory behind consumer segmentation and the jobs-‐to-‐be-‐done framework is elaborated on. The chapter also reviews literature on psychology, consumer behavior and cognitive limitations of consumers, paving the way for trade-‐off analyses. Literature on tradeoff analysis is reviewed, highlighting its merits in understanding preferences. The types of trade-‐off analysis are then considered, making a case for conjoint.
V. Segmentation framework: jobs to be done
This chapter elaborates on the framework of jobs to be done, explains its merits as a segmentation tool. The framework is then applied it to this case, to identify the biggest consumer segment for Good2Go, the job that consumer segment needs done and its hiring criteria.
VI. Framework for consumer preferences: conjoint analysis
This chapter introduces the fundamentals of the conjoint-‐analysis framework. Thereafter, the results from a computer adaptive conjoint tool are used to ascertain how potential consumers would value the different features, functions and benefits that constitute Good2Go’s intended service.
VII. Managerial Implications
This section presents the implications of the two frameworks with respect to Good2Go’s unique selling point and its marketing mix.
VIII. Limitations
The findings of project, while valid, do bear certain limitations due to its scope and the research methodology used. These limitations are discussed.
IX. Concluding Advice to Good2Go
This chapter summarizes the recommendations for Good2Go’s management and suggests next steps.
III. Background and Foundation
Sustainability is a megatrend (Lubin and Esty, 2010). Often compared to globalization or the arrival of the internet, it is expected to be as long-‐living and fundamental in its power to change businesses. The electric vehicles industry stems from this critical fact of our age, and is unique in itself. Any consumer insight that Good2Go aims to achieve from this project cannot be divorced from its context.
A. The EV Industry
This report focuses on the service to plug-‐in vehicles, that is, both battery electric vehicles and plug-‐in hybrids. Battery electric vehicles are powered only by electricity and have no backup fuel source. Hybrid electric vehicles can use both electric and fuel power. In conventional hybrids, gas charges the onboard battery. Hybrids in which batteries can be recharged by plugging into an external electricity source are known as plug-‐in hybrids and can run on a combination of electricity and gasoline (International Economic Development Council Report, 2013).
Since battery electric vehicles and plug-‐in hybrids have similar needs and challenges regarding charging, together, their drivers will form the complete set of potential consumers for Good2Go.
1. Electric mobility: what the fuss is all about
The transportation industry uses as much as 70% of the oil consumption in developed countries like the US, while passenger vehicles are estimated to use 70% of that (Lee & Lovellette, 2011). As the middle class continues to expand in India and China, so will the demand for passenger cars, and as a result, the demand for oil. Since oil is a limited resource, this magnitude of demand for passenger mobility makes reliance on an alternative source of transportation fuel inevitable.
Besides having a smaller carbon footprint, electric vehicles also offer the benefit of lesser impact on air quality and being cheaper to drive than conventional cars (Holdway, et al., 2010; Leurent & Windisch, 2011). As a result, more and more cities are turning to electric vehicles as the solution to sustainability challenges, such as CO2
emissions, air pollution and escalating fuel prices (Franke & Krems, 2013a).
2. Industry drivers: incentives and TCO
The adoption of electric vehicles only picked up at the turn of the century, when electric vehicles became more practical, with regards to speed. Soon, with the introduction of mass produced electric hybrids by Toyota (Prius), their popularity started to increase; more so with the endorsement of celebrities aligned with the movement towards cleaner energy. Finally, the introduction of the luxury series of electric cars by Tesla propelled their uptake (Meyer, 2015).
An increasing number of EV and hybrid releases have been made every year since 2010; current estimates stand at a total of 60 new models. The growing variety of electric vehicles entering the market is a major diver for this industry (IHS Automotive Report, 2014). Source: EVolution by Amsterdam Roundtable Foundation and McKinsey & Company The Netherlands, April 2014
Financial motivations such as cost savings and government incentives also play an important role here. The total cost of ownership (TCO) for an EV owner includes purchase price, maintenance and fuel costs, as well as any infrastructure costs. The total cost of ownership often makes EVs more attractive than their conventional counterparts due to lower fuel and maintenance costs. According to a report by Amsterdam Roundtables Foundation prepared in collaboration with McKinsey & Company, for most customers, price or total cost of ownership is the key factor propelling the industry’s growth; the report states that in Norway (the market with largest percentage of EV adoption in Europe) for 41% of EV buyers, the primary reason to buy an EV was “to save money” (Report by Amsterdam Roundtable Foundation and McKinsey & Company, 2014).
Another financial factor is government subsidies. A number of cities in Europe now incentivize their citizens to choose electric mobility over conventional cars, through a variety of incentive schemes and tax benefits. For example, in Norway the package of subsidies is up to EUR 17,000 (calculated vis-‐à-‐vis option of a compact car); and UK offers a one-‐ time premium of GPB 4,000-‐7,000 on such vehicles (Report by Amsterdam Roundtable Foundation and McKinsey & Company, 2014).
Source: EVolution by Amsterdam Roundtable Foundation and McKinsey & Company The Netherlands, April 2014
Within the Netherlands, the fiscal stimulus package consisted of, amongst other things, exception from motor vehicles purchase tax and road-‐use tax, and depending on type of electric vehicle 4 – 7% (to be increased to 15% in 2016) company-‐car addition to taxable income for those leasing their car. Moreover, the Ministry of Infrastructure and the Environment granted a €3,000 subsidy on the purchase of electric taxis and delivery vans in 2014; and number of local governments including City of Amsterdam, Rotterdam, The Hague, Utrecht, Limburg Province and the City of Tilburg have provided an additional stimulus (RVO Report, 2014).
These financial benefits, together with rising fuel costs, often make EVs the comparatively cheaper mobility solution. EV drivers also enjoy other benefits such as the use of special driving lanes, preferential or free parking, and waiving of toll fees (Report by Amsterdam Roundtable Foundation and McKinsey & Company, 2014).
3. Adoption of electric mobility: on the rise
As a result of these factors, Europe has witnessed an increase in the adoption of electric mobility. Sales in some countries have crossed the 1% margin. In some others, like Norway and the Netherlands, the numbers are more impressive. Over 12% of new car sales in Norway were of electric vehicles (IHS Automotive, 2014)
In the Netherlands, the number of electric vehicles grew from 30,086 to 45,915 within one year. This accounts for an increase of 53% (RVO Report, Source: RVO, 2015
2014 & 2015). While this is an impressive growth, the number of electric vehicles, as a share of the total number of vehicles in the Netherlands remains low; electric vehicles making only about 4% of new car sales.
Other countries that have high EV sales growth rate are France, Germany and the UK (IHS Automotive, 2014). Country-‐wise details are in Appendix A.
4. Charging infrastructure: a need-‐gap presents itself
It is commonly believed by industry experts that charging infrastructure, or the lack thereof is the fundamental obstacle to the growth of this industry (Behr, 2011; Egbue & Long, 2012). Users of electric vehicles are distressed and constantly inconvenienced by the unavailability of charging facilities.
Certain technical differences between electric vehicles and those that run on gasoline are at play here. First of all, while refueling conventional cars at petrol stations might require only a few minutes, the battery for a plug-‐in requires several hours to charge even up to 80%. Fast-‐charging facilities too require at least 20 to 30 minutes of charging time. Moreover, current models of electric vehicles have another shortcoming; they have a much shorter range, compared to traditional cars. This creates the need for consumers to charge their cars more often than they would have needed to fuel their cars’ conventional counterparts.
Because of their shorter range, electric vehicles need a denser charging infrastructure, outside of the home or office. Firstly, charging at home or office is not always feasible; a large majority of city dwellers do not have their own garage or private residential parking.
Secondly, charging at the public stations is not always hassle free (Graham-‐Rowe et al., 2012). This is so because installing a public charging station at the required scale is too
expensive for governments to bear alone; it requires cooperation amongst a number of players. But the economics of these charging stations make their commercial exploitation particularly unattractive. The small number of plug-‐ins on the road causes reluctance to install more stations, while drivers feel wary of buying EVs because of the unavailability of charging stations. This is the chicken-‐and-‐egg paradox that plagues the industry and perpetuates the problem of an infrastructure gap (International Economic Development Council Report, 2013).
Moreover, drivers are behaviorally used to finding fuel stations every few miles, the contrast of public electric charging stations only available in larger metropolitan areas feels unreasonable.
B. Enter: Good2Go
Good2Go is an Amsterdam based technology startup. The company started with a simple question: how can it be so inconvenient to charge an electric car? Realizing the emerging megatrend of environmental sustainability (Lubin and Esty, 2010) and peeved at apparent shortage of charging infrastructure (Dubinsky, 2016), this international group of entrepreneurs has set out to offer charging solutions to users of electric and hybrid vehicles. From their backgrounds in technology and entrepreneurship, the idea was born: with its interface via a mobile application, the solution will offer an anytime-‐anywhere car charging service to drivers.
1. The service
As it is envisioned today, consumers would press a button on their smart phones to share with Good2Go the location of their parked car and the duration for which it is parked at the spot. The service provider will then, send its personnel to that location with charging equipment and a (high-‐speed) battery. Thus, while the consumer is busy with shopping, lunch or at the office, his/ her car would be charged and be good to go.
The image below is from the company’s investor presentation and displays the final screen before the consumer confirms the order for charging his/ her car. Appendix B displays all the service screens of the intended mobile application.
After receiving initial encouragement from industry experts and strategy consultants, the startup is at the stage where its offering must be tested in the market. Currently, its small team is working on two major focus areas: consumer market testing and building and testing its tech-‐product. Even as the team works on finding the product-‐market fit, the founders have already approached early-‐stage investors, including some accelerators. Before they receive such seed capital, however, they must bootstrap their way through this phase of testing the viability of their business.
! Confirmation Plantage Muidergracht 12! Request charge! SZ-VB-69! ! CAR REGISTRATION !
2. The importance of customer intimacy at Good2Go
In order to demonstrate the potential of this company to seed stage investors, Good2Go must prove the vitality of its customer value proposition. A sustainable business can, after all, only emerge out of an incomparable value proposition for its customers. The company’s operations must therefore not be restricted to designing the delivery algorithm or the ideal mobile-‐application, but be centered on the value that it intends to offer.
Since the company has set out to alleviate some of the inconvenience caused to drivers of plug-‐in electric vehicles, its choice of which value discipline to focus on has already been made; concentrating on customer intimacy will be priority and this means that the start-‐up must excel in customer attention and customer service (Treacy & Wiersema, 1993).
In order to focus on customer intimacy and align its business model to serve that objective, Good2Go should market precisely and mold its service design to exceed the expectations of each of its customer segments (Treacy & Wiersema, 1993; 1995). The ultimate question for Good2Go is: what do the customers want?
3. The Customer
Previous research had revealed that drivers of plug-‐in electric vehicles suffer from ‘range anxiety’ (Nilsson, 2011). Simply put this means that, because of short-‐range of their cars and scare charging infrastructure, drivers often worry that they will not be able to reach their destination before their battery runs out. A number of researchers have stated range anxiety as the fundamental problem for EV drivers (Hindrue et al., 2011; Eggers & Eggers, 2011; Nilsson, 2011; Franke & Krems, 2013b; Ozaki & Sevastyanova, 2011).
It seems that the current providers of charging services seek to combat this range anxiety amongst EV drivers. Such providers, such as AeroVironmentTM and Car
ChargingTM, offer charging stations at home or in the office of customers. The subscription options of a typical charging service provider is in Appendix C. Providers, such as EV Box and EVgo, at best offer publicly available charging stations at popular locations. However, availability at such stations is never guaranteed.
Good2Go is betting on the assumption that in addition to range-‐anxiety, plug-‐in EV drivers must also suffer the inconvenience of having to ‘find’ or go to the nearest available charging station. This is in line with the findings that users adapt to the challenges associated with charging infrastructure by adopting certain charging patterns (Franke & Krems, 2013a; Schroeder & Traber, 2012).
Have consumers adopted routinized behavior, or in other words do they charge only at home, office or that ‘one’ known spot in the neighborhood, in an attempt to cope with this inconvenience?
IV. Underlying Theory
A good idea alone does not guarantee success. While the exact figures may be debatable, it is still clear that most new products and services today fail. This is so because technological innovation can be misleadingly fascinating. Far too many innovators fall in the trap of falling in love with their idea. But from the laundry list of failed innovations, a common characteristic emerges: they all solved a problem that customers did not have (Centre for the Study of Industrial Innovation, London, 1972); the most innovative products fail because their proposition to too good for the current generation of customers (Christensen, 1997). So how can a company avoid this ‘innovation blindness’ (Leonardi, 2010)?
A. Consumer: the compass for innovation
Innovation was traditionally led by engineering, because it was getting to market faster with a technological innovation that would win competitive advantage. But today, technology innovation is almost a commodity; as soon as a company puts an innovation into the marketplace, competitors can and do replicate it or improve it. The way forward is building insight into consumer needs and marrying that to the technological innovation.
Van der Panne et al examined 40+ papers about factors behind the success and failure of innovative projects, all of which provided unambiguous support for consumer research as a critical success factor (Van der Panne et al, 2006). Peter Drucker’s approach to combatting complex challenges too prioritizes the questions of understanding one’s consumer and what he values right after the very mission of the organization, and above of questions regarding results and plans (Drucker, 2011).
In fact, as consumer needs become all the more volatile today, an attentive study of these needs is required (Wind & Mahajan, 1988; Calantone et al., 1993). Empirical research too indicates that the majority of successful ideas originate from the market (Maidique & Zirger,
1984; Johne & Snelson, 1988); and that the innovations that stem from customer involvement have significantly higher success rates (Gemunden et al., 1992).
Alan Cooper, stresses the importance of understanding not only who the consumer is, but also what (s)he is trying to accomplish. He further suggests that the greatest insight of what consumers are trying to accomplish comes from why they are trying to accomplish that; what their desire or motivation is (Cooper et al., 2014).
B. Motivation as a segmentation criteria
While more and more companies understand that the success of their new product or service is contingent on consumer insight, Clayton Christensen and his colleagues suggest that those insights are often elusive because marketers rely on ineffective market segmentation mechanisms (Christensen et al., 2005). The concept of segmentation was first introduced by Smith over 60 years ago and since then the idea of heterogeneity in the demand for goods and services has been widely accepted (Smith, 1956).
Essentially, segmentation is a theoretical marketing concept that requires the artificial creation of consumer groups, which are homogeneous within themselves, in order to assist marketers in positioning their offering (Wedel & Kamakura, 2012). Therefore, identifying market segments is entirely dependent on the bases/ criteria used. The problem is that segmentation schemes defined on the basis of products features, be it category or price, or customers descriptors, such as age, gender, marital status and income level, are static. Consumer behavior, on the other hand, can and does change (Christensen et al., 2007). As a result, such conventional segmentation techniques would typically lead to products and services, which were more focused on what the company wanted to sell rather than what consumers needed.
Christensen suggests that the focus of consumer research ought to be shifted to understanding what the problem is that consumers ‘hire’ a product or service to solve, to
create the insights needed for well-‐tailored products or services (Christensen et al., 2005; Christensen & Raynor, 2013). The theory suggests that customer’s purchase decisions are governed by their need to get things done and it is to fulfill this need that they hire products or services to do so. The implication of this is that consumer research should try to uncover the ‘jobs’ in customers’ lives for which a product or service may be hired.
In the subsequent sections the framework of jobs to be done is explored and applied to this case in order to segment electric vehicle drivers, based on their motivations.
C. Consumer: an untrustworthy guide
As discussed previously, thinking about the customer perspective is indisputably critical. Innovations need to be thought of not in terms of their features, but in terms of their benefits to the customer. However, unconsidered involvement with consumers does pose the risk of adding prejudice to a company’s innovation process (Maidique & Zirger, 1984). Taking the consumer’s word for what they want does seem unwise, since may not be able to envision their future preferences or express them accurately. They would, most probably, express their preferences in terms of products or services they are already familiar with.
“If I had asked people what they wanted, they would have said faster horses” -‐ Henry Ford Alberto Savoia recommends what he calls ‘pretotyping’ to innovators. He suggests that ideas by themselves are useless, since they are simply abstractions. Much like his popular example of IBM’s speech-‐to-‐text, it is not unexpected that respondents show interest and willingness to pay for new ideas, while their real level of interest is revealed only after experiencing them (Savoia, 2011).
But their inability to envision an idea or to express themselves is only a part of the problem. Consumers don’t always do as they say. In their legendary paper in 1995, Kahneman and Tversky explained why people consistently violate the own rules of rational choice. They revealed simplifying shortcuts of intuitive thinking that affect people’s decision making, often even adversely. Their work challenged the highly held belief of the time that people behave rationally or that the only time that one deviates from rationality, is under the effect of emotions such as fear, affection or hatred. By documenting systematic errors in the thinking of normal people, they managed to trace such errors to the design of the machinery of cognition (Tversky and Kahneman, 1975).
The idea that human minds are susceptible to errors is now generally accepted. Ariely’s numerous experiments analyzing behavior go a step further and illustrate that people cannot help but make the (irrational) choices they do (Ariely et al., 2006, Ariely, 2008). The paper by Johnson and Goldstein also confirms this ‘decision illusion’, as Ariely termed it. A lot of the decisions that people make are in fact not in their controls; and people can actually be led to making certain choices under the illusion that it is their own decision (Johnson and Goldstein, 2003). Redelmeier and Eldar further prove that this effect does not preclude even experts (Redelmeier & Eldar, 1995).
Interestingly enough, these references are not only to small or trivial decisions. In fact it is in decisions, which are important, difficult and complex that people often pick the ‘default’ option, placing the decision outside of themselves (Ariely, 2008). Kahneman in his later work also confirmed that people (consumers) often make decisions based on, automatic,
system I thinking, that is, without conscious knowledge (Kahneman, 2011).
Besides untrustworthy heuristics and simplifying behavior, there is another reason to not trust the consumer’s word. Consumers may show support for an idea or a new innovation, not because they like it, but simply to reduce their cognitive dissonance (Festinger, 1957). Festinger and Carlsmith’s induced compliance experiment proves this (Festinger &
Carlsmith, 1959). People strive for consistency between the self-‐concept and behavior (Aronson, 1992); so consumers may say they like (or do not like) an idea, simply because they like to think of themselves as agreeable (or nonconformist).
Another problem is that if asked directly, consumers often ask for everything – the highest level of all possible attributes. But research by Scheibehenne et al. showed that while people ask for choices, they are often dissuaded from buying if presented with too many choices (Scheibehenne et al, 2010). The implication of this research is that the burden of decision-‐making lies with the entrepreneur.
If consumers cannot be trusted on their word, it is not only hard to predict what they will like, but also pointless to simply ask.
D. Trade-‐offs reveal utilities
As previously discussed, while consumers should be the compass of all innovation, they suffer from certain cognitive limitations, which make them poor guides of their own preferences. Research intended to understand consumer motivations and needs must, therefore, take into account of these cognitive limitations and be designed around them. Johnson in his analysis of consumer values, affirms that consumer motivations and true preferences, which they often cannot articulate or are not conscious of themselves, may be revealed indirectly by analyzing their choice behavior (Johnson, 1974). The economic theory of opportunity cost has a similar suggestion; the tradeoffs that people make can be a good indication of the degree of satisfaction (utility) that they derive from each alternative (Buchanan, 1991). It stands to reason that the study of consumer decision-‐making could benefit from ascertaining how buyers trade off conflicting criteria in making purchase decisions (Green & Carmone, 1970).
Trade-‐off analysis is a family of methods that is used to uncover consumer preferences based on this premise. In these techniques, consumers’ utilities for various product or service features are calculated by forcing them to consider alternatives and state their preference (McCullough, 1998). Through their choices in a series of such decision scenarios, a pattern is identified to reveal the individual features that contribute the most to their preferences.
The different types of trade-‐offs analyses include conjoint, discrete choice, self-‐explicated and hybrid. The choice of which technique to use depends on the type of behavior that is being studied. The techniques that use direct questions, such as self-‐explicated and hybrid, do so to decipher behavior that is cognitive, based on rational decision-‐making. (McCullough, 1998). In the last section, we arrived at our preference for a non-‐cognitive model; that is, one that that works on the assumption that human decisions are not always rational or conscious. Such models, ought to be based on an indirect trade-‐off technique, such as conjoint or discrete choice analysis.
The following section breaks down the fundamentals of the conjoint-‐analysis framework. Thereafter the results from a computer adaptive conjoint tool are used to test how EV drivers value different features, functions and benefits that will make up Good2Go’s intended service.
V. Segmentation framework: jobs to be done
Jobs-‐to-‐be-‐done is a framework for understanding the often hidden emotional, social and
functional needs that customers are trying to fulfill in daily lives. The following sections will elaborate on this framework and subsequently, apply it to the case of drivers of electric vehicles.
A. Segmentation by job
1. What’s wrong with the conventional criteria
This unconventional framework challenges the common segmentation techniques that marketers use on the basis of product categories, such as price or features, or consumer demographics, such as age or sex. But is that really a consumer perspective? Consumers do not make their purchase decisions in order to conform to their segments. Such segments are artificially created concepts that emerge from observing consumer behavior. They are the effect of behavior, so to speak, not the cause. This points to their unreliability in predicting consumer behavior.
In the words of Clayton Christensen, the brain behind this framework, “The fact that
you're 18 to 35 years old with a college degree does not cause you to buy a product. It may be correlated with the decision, but it doesn't cause it” (Christensen & Anthony,
2007). Traditional segmentation techniques only show correlation, but this idea was developed to understand the cause; people’s motivation to buying a product or service.
2. Benefits of segmenting by job
The jobs to be done framework suggests that consumers, when faced with a job that needs doing, essentially hire a product to do it. This concept has recently garnered significant attention from academics and practitioners alike and understanding this
causal mechanism has displayed great effectiveness in enabling companies to build products that people want to buy. In fact, there are several big examples of the success of this framework. The success rate of products launched at Procter & Gamble has risen dramatically since the jobs to be done framework was adopted as a segmentation tool in the company (Christensen & Anthony, 2007).
A key benefit of this paradigm is that it is particularly difficult to imitate. This is so because segmenting markets by job and then creating a service that fits the job perfectly helps companies break away from the traditional positioning paradigm (Christensen & Anthony, 2007). So under this new framework, services need not be plotted on a graph with two or three axes, on which competitors would have had to find a position. Any position on such a graph would either naturally acquire followers (imitators) or be too far from consumer need to be attractive to anyone. The differentiation on the basis of jobs sticks longer. For instance, it is difficult to copy IKEA, because it is the go-‐to hire to get the job of furnishing an apartment done
immediately (Nobel, 2011). Its in-‐stock, take-‐it in-‐stock, take-‐it-‐home-‐and-‐assemble-‐it-‐
yourself kits do the job perfectly.
Christensen also suggests the merit of building the brand around a particular job-‐to-‐ be-‐done. Simply put, this means that the product should be named around the purpose it serves (Nobel, 2011). Examples of this, purpose branding, are many. Kodak’s FunSaver brand of single-‐use cameras, which performs the job of preserving fun memories, has witnessed great success. The brand Sawzall by Milwaukee Electric Tool Corp, which does the job of helping consumers saw through almost anything, has been much more successful than some of the company’s other brands that rely on the Milwaukee brand.
When consumers are asked what they would do to get the job done, if they weren’t going to hire the company’s product/ service, the answer is extremely valuable in
understanding the consumer’s job and helps uncover what product/ service is really the competition to worry about (Christensen & Anthony, 2007). SUV makers, for instance, compete with Starbucks and Smartphones for the job of providing a place to get work done outside the office; and a single-‐section, easily-‐folded newspaper competes not with other dailies but with paperback novels, iPods, smartphones to do the job of passing the commute time productively. Since segmenting this way clarifies who the real competitors are, it will help evaluate the merits and demerits of the Good2Go service vis-‐à-‐vis the attributes and experiences that would be required to do the job perfectly.
It is important to note, however, that a product’s (or service’s) job is different from its function. While the function of a product is an idea that comes from the industry, the job to
be done only surfaces when a consumer is observed in his/ her actions, constantly asking
why he/ she did something a certain way.
This unique way of segmenting the market, however, does pose a challenge. Most existing customer data is organized by demographics or product categories. This means that in order to apply this framework, existing consumer data will not suffice. Therefore, to apply this framework to the EV/ plug-‐in driver (as is done in the following section) primary research was necessary.
B. Application of the framework
A lot of research recently has been dedicated to understanding the behavior of EV drivers (Franke & Krems, 2013a) and including specifically those based in the Netherlands (Spoelstra, 2014). A complete list of relevant literature is in the Appendix (D). But it was clear that the jobs that electric vehicle (plug-‐ins) drivers are trying accomplish cannot be deciphered from previous research or purchased databases categorizing the market on product and demographic characteristics. It required observing, participating and thinking.
