Vehicle Market
The Identification of the Early Adopters of the Electric Vehicle Market and
developing a Matching Proposition for Nuon New Business Development
M.J. Verhoeven
Master Thesis
Technology Management
October 2009
Project Company
Nuon, department New Business Development
Supervisors:
R. Treep
A. Nagel
University of Groningen
Preface
This research report is the thesis of my study Master of Science Technology Management at the University of Groningen. My interest lies with the development of sustainable energy solutions and therefore I have entered an internship with Nuon New Business Development six months ago. I was assigned to the electric vehicle project, which was in the beginning of the development process, and was the foundation for my thesis.
There are many people, who have helped me along the way in my research, and I would like to start with thanking my supervising manager, Reinier Treep of Nuon. He brought me new insights after discussions on how the market will develop and guided me to a clear research structure. Special thanks to Alwin Nagel of Nuon, who was my close supervisor and leader of the electric vehicle project. He taught me that new business is not only a case of creativity and processes, but political issues and partnerships are just as important. Also thanks to Wim Pitstra of Nuon, leader of the EV project in the municipality of Amsterdam, who showed me the operational conflicts in a project and how to deal with them.
Also I would like to thank the members of the New Business Development Team with Nuon for their creative ideas and support and all the respondents of my marketing research for their enthusiasm and cooperation.
From the University of Groningen I would like to specially thank drs. ing. H.L. Faber, for his support and advice during my research and of course my second supervisor dr. ir. Hillen.
Enjoy reading and I hope it will be useful for a better understanding of the present and future state of the electric vehicle market.
Max Verhoeven
Management Summary
The electrification of vehicles is an upcoming technology in the automobile industry and have opened the market for new entrants. Nuon is participating in two projects to enter the electric vehicle market. The believe is that the success of the new market and the corresponding proposition of Nuon stands with the customer’s satisfaction and adoption of electric vehicles. However, the needs of the market and the proposition of Nuon are not yet defined. Therefore the objective of this research study is:
To identify the early adopters for electric vehicles and select a matching proposition for the early adopters, where their needs are integrated in the final concept.
The proposition of Nuon consists of four components that are integrated in a lease construction. These components are the electric vehicle, the chargepoint, the payment system and the relating services, which are analyzed separately throughout the research and combined as the final concept for the proposition of Nuon.
In order to reach the objective three deliverables are established during the research:
A decision matrix, which can be used for identifying the attractiveness of the segments for Nuon to target.
The identification of the early users’ segments for electric vehicles in the Netherlands and the needs of the business market.
A matching proposition, which integrates the user needs and analyze the suitability for Nuon.
The research is divided in three different researches; the marketing research, the internal research, and the concept selection. The marketing research is done to identify the early users in the business market and extract their needs. The business market is divided in three segments; the carfleet segment, the car-rental companies and the transportation segment. The carfleet segment is further split up in the use of poolcars and the personal cars.
The marketing research showed that the poolcars in the carfleet segment are the most attractive to integrate an electric car with. The main advantages are that the poolcar has a low average range per day, the charging is executed during the night at business property and the cars are purchased by the company and not the employees. The lease cars that are individually used by the employees have a high strategic fit with the vision of Nuon, but the lack of comfort and the limited range of the car makes them not ready for adoption yet.
The other two segments, car rental and transportation, are more focused on the Total Cost of Ownership than the carfleet segment. The battery capacity of maximum 150 kilometers is insufficient to deploy electric cars for daily use activities. Further the car rental segment does not lease their cars, but have long term relationship with dealers and car manufacturers, where they purchase their cars. This implies that the strategic fit with Nuon is low, because no electric cars could be leased.
The final concept, that corresponds with the user needs and the internal resources and knowledge of Nuon, consists of a three components:
Electric car: Luxurious city car (BMW Mini Cooper or Nissan Leaf)
Chargepoint: Low cooperation for the compatibility between different chargepoints, and a complete software package for the chargepoint that identifies the user and record the electricity consumption. Green electricity is preferred by the customer.
Service: A medium service level, which integrates the payment of the car and electricity, the installation and service of the chargepoint is done by Liandyn, the operational lease is performed by the Mobility Mixx concept. The service of the electric car is outsourced and the fuel card is applicable for public chargepoints.
Table of content
Preface ... 3
Management Summary ... 4
Table of Figures ... 8
List of Acronyms ... 11
Chapter 1. Research Subject... 13
1.1 Background... 14
1.2 Research problem ... 20
1.3 Research focus ... 26
1.4 Research objectives and deliverables... 29
1.5 Nuon’s position and interest in the electric vehicle market ... 31
1.6 Research Design... 37
1.7 Define concepts and words ... 43
Chapter 2. Theoretical Analysis ... 45
2.1 The introduction of electric vehicles in the automobile industry... 46
2.2 Diffusion of innovation... 47
2.3 Concept Development ... 49
2.4 Establish Design Requirements... 59
2.5 Concept Generation ... 61
2.6 Concept Selection ... 66
Table of Figures
Figures:
Figure 1: Price of crude oil per barrel (IEA,2008)... 14
Figure 2: Diffusion rate (Rogers, 1964) ... 18
Figure 3: The market prognosis for electric vehicles... 19
Figure 4: Conceptual model ... 21
Figure 5: Product Development Process (Ulrich and Eppinger, 2008) ... 26
Figure 6: The concept development process (Ulrich and Eppinger, 2008)... 27
Figure 7: Research design ... 38
Figure 8: The Adoption categories in the PLC (Moore, 1999) ... 47
Figure 9: Front-end Concept Generation (Bitran & Pedrosa, 1998)... 49
Figure 10: Dimensions of innovation for the automobile industry (Tidd, 2005) ... 51
Figure 11: Percentage customer needs identified (Hauser and Griffin, 1993)... 52
Figure 12: MCC decision Matrix (Nicholls, 1995)... 56
Figure 13: Segments Decision Matrix for Innovation ... 57
Figure 14: House of Quality (Temponi et al., 1999) ... 59
Figure 15: Classification tree ... 64
Figure 16: The concept selection process ... 66
Figure 17: Pugh selection matrix ... 70 Figure 18: Components of the Proposition of Nuon . Error! Bookmark not defined. Figure 19: Strategic criteria to purchase an electric vehicle.... Error! Bookmark not defined.
Figure 22: Average importance chargepoint... Error! Bookmark not defined. Figure 23: Average importance lease construction.. Error! Bookmark not defined. Figure 24: SDMI for EV segments... Error! Bookmark not defined. Figure 25: House of Quality (Temponi., 1999) ... Error! Bookmark not defined. Figure 26: House of Quality Electric Vehicle ... Error! Bookmark not defined. Figure 27: House of Quality Chargepoint ... Error! Bookmark not defined. Figure 28: House of Quality Service ... Error! Bookmark not defined. Figure 29: Classification tree Service ... Error! Bookmark not defined. Figure 30: Concept combination table between all concepts... Error! Bookmark not defined.
Tables:
Table 1: Fuel comparison ... 16 Table 2: Characteristics of Concept Selection Techniques ... 68 Table 3: Customer selection matrix (Burchill et al., 1993) ... Error! Bookmark not defined.
List of Appendices
Appendix A: The personal car market in the Netherlands.... Error! Bookmark not defined.
Appendix B: Concept generation process... Error! Bookmark not defined. Appendix C: Interview list ... Error! Bookmark not defined. Appendix D: Enquiry list... Error! Bookmark not defined. Appendix E: Results Depth Interviews... Error! Bookmark not defined. Appendix F: Inquiry ... Error! Bookmark not defined. Appendix G: Attributes conjoint analysis ... Error! Bookmark not defined. Appendix H: Conjoint Analysis Form ... Error! Bookmark not defined. Appendix I: General list of user needs... Error! Bookmark not defined. Appendix J: Nuon’s position in the EV-market ... Error! Bookmark not defined. Appendix K: Strategic criteria ... Error! Bookmark not defined. Appendix L: Selection criteria electric car ... Error! Bookmark not defined. Appendix M: Conjoint Analysis SPSS Output ... Error! Bookmark not defined. Appendix N: Cost comparison ... Error! Bookmark not defined. Appendix O: the possible design requirements of Nuon’s proposition ... Error! Bookmark not defined.
Appendix P: Design Requirements ... Error! Bookmark not defined. Appendix Q: Concept Combination Table for each component ... Error! Bookmark not defined.
List of Acronyms
BEV: Battery Electric Vehicle CD: Concept Development CP: Chargepoint
DR: Design Requirements EV: Electric Vehicle
EVA: Electric Vehicle Alliance HEV: Hybrid Electric Vehicle HOQ: House Of Quality
ICE: Internal Combustion Engine PHEV: Plug-in Hybrid Electric Vehicle PLC: Product Life Cycle
QFD: Quality Function Deployment
SDMI: Segment Decision Matrix for Innovations TCO: Total Cost of Ownership
Chapter 1. Research Subject
Objectives
A comparison between fossil fuels against sustainable alternatives (biofuel, hydrogen, and electricity
A brief understanding of the electric vehicle market in the Netherlands The current activities of Nuon towards electric vehicles
The research question and the subquestions The deliverables of the research
The scope of the research The research methodology Summary
The main drivers to switch from fossil fuels towards sustainable alternatives are the risen oil prices, caused by the increasing demand and exhaustion of oil, and the emission of Green House Gasses. The best alternative in the automobile industry at the moment is electricity instead of petrol. In reaction the Dutch government has initiated a stimulation plan to drive the adoption of electric vehicles to 1 million electric cars in 2025.
Nuon, one of the largest energy suppliers of the Netherlands, has started two projects to enter the electric vehicle market, aimed at electric cars. These projects are already launched, but miss a detailed concept for the proposition. Secondly, the success of the proposition is closely related with the adoption of electric vehicles in general as with the proposition of Nuon.
1.1 Background
Disruptive technologies can change the rules under which the mainstream industry operates significantly (Tidd et al., 2003). The steady market conditions will fall and a new market with new market players will develop.
The electric vehicle market is such an example. The automotive industry, with key-players as car manufacturers and oil companies, has to shift to a new technology and a new fuel for the existence of the industry. Related with the new technology, new stakeholders enter the market, which are specialized in electricity generation, battery production, and the connection to the electricity grid.
One of the most important factors of success is the adoption of the market of the new developed technology. At this moment it is unclear if the market will accept the vehicle electrification (Barkenbus, 2009). This research will gather the user needs of the business market in the Netherlands and identifies which market segments are most ready to switch to an electric vehicle. Subsequently a case study will show, which concept will best align with the needs of the early adopter segment.
1.1.1 Drivers
The transport sector is widely observed to be the most culpable in terms of greenhouse gas (GHG) emissions (Andersen et al., 2009). Globally, private transport depends for 95% on oil, and accounts for over 50 % of the oil that the world consumes (IEA, 2008). With this in mind, the two main drivers for shifting from fossil fuel cars towards a sustainable solution are high oil prices and the emission of GHG.
The consequence is that the demand will exceed the supply and therefore the result will be oil shortages and rising oil prices. From a political point of view the dependency of oil is also determined by the countries that have oil reserves and the ones who have not. Sustainable alternatives for the fuel of cars can decrease the dependency of oil and make countries less dependent on foreign oil.
The second driver is the positive effect sustainable fuel has on the environment. The European Union has the goal to lower the GHG emission with 20 % before 2020 and the Dutch government has set their own target at a decrease of 30 % in the same period.
1.1.2 The choice for electric vehicles
Currently three sustainable solutions for the replacement of fossil fuels in cars are available, namely bio-fuel, hydrogen and electricity.
Bio-fuel is made from bio oils, which can come from multiple crops and plants. The most common is rapeseed, but also maize, soy or algae can be used for the production of bio-fuel. With exception of algae, all the crops are also used for food consumption. This extra demand results in scarcity of grain and other crops. The effect is increased prices in the food industry that are translated in higher consumer prices (Worldbank, 2008). Also an ethic problem has arisen; there is a food shortage in many countries, while the production of crops with bio-fuel is used for transportation. Currently, bio-fuel out of rapeseed is already employed throughout the world, mainly in South-America. Biofuel out of algae is still under development and will solve the ethical problems. Bio-fuel can be seen as an additional solution for the conversion of fossil fuels, but is not a proper solution for the total replacement of fossil fuels.
With hydrogen as well as electricity, the car is powered by an electromotor, which is generated by electricity form a fuel cell. The difference is in the fuel cell, which use another technology to generate electricity. The advantage is that hydrogen is from a resource, water, that is abundant and has no CO2 emission at all. On the
other hand the technology to produce hydrogen and the relating fuel cell is very expensive and the durability of the fuel cell is inadequate. Hydrogen is not on the market available and further research must improve the creation of hydrogen and its transportation and lower the costs associated with it.
-of electricity this rate can further decline. Also the living-environment -of the cities will extra benefit, because the concentration of cars is the highest in suburban areas.
Comparison between gasoline, hydrogen and electricity
In order to show the potential of the “fuels” for a transportation vehicle the two sustainable fuels, hydrogen and electricity, will be compared with the current fossil fuels for the combustion engine. Bio-fuel will not be taken into account for the comparison, because it is not an individual alternative for the conversion of fossil fuels to a sustainable fuel.
Three types of electric cars are available, namely the Hybrid Electric Vehicle (HEV), the Plug-in Hybrid Electric Vehicle (PHEV) and the Battery Electric Vehicle (BEV). The following comparison is based on a BEV, because this type does not rely on fossil fuels, is currently on the market, and lies inside the scope of the research. Gasoline, electricity and hydrogen, will be compared on the following criteria:
Fuel Efficiency: The percentage of the resources’ energy that is preserved with the acceleration of the car?
CO2 (g/km) emission, including the production and transportation of the
resource.
Conversion infrastructure: The effort it costs to install the relating infrastructure of the fuel. (+ = less effort, +++ = much effort)
Price: The price of the fuel per km. for a middle class car. The reference for gasoline is a Renault Clio, and for electricity a Think. Hydrogen is not on the market, but research of Bulk (2009) has shown the approximate price.
Table 1 shows the results of the comparison for the three types of fuel, based on current conditions:
Fuel comparison Gasoline Hydrogen Electric Fuel Efficiency 15% 61% 75%
CO2 (g/km) 107 10 69
Infrastructure + +++ ++
The combustion process of gasoline is very inefficient and only 15 % is actually used for the acceleration of the car, while the cars with a fuel cell do much better with respectively 61 % and 75 % (Bulk, 2009). Hydrogen is by far the most environment friendly solution with an emission of 10 gram CO2 per kilometer.
The infrastructure of gasoline, petrol stations, already exists and has shown to be reliable. Hydrogen will need a very complex infrastructure to charge the fuel cells with hydrogen. The transport and storage of H2 is very complex and costly, while
the infrastructure for EV’s can be connected to the electricity grid. Here the chargepoints will be installed on the grid, without adjustments to the grid. A note has to be made that with the development of faster chargepoints, the grid need to be modified. Finally the price will force the decision, where hydrogen is €9,00 compared to € 0,03 per km for electricity (Bulk, 2009).
For the next decades electric cars seem to have the most potential to replace the combustion engine. In the future a new comparison has to be made, while hydrogen has a lot of potential if technological development can lower the cost.
1.1.3 Government stimulation
The Dutch government has formulated an extensive plan to stimulate the adoption of EV of the business market as well as the consumer market. In total €65 million will be invested in the EV market, and this must arouse €500 million at investments from the business market.
The main incentives for the business market are exemption of the motor vehicles tax (MRB and BPM) and the CO2 kilometer pricing. Also the additional
tax-percentage when using a company car for private use is down to 0% in comparison to fossil cars 25%, 14% for hybrid cars and 20 % with cars that have an A-energy label. For the purchase of an electric car a subsidy can be granted of €8000 to compensate the higher price of an electric car versus a fossil car. To stimulate the business market a subsidy plan is presented for initiatives on sustainable mobility (Energie Transitite, 2008).
Several cities have initiated a pilot in order to stimulate the adoption of EV and install the infrastructure of charging points. In order to succeed a nationwide infrastructure of charging points is needed, where EV’s batteries may be charged (or replaced) easily and quickly (Anderson et al., 2009). In addition to the governmental stimulation the first users also receive extra benefits as a free parking space, free electricity for the EV and free registration.
1.1.4 The electric vehicle market
Currently the offer of electric cars intended for passenger transport is very scarce, but most major car companies have published that they will offer an EV in the next years. In 2009 the first buyers of an electric car have come forward. The motivation for the purchase is mostly based on media attention or exposure.
According to the “Diffusion of Innovations” theory (Figure 2) the early users (innovators and early adopters) have very different buying behavior compared to the next stages (Rogers, 1964), the early and late majority and the laggards. In order to create diffusion of EV in the market the adoption process is thoroughly analyzed in this research. With the adoption of a new product or service the focus is on the psychological process an individual goes through.
By far the most potential customers are driving on fossil fuels now. The diffusion rate is determined by many factors as politics, economics and, technology. Currently the purchase price of an electric vehicle is much higher than a fuel combustion car. Research (EON 2009) has shown that the consumer market is not willing to adopt an EV for the current market price. For example, the Think is the only certified electric car in the Netherlands and cost twice as much as a car in the same category; €15.000 - €20.000 compared to €37.500.
Secondly, the research points out that the consumer wishes that the average range of a car with a full battery is 500 km while the current available electric cars have a maximum range of 150 km. This is in contrast with the average distance a consumer drives a day in the Netherlands, where 91 % will manage with the current range of 150 km. The two main reasons to purchase an electric car for consumers in the Benelux would be the lower exhaust of emissions and the lower fuel costs (EON, 2008). The current usage of personal cars in the Netherlands is shown in Appendix A. In the Netherlands 7.5 million cars are leased via the company. The average mileage is 250.000 per year, which results in around 100 kilometers per day. Therefore, the current range of an electric vehicle would be sufficient for the most part of the personal cars.
s
The financial potential of the extra electricity generated and sold is substantial. According to the government prognosis (Plan Elektrisch rijden, 2009) the growth of the number of electric cars in the Netherlands will have an exponential character (Figure 3) resulting in almost 1 million EV’s in 2025.
Translating the number of vehicles by the average distance driven per year (15.000 kilometres and the price for electricity per kilometre (2,7 cent per kilometre) the turnover of the electricity sold by energy suppliers will arouse to 40 million Euro in 2025. Note that the turnover is cumulative, so the total turnover based on this prognosis will be over €100 million. This forecast is based on many assumptions, e.g. stabile electricity price and demand will match the forecast by the Dutch government, but it does show the great potential for electricity selling companies. According to Mau et al.(2009), in cases where long term environmental goals are at stake, information for policymakers about the potential effects of alternative policies tend to be scarce and uncertain, and often rely on energy-economic simulation models and not on the analysis of consumer behavior.
In order for electric vehicles to make a successful market introduction; the user needs must be considered and integrated in products and services concerning electric vehicles, e.g. cars, charging stations, payment systems and related services. € 0 € 10,000 € 20,000 € 30,000 € 40,000 € 50,000 0 200 400 600 800 1000 1200 2009 2015 2020 2025 tu rn o v e r * € 1 0 0 0 E V 's * 1 0 0 0 years
EV Market Prognosis
1.2 Research problem
This paragraph will define the research question and the related sub questions. In the light of the research question and sub questions the background of Nuon will be presented and its current development process.
1.2.1 The research question:
The research question is defined as follows:
Who can be identified as the early users of electric vehicles, and how can
their needs be translated into a proposition offered by Nuon?
The answer to the research question is the final conclusion of the research. The sub questions divides the research question in smaller sub-problems that have to be found in order to answer the main research question. This is done in a chronological process, which is related to the steps taken in the research design. The conceptual model will indicate which factors are of influence on the research question and shows the scope of the research.
1.2.2 Sub questions
The sub-questions should delineate the scope of the work and, taken together, should define the entire problem to be tackled as summarized in the research question (Walliman, 2001). The following sub questions are defined and their sequence is related to the research design.
1 Which market segments can be identified in the EV-market? 2 What are the user needs of these market segments?
3 Which market segments can be identified as the early users in the EV-market? 4 Which features can be identified by decomposition of the components of the
proposition?
5 Which design requirements result from the user needs?
6 Which concepts are generated from the design requirements for the EV project of Nuon?
1.2.3 Conceptual Model
The conceptual model (Figure 4) will give a graphical representation of the factors and actors that are of influence on the adoption of the electric vehicles and the adoption of the proposition offered by Nuon. This in done in light of the research question and the sub questions.
The adoption of electric vehicles of the business market is influenced by many factors, but the factors that lie in the scope of the research are chosen on basis of the relationship with early users or the concept development process of Nuon. A second argument is if it lies in the power of Nuon to change the factor. For example, regulation is an important factor that influences the adoption rate of EV’s, but Nuon has no influence on subsidies and tax regulation.
Figure 4: Conceptual model
The next section will briefly discussed each factor, where the emphasis will lie on the factors that are in the scope of the research.
The criteria for the business market to define the market readiness are: Total Cost of Ownership
Image
Environment consciousness Comfort
These and the following criteria related to strategic fit will be discussed in detail in Chapter 3, when the case study will be conducted.
Strategy: The strategy of Nuon and Vattenfall as well as the mission statement for EV of Nuon NBD will influence the strategic fit of the segment with the EV-project. The following criteria are identified:
Availability Intensity Media attention Corporate image Location Extension possibilities
Infrastructure: The chargepoints and the relating electricity grid are the infrastructure for the EV-market. A high enrolment of the infrastructure stimulates stakeholders in the EV-market to enter the market. Further the market readiness will be increased, because the uncertainty of the possibility to charge the EV will decrease.
Design Nuon’s concept: The proposition of Nuon will result from the composition of the selected concepts, that results from the concept development process. The concept consists of five components.
Electric car: The car is the main component of the proposition. The features o the car must correspond with the user needs identified from the marketing research. The following components will be of additional value f the car.
Payment system: The payment of electricity is for Nuon the value added service behind the concept. This is related with the lease construction if the payment is done in the invoice of the lease company.
Service: The electric car and the chargepoint need maintenance and incidentally repair. The level of service is determined by the amount of maintenance turns and the time to repair.
Lease construction: The above components are combined in a lease construction. The concept is aimed at the functionality of the car, e.g. a poolcar, a personal lease car or rental.
Out of the scope of the research
Technological development: This relates to the products and services inside of the EV-market as well as to other alternative fuels. New solutions have to be created to facilitate driving in electric vehicles, e.g. bigger battery capacity, faster charging stations etc. The degree of technological development will be influenced by the cooperation of companies to co-develop, the need for an alternative fuel, the commitment of companies and subsidies of the government.
Market factors: External forces will influence the diffusion rate of EV. The main market factors to switch to an electric vehicle are the following:
High oil prices: The cost of ownership of a car is an important criterion as the research of EON has shown (2009). If the oil prices rises, so does the prices of gasoline and the operational costs of EV will be lower. This will compensate the higher purchasing price and will be an incentive to switch to EV.
Media: This relates to the public opinion towards electric vehicles. The mindset of the market is influenced by different media.
Regulation: The government stimulates the EV market with the following instruments:
Subsidies: A financial compensation is given for EV related projects or with the purchase of an EV
Tax advantages: Drivers of EV can be financially compensate by the decrease of BPM and the tax for company cars (“bijtelling”)
CO2 restrictions: The European Union or the Netherlands can implement fees
for the emission of CO2 of a car or restrict it.
Standardization: In order to create a sufficient framework for the EV-market standardization on components of EV related products or services must been standardized. As result the companies can cooperate and decreases market uncertainty.
1.2.4 Scope
The conceptual model has shown which factors are included in the scope of the research. This section will specify, which factors and actors lie in the scope of the research.
Scope of the factors and actors included in the research:
The research population is limited to the business market.
The features of the proposition that are analyzed must lie in the power of Nuon to obtain or change. In the case of Nuon a proposition is offered that integrates the electric vehicle, the charging point, the service, the lease construction and the payment system. Nuon has no influence on the design of the electric car and on the chargepoint itself, but different options are available on the market to purchase. The level of service, the payment system and lease construction can be designed by Nuon.
The type of electric vehicles, that are discussed throughout this research are restricted to battery electric cars. Those are fully powered by electricity and do not have an alternative, like a internal combustion engine. This excludes electric vans, electric scooters and (plug-in) hybrid vehicles. Hybrid vehicles rely on self-induced electricity and not on electricity charged from the grid, and therefore they are not beneficial for Nuon. This is in line with the strategy of Nuon NBD and the relation with the initiatives Nuon has started.
1.3 Research focus
The research focus will be discussed in order to explain the current phase of the product development process of Nuon concerning the electric vehicle project and specify the objectives of the literature used and which methods and techniques from the literature will be applied to the case study.
The process of the projects of NBD is carried out by the product development process. According to Ulrich & Eppinger (2008) the product development process consists of six phases (Figure 5). After each phase a GO/NO go decision has to been given by the management, based on an analysis of the previous phase. These reviews are shown in Figure 5 at each gate.
The EV project of Nuon NBD is currently at the concept development phase. The mission statement is defined for the EV-project and a GO has been given by the management to continue the project. The goals of the concept development are identifying the needs of the target market, generate and evaluate alternative product concepts, and one or more concepts are selected for further development and testing.
The concept development phase can be divided in ten activities (Ulrich & Eppinger, 2008) that must be carried out to complete the concept development process.
Figure 6: The concept development process (Ulrich and Eppinger, 2008)
All these activities are interrelated and therefore the process is rarely executed in the sequential fashion. New information can come up in every stage, which influences decisions made in an earlier stage. For the concept development phase there is no protocol at Nuon NBD, which implies there is no process for gathering the user demands and no model or techniques on how the user needs, expressed in customer requirements, must be integrated in the concept generation and subsequently the selection phase.
Bitran and Pedrosa (1998) have highlighted the front end of the concept development (CD) phase; which are the four first steps of the concept development phase (Figure 6) to focus on how the concept selection is established, what is the same point of departure of this research.
Identifying customer needs Establish design requirements Concept generation
Concept selection
The concept development process is originally designed for products, but several authors (Pugh, 1990 and Hollins & Hollins, 1991) have identified that the steps of Bitran and Pedrosa are equivalent to the concept generation of service development. Service components for the EV projects involve customers in their delivery, e.g. the payment system and the operational lease concept.
Service tends to involve a longer commitment and therefore a more intimate relationship with customers (Alam, 2000). Related to the concept generation process, research has shown that customer input and involvement in the service innovation process is more useful than with tangible products (Langeard et al., 1986).
The EV project is in both initiatives (EVA and pilot Amsterdam) a combination of products (hardware) and service. The hardware, cars and chargepoints, are obtained from the market and therefore has less distinctive value for the customer. On the other hand the service components can create extra value for the customer and increase Nuon’s competitiveness.
1.4 Research objectives and deliverables
With the research problem and research focus in mind, the goal can be defined as the successful launch of the EV-proposition by Nuon. The degree of success will be based on revenue, market share, positioning in the market and the degree of sustainability. In order to attain these financial, market, and environmental criteria in the future, the Voice Of the Customer (VOC), the hierarchical set of customer needs (Hauser and Griffin, 1993) must be integrated in the concept.
Research on service failure rate has shown that this is caused by lack of an efficient development process and up-front homework (Brentani, 1991; Drew, 1995) and the lack of customer orientation and input (Martin and Horne,1995). Mau et al. have shown that understanding consumer behaviour is essential in designing policies that efficiently increase the uptake of clean technologies over the long-run (Mau et al., 2008), like EV.
The research objective is defined as follows:
To identify the early adopters for electric vehicles and select a matching proposition for the early adopters, where their needs are integrated in the final concept.
Following the steps of the CD process, a market research will be conducted to identify the user needs. After completion the results will be used to identify which segment or segments are most potential to act as early user. For these segments the needs will be translated into matching propositions for the early users.
1.4.1 Deliverables
In order to answer the research question the following deliverables are composed and analyzed:
A decision matrix, which can be used for identifying the attractiveness of the segments for Nuon to target.
The identification of the early users’ segments for electric vehicles in the Netherlands and the needs of the business market.
A matching proposition, which integrates the user needs and analyze the suitability for Nuon.
1.4.2 Relevance
The relevance shows the contribution this research will have on both practical implications as scientific literature. Practical relevance is in this research the contribution it will have on the stimulation of the EV market and the quality of the proposition that Nuon offers. The following aspects will show the relevance of the research:
Combined concept in New Product Development
Academically, the research will deliver new insights on the CD process for concepts, which is a combination of products and services. The product development processes in literature are focused on products or services. This research will focus on a concept that consists products as well as services. A case study will show if the general product development process is useful for a combined concept. In the case study, the literature and the proposition of Nuon will be analyzed together, it can be proven that the standard CD process is also usable for the selection of mixed concepts and if not, adjustments to the standard model CD process can be made to construct a valid model.
Segment Decision Matrix for Innovation
A tool will be designed that supports managers in positioning the segments in a concept development process. A new designed decision matrix for segments is introduced to support in the strategy of targeting which segment or segments. Understanding consumer behaviour
- Policy: Understanding consumer behaviour essential in designing policies that efficiently increase the uptake of clean technologies over the long-run (Mau et al., 2008). Research (Autoweek, 2008, EON, 2009) has shown that the consumer market is not willing to purchase an electric vehicle with the current market conditions. Especially, the higher cost of purchase and the limited range are the main criteria not to adopt.
- Adoption business market. On the other side the adoption of EV in the business market has more chance to succeed, while they have other criteria than the consumer market, and are seen as the potential early users of EV. According to the Dutch government investments must be made in those segments of the EV market that are ready for adoption (Manifest: Vloeiende acceleratie, 2009), but until now no research has done on the identification of the early users or the user needs of the business market.
Design quality of the final concept
1.5 Nuon’s position and interest in the electric vehicle market
Nuon is a Dutch energy company that purchases, trades and, sells electricity and gas in the countries Belgium, Germany and, the Netherlands. Currently it has more than 2,7 million customers in both the consumer market as well as the business market.
In 2004 the Dutch government decided that the energy market had to be liberalized. However, the ownership of the electricity grid had to stay with the government. The intention was that the grid has to be owned by the government in order to secure the electricity delivery to households and companies. For Nuon this implicated that it had to split the gas and electricity activities in an independent grid operator company and a company that has as core business the trading and selling of electricity and gas, an energy supplier. The result was the separation in 2009 of Nuon in the grid operator Alliander and the energy company N.V. Nuon Energy. With the liberalization the Dutch energy market became more competitive, which opened the market for new Dutch energy companies as well as foreign existing energy companies.
The latest development is the publication in February 2009 that Nuon will be taken over by Vattenfall. Vattenfall is an Swedish energy company, which is currently active in East-Germany, England, Poland and Scandinavia. In July 2009 49 % of the shares of Nuon were acquired by Vattenfall and also the operational control lies by Vattenfall. The other 51 % of the shares will be obtained in the next six years in a phased manner. Nuon will have its own identity for at least the next four years, but strategically Nuon and Vattenfall will collaborate.
This research is initiated by N.V. Nuon Energy. This implicates that the research is written in the light of the strategy and the tactical goals stated by Nuon concerning electric vehicles. However, the research itself is performed for the University of Groningen regarding the thesis Technology management. This means that the research is conducted in an objective manner, independent of Nuon.
1.5.1 Strategy
After the liberalization of the energy market, the competition increased significant. This resulted in that Nuon has become a more profit orientated company, which follows from their general vision:
“To achieve financial results, whereby we belong to the top-segment (first quartile)” In order to reach this statement, the focus has differentiated to other activities besides the core-business. In the strategy paper of Nuon, it is stated that the competitive position must be realised with the innovation of new products, which are energy related.
Besides being a profit oriented company, Nuon has also a social responsibility and aims at sustainable projects. The second topic in their vision is;
“To be leading in the decline of CO2 emissions”.
Vattenfall and Nuon share this interest and have the intention to be CO2 neutral in
the long run. To reach this statement they both are actively involved in sustainable energy resources as biomass, wind, and solar energy. On the other hand it is testing and implementing different techniques in order to reduce CO2, like Carbon
Capture Storage (CCS). In the light of the two statements mentioned, EV has a lot of potential to contribute to them.
If the EV-market develops, there will be two reasons why the Product Life Cycle (PLC) will not decline very steep. The technical lifespan of an electric car is at least 6 years, but with the replacement of the battery around 12 years. Secondly, there will be high switching costs for the consumer as well as the stakeholders in the electricity market. Thompson and Cats-Baril (2002) defined switching costs as “the costs associated with switching supplier”. For the consumer the switch to an alternative fuel will result in new investments, but also effort, time and other non-monetary reasons. For the market it means a very large investment in e.g. a new infrastructure and the creation of net product platforms. The initial investments from the government as well as the business market are very high, what makes it unattractive to shift to an alternative.
The EV market is a new segment, where the market players are not yet defined, and the potential demand for electricity is substantial. The financial potential and opportunities match the strategy of Nuon.
Secondly, undertaking activities that relate to the stimulation of the EV market corresponds with the other statement, namely the decline of CO2 emissions. The CO2
of 90 Mtonnes CO2. This illustrates the high potential savings on emissions that can
be achieved by switching to EV’s.
Further it will also mean that not only the emission of the cars will disappear, but also on the location where the majority of cars drive, namely in and around cities. From social perspective this results in a healthier environment where people live, and contributes to the social welfare. The downside of EV regarding CO2 emission is
that in order to generate the electricity needed for EV’s fossil fuels are used. For the generation of electricity in 2007 Nuon used 64,7% coal and gas as fuel for the electricity plants, and the rest came from sustainable energy sources, like wind, water and solar. The problem area will be transferred, but CO2 emission will still be
a result of driving your car. However, the potential to generate clean electricity is much higher with the rise of sustainable energy sources, than with the current combustion of fossil fuels in cars.
Concluding, the changeover from fossil cars to EV’s in the Netherlands will have a high financial potential and contributes to the decrease of emitting CO2 emission,
especially in urban areas. For Nuon and Vattenfall EV corresponds with their vision and contributes to the focus towards differentiation.
1.5.2 New Business Development
The department that is responsible for the Electric Vehicle project within Nuon is the New Business Development (NBD) department, which is part of the bigger business unit Marketing and Sales (M&S). The aim of M&S is selling gas and electricity to consumers and small and medium sized enterprises (SMEs).
Besides this, they are responsible for the market rollout of new energy related products and services, with the aim to enhance customer service and generate additional margin. This reflects the vision of starting additional activities that and thereby shifting from a traditional energy supplier to a company that focuses on more energy related products.
New Business Development is primarily concerned with the development of new products and services that bring additional value to the consumer (B2C) and business market (B2B). Requisites are that the new developments are sustainable, align with strategy of Nuon, and have a market potential of at least ten percent market share.
Electric Vehicles are a new to the world product, which is a substitution for the existing fossil combustion cars. The project started in the beginning of 2008 with a quick scan of the EV market to gain insight of the opportunities for Nuon and the draw up of a corresponding business case.
The vision for EV is stated as follows:
“Electric transport will be the winning new technology towards sustainable mobility.” Nuon expects this will increase up to 10 % market penetration of electric transportation in 2020, containing new business models for batteries, electricity usage and payment systems”. Nuon’s mission is to capture the full potential of the new market for electric transportation in revenues and communication by understanding, shaping and stimulating the market. In order to do so, Nuon is participating in different projects and has developed their own charging point.
After completion of the development of the charging point, it turned out Nuon’s charging point was inadequate compared to other charging points in the market and the company decided to acquire the charging points from another company in the United States. This charging point was already operational in a pilot in California and was seen as a proven technology. In July 2009 Nuon became the unique reseller in the Netherlands of the charging point of Coulomb Technologies.
Besides the potential electricity revenue resulted from EV’s, the selling of charging points is considered to increase the margin of the EV project, especially in the short term. The charging point is also part of the two pilots Nuon currently is participating in. These pilots will be further explained in the next paragraphs.
1.5.3 Electric Vehicle Pilot Amsterdam
In April 2009 the municipality of Amsterdam initiated a tender to collaborate in a pilot to stimulate the electric transportation in Amsterdam. This pilot is part of a larger program that is aimed at a sustainable climate in Amsterdam and to increase the use of sustainable energy resources in Amsterdam. The mission is
The primary focus of the tender is the rollout of the infrastructure for electric transportation. The forecast is that 200 charging points will be installed in the next three years, with 100 in the first two years. There must be 10.000 EV’s in Amsterdam in 2015 and finally 200.000 EV’s in 2040, which yields almost all cars in the city.
The charging points must be sufficient to cover all users of electric vehicles in the public domain. Also a payment system must be developed to charge the electricity used. In the pilot phase, which last two years, the electricity will be free of charge. To guarantee the sustainable image; the electricity from the charging points will come from “green” resources, e.g. wind, solar or biomass.
In order to achieve these goals the municipality of Amsterdam looks for partners, who have expertise in the energy sector or public infrastructure. Nuon has in collaboration with Alliander joined the tender and developed a plan to install the infrastructure, but also offered to help finding users that participate in the pilot. In May 2009 Nuon and Alliander have won the tender, where Nuon is the leading partner in the communication and the execution plan. The intention for Nuon to join the pilot is to acquire learning’s and it follows the original positioning plan on electric transportation. The learning’s can be divided in the following topics:
Quantitative user data: The frequency the charging points are used and identification of the user.
Qualitative user data: Understanding the needs of the user.
Payment system: Which payment model will be preferred by the market and yields the highest margin.
Initial problems: Which unforeseen problems occur and how can Nuon respond to them.
Strategy and Business Case (BC): Adjust and enhance the strategy and BC with the feedback from the pilot.
The research done in this thesis will complement the intention of the EV pilot Amsterdam. First of all the different users in Amsterdam will be divided in segments and their attractiveness to participate in the pilot will be analyzed. Also parts of the offered proposition for Nuon can be used in the pilot to attract potential users. Finally the research will communicate the terms of the pilot and identify potential users for the second or later third trance of chargepoints.
1.5.4 Electric Vehicle Alliance
The second project that is undertaken by Nuon is an alliance with Leaseplan and Mobility Mixx, called the Electric Vehicle Alliance (EVA). The ground for this partnership is the specific expertise of each partner which enables EVA to offer a total solution that integrates an electric car into the existing car fleet. This implies that the proposition is limited to the business market and only offers electric cars instead of electric scooters or vans. Actual data of the lease-car market is provided in Appendix A.
The car will be purchased by Leaseplan and available on basis of operational lease. The chargepoint will be installed in the car park and also the maintenance of the electric car as well as the chargepoint will be done by EVA. Besides the availability of the car and the chargepoint, EVA also takes care of the management for the operational and administrative control of the electric cars.
The first launching customer will be ABN-Amro with the purchase of two electric vehicles. The goal is to execute three pilots, like ABN-Amro, in the year 2009. This can also be integrated with the pilot of Amsterdam, in order to attract the business market in Amsterdam.
1.6 Research Design
A research design is a plan, structure and strategy of investigation so conceived as to obtain answers to research questions or problems. The plan is the complete scheme or program of the research (Kerlinger, 1986). It shows the steps that have to be taken to give answer to the sub-questions and subsequently the research question.
The Marketing research will have input on the internal research by defining the design requirements. After the completion of the marketing research and the internal research, the output of both will be used as input for the last research, namely the concept selection. The limitations of the researches will be elaborated after each research.
The research design (Figure 7) shows the methods, techniques, and activities that belong to each individual research or process. Also it gives the sequence of the activities that has to be undertaken and their corresponding output.
The first two chapters will define the research problem and show the relation with the research problem and the literature. This results in the design goals for the practical part of the research; the concept development process (Ulrich and Eppinger, 2008)
1.6.1 Identify Customer Needs
In order to identify the customer needs, a marketing research is performed. The purpose of the marketing research is three folded, namely the segmentation of the EV-market, the data gathering and subsequently the identification of the early users. The outcome is a profile for each identified market segment in the business market, with its characteristics, user needs and the attractiveness for Nuon to target
Segmentation of the business market: Here the research population, which consists of the business market, will be divided by their functional use of the (electric) car. Next the possible selection criteria have to be listed in order to use them for the interviews and enquiries. The foundation of the list results from interviews with companies and government institutions, which have a high experience with users in the business market, e.g. Lease-car companies, car manufacturers and, the municipality of Amsterdam.
Besides focusing on the selected criteria, the latent needs that emerge are also considered. In order to rank the selection criteria, two leading criteria will be used, which determines the potential of the segments. The two main criteria are the readiness of adoption of EV and the strategic fit with Nuon and its EV-projects.
The segments are divided on a high level of aggregation and therefore the needs within the segments can differ from each other.
Data gathering: Now the research preparation is finished and the next step will be conducting interviews (qualitative) and inquiries (quantitative) with users of the identified segments. Of each segment five or six interviews are conducted. According to Griffin and Hauser (1993) 75-80% of the user needs are identified with one-on-one interviews. The user also fills in an enquiry, which consists of a conjoint analysis and a criteria ranking. This results in a general list of user needs, the differences in needs per segment and show the readiness of adoption for each segment. The respondents are limited to companies in and around the city of Amsterdam, which questions the suitability for the rest of the Netherlands.
1.6.2 Design Requirements
This part of the research is conducted in order to translate the user demands in features, which can be used for the design requirements.
Determine Features of Proposition: The user demands from the previous phase are divided in basic, articulated, and exciting needs to show the importance for the customer of each need. The needs are further divided in the different components of the proposition of Nuon, namely the electric car, the chargepoint, the service, and the payment system. Of each component the needs, expressed in functions is captured in the functions of the design of the components. This is done in a classification tree to visually show the possible functions. Next a evaluation determines which functions will be analyzed in the translation of user needs via the House of Quality (HOQ).
1.6.3 Concept Generation
Here the problem will be clarified, whereupon internal and external search must lead to the generation of solutions for the design requirements. The third step is the systematically exploration, where the concepts are combined in a concept combination table
Problem Clarification: The first step is to clarify the problem, which is done by analyzing the mission statement again in relation with the proposed design requirements of the previous phase. For a detailed design the top ranked design requirements from the House of Quality will be decomposed in smaller subproblems. This leads to a list of detailed design requirements used in the next step of the concept generation.
Finding Solutions to Subproblems: Now the problem is clarified and the design requirements are listed an internal and external search must provide options and ideas to fill in the design requirements.
The electric car and chargepoint are outsourced, which implicates that the design is restricted to what is offered. The design requirements will be used to identify which types of cars and chargepoint fulfill the needs of the customer. The service and payment system are open for design, and the search will create different service and payment systems, and vary in the degree of integration/outsourcing.
Systematically Exploration: The features of each component and the solutions found in the internal and external research are analyzed on the suitability for the problems and subproblems. Per component several concepts are generated. This implicates that not all possibilities of solutions to the design requirements are taken into account, but are judged by the research on their suitability. In a concept combination table the different options to combine the design requirements of each component are presented and six concepts are chosen to enter the concept selection phase.
1.6.4 Concept Selection
This phase is called the concept selection, which is the process of evaluating concepts with respect to customer needs and other criteria, comparing the relative strengths and weaknesses of the concepts, and selecting one or more concepts for further investigation, testing, or development (Ulrich & Eppinger, 2008).
Concept screening: The concept screening phase will use the generated concepts as input. The concepts will be evaluated by the defined selection criteria. This is done by giving the concepts a relative score that will show the most potential concepts. The technique used is the Pugh matrix, which compares the six generated concepts to a baseline concept, in this case the current proposition of Nuon. The outcome is three concepts that are judged on the selection criteria of the customers and the needs of the enterprise.
Concept scoring: The chosen concepts from the concept screening phase will be ranked again. Here the selection criteria will be given weights to the concepts and finally each concept is given a rank corresponding to its total score. The result is a concept, which can be used as the proposition offered by Nuon to the early users of the EV-market. Before the concept is ready for the market, the rest of the concept development process must be completed as well as the overall product development process.
1.7 Define concepts and words
To reach a clear understanding about the meaning and content of the words and concepts used in this research, they will be defined in the following list in alphabetic order:
Concept: A description of the form, function, and features of a product and service (Ulricht and Eppinger, 2008)
Design requirements: The ideal specifications, those results from the customer needs, where the constraints are not being considered. A specification consists of a metric and a value (Ulrich and Eppinger, 2008). Feature: A product capability that satisfies a specific customer’s need. They
are specified in the design of the product or service. For example the fabrics of which clothes are made of.
Function: Answers the question how the product or service works. For example how a pen sprays ink onto the paper.
Proposition: The offer of the collection of products and/or services and how they are presented to the prospect or market.
Service: activities, deeds or processes and interactions where the customer plays the complex role of both contemporary consumer and producer
(Solomon et al., 1985; Lovelock, 1991; Zeithaml and Bitner, 2000).
Chapter 2. Theoretical Analysis
Objectives
Show the diffusion rate of electric vehicles and the adoption groups Literature review of the concept development process
Determination of the most suitable techniques and methods Analysis of the research design
The Segment Decision Matrix for Innovation Establish design goals
Summary
This section shows a survey of the literature relevant for the research question. It explains the theoretical focus and discusses the methods and techniques used in the case study. Finally, following from the literature and the research objectives, the design goals for the case study are defined.
2.1 The introduction of electric vehicles in the automobile
industry
The past decades the automobile industry has evolved from a multiplicity of potential designs powered by steam, electricity and combustion to a gradual convergence on a common approach or dominant design- the internal combustion engine (Kirsch, 2000). Since the introduction of the internal combustion engine (ICE), no major changes have taken place on engine configurations, but only incremental changes by the incumbent firms, e.g. car manufacturers and oil companies. Incumbent firms have a poor track record in developing and managing emerging technologies, especially when competing versions come forward (Day and Schoemaker, 2000).
Nowadays new incentives are given by the government of various countries to lower the production of emission from cars. For example, in California a mandate in 2003 was introduced to lower the emission from cars by 75% (Pilkingtion and Dyerson, 2003). To reach these low levels for emission, new technologies for engine configurations must be introduced in order to replace the ICE.
These are emergent technologies that destroy the established firm’s accumulated competencies by rendering them obsolete, which are called disruptive technologies. Disruptive technologies can change the rules under which the mainstream, i.e. the ICE automotive industry, operates. (Tidd et al.,2003). Christensen’s work (1995) showed that the challenge for incumbent firms is to simultaneously manage the steady state (sustaining) and the discontinuous (disruptive) aspects.
The new regulation and subsidies have created a shift in the hitherto comparatively stable technology environment of automotive manufacturers (Pilkington and Dyerson, 2003). In reaction the car manufacturers have spread their focus to alternatives of the ICE. In order to produce electric vehicles must car manufacturers have to acquire new specialists and form alliances with e.g. fuel cell manufacturers and energy companies.
2.2 Diffusion of innovation
With the adoption of electric vehicles it is unclear if the market will accept vehicle electrification. According to Barkenbus (2009) the most significant reason to adopt EV in the US is the low price of electricity as vehicle fuel compared with petrol, as response to the high oil prices in 2008. A study of EON (2009) in the Benelux showed that the high purchase price is an insuperable criterion at the moment. The business market is the research population and from the research question follows the question who the early users are in the business market. To answer the question the diffusion of innovation will be analyzed. This is the process by which an innovation is spread within a market, over time and over categories of adopters (Crawford and Di Bennedetto, 2006).
Rogers (1964) divides the adopters in five categories compared to their position in the Product Life Cycle (PLC) of a product or service(Figure 10):
The five adoption categories: 1. Innovators 2. Early Adopters (Opinion leaders) 3. Early majority 4. Late majority 5. Laggards
Bass (1969) has combined the categories of Rogers with the adoption percentage in time. The early users (innovators and the early adopters) represent 16 % of the total market in the entire PLC.
The Chasm
Early Users
The innovators are already present in the Dutch Market, e.g. companies ABN-Amro and TNT Post, and are still growing. The early users will be essential to the success of EV. Research of Mau et al. (2008) made clear that the adoption of clean vehicle technologies is highly influenced by the adoption of the first buyers (‘the neighbour effect’).
The diffusion of innovation and the rate of adoption of the majority and laggards are highly related to the trial behaviour of the innovators and early adopters. This is supported by Crawford and Di Benedetto (2006), which argue that the degree to which early users actively or passively encourage others to adopt a new product; if they do; the spread will be rapid. Moore (1999) however, warns for the discontinuity in adoption after the early users, called the “chasm”.
He argues that the early majority has other criteria to purchase the product. They are less innovative and are not used to the product yet, while known alternatives (i.e. ICE-cars) are still available. He urges for targeting the early majority from the beginning to overcome the “chasm”.
In order to identify the early users, Gauvin and Sinha (1993) have conducted research on the identification of the characteristics of early users in the business market. The research was aimed at the acquisition of personal computers in 1984, when this technology was just introduced. Therefore, it has a high resemblance with electric vehicles, but different circumstances can influence the validity for use in this research. The following characteristics are defined:
Large firms: They spend a lot on R&D, and have young presidents.
Venturesomeness: Willingness and desire to be daring in trying the new and different
Social integration: Frequent and extensive contact with others in one’s area whether work
Cosmopolitanism: Point of view extending beyond the immediate neighbourhood or community
Social mobility: Upward movement on the social scale
Priviledgedness: Better off financially than other in the group.
