The Evolutionary of Distribution Channels For Solar Products: Consumer Decision Making in Perspective

ABSTRACT - Consumer acceptance of solar products is examined from a distribution channel perspective. The current focus on the consumer as the central decision maker for solar products is criticized. New channels of distribution are presented, along with the variables that will facilitate their adoption. Future directions for solar consumer research and public policy decisions are given.

Citation:

Jerald W. Blakely and Scott M. Smith (1981) ,"The Evolutionary of Distribution Channels For Solar Products: Consumer Decision Making in Perspective", in NA - Advances in Consumer Research Volume 08, eds. Kent B. Monroe, Ann Abor, MI : Association for Consumer Research, Pages: 637-641.

Advances in Consumer Research Volume 8, 1981      Pages 637-641

THE EVOLUTIONARY OF DISTRIBUTION CHANNELS FOR SOLAR PRODUCTS: CONSUMER DECISION MAKING IN PERSPECTIVE

Jerald W. Blakely, University of Oregon

Scott M. Smith, University of Oregon

ABSTRACT -

Consumer acceptance of solar products is examined from a distribution channel perspective. The current focus on the consumer as the central decision maker for solar products is criticized. New channels of distribution are presented, along with the variables that will facilitate their adoption. Future directions for solar consumer research and public policy decisions are given.

INTRODUCTION

The need to develop alternative energy sources has been widely accepted in this country. Solar energy is one of the alternatives being developed and its potential contribution is highly touted. The possible utilization of solar energy for heating and cooling of public, commercial and residential buildings has gained considerable attention and support. Information on the application and viability of solar energy for heating and cooling buildings is being distributed by both public and private sources in an attempt to generate awareness and interest. Recognizing that information alone will not result in widespread adoption, both Federal and state governments are offering financial incentives to encourage interested consumers to incorporate solar options into their homes. To date, efforts directed toward increasing the rate of adoption of solar as an energy source have been relatively ineffective, thus blunting progress toward energy independence. Solar advocates have become concerned and frustrated about the sluggishness of the adoption process. This problem would be better understood and efforts more effective if it were viewed not as an isolated case, but rather placed in the larger context of diffusion of any new technology or innovation.

When a new technology or innovative product is developed, the basic question of how to get it diffused and accepted in the marketplace must be answered. The diffusion of technological innovations is often retarded by distribution problems. Difficulties are encountered in establishing new distribution channels or adapting to or changing existing channels. A product may be so different that established distribution channels or patterns do not exist, or the product class may have established channels but the new technology may be so different as to not be accepted by the channel members. The array of solar options, with its many variations, encounters both these difficulties.

The present discussion will examine some of the previously ignored problems encountered in the diffusion of solar products. These problems will be discussed in the larger contexts of technological innovations in general and heating and cooling products in particular. The discussion will focus on distribution problem and will further consider the implications of these problems for consumer decision making and public policy decisions.

DISTRIBUTION CHANNELS

Technological innovations generally fall into one of two basic product classes: consumer or industrial goods. Many components used in the manufacture of consumer durable goods are classified as "industrial" products. The normal distribution channel for industrial goods is shown in Figure l-A, There may be several component manufacturers in succession prior to the end use product, which duplicates and extends the channel. The end use product has its own distribution channel which is shown in Figure l-B.

FIGURE 1

TRADITIONAL DISTRIBUTION CHANNELS

It is important to consider the differences in purchase decision making between the manufacturer of an end use product who buys and assembles components, and a consumer who buys the completed product. Consumer evaluation of durable goods typically centers on the end use product which flows from the product manufacturer to the consumer as diagramed in Figure 1-B. Consumer decision making research would therefore be evaluated as constrained to the end use products model. While this is appropriate for consumer durable goods, it will be argued here that solar products are not an, end use product, but rather an industrial good following distribution channel 1-A.

Distribution Channels for Residential Heating and Cooling Systems

The traditional distribution channels for residential heating and cooling equipment are more similar to those used for industrial products than for consumer durable goods. It may appear at first glance that the seller/installer is the retailer selling end use products, but he is more than that. In the case of residential heating and cooling, the seller/installer plays a critical decision making role. The installer is a "packager," or final manufacturer of the system. He is the system designer. He takes a number of components, frequently from different manufacturers, and assembles them into a system. Thus, it is not a final product which flows through the channel to the installer, but rather a group of components. Therefore, the installer could be thought of as the final manufacturer (of the heating and cooling system), while the other members of the distribution channel are industrial goods suppliers.

The installer could also be viewed as another industrial goods supplier, since the heating and cooling system is another component in the final end use product, which is the home. The consumer does not purchase the heating and cooling system as an end use product, and in the technical sense, the seller/installer is a manufacturer more than a conventional retailer. Therefore, the relationship of the consumer to the seller/installer is not the same as the normal consumer-retailer relationship for consumer durable goods.

CONSUMERS AS SOLAR DECISION MAKERS

The ultimate consumer of technologically complex products has traditionally had little or no input into the selection decision for components that make up the product. This holds for many products across industries including home computer systems, audio components, and home building. The decision as to the type of system components and their relative advantage has typically been made by the packager/manufacturer. Given the complexity and technical nature of such systems and related decisions, it should be recognized that most consumers have inadequate knowledge and experience for making such decisions.

It is important to recognize the difference between heating and cooling systems and other durable goods with respect to consumer use patterns and decision processes. For example, with automobiles and major home appliances consumers have considerable "hands on" experience and well developed use patterns, resulting in sets of salient attributes and evaluative criteria. What consumers lack in technical knowledge is not so critical because other attributes such as psychological appeal and user benefits tend to be adequate for decision making in the absence of technical knowledge. For residential heating and cooling, consumers have little experience with product attributes other than comfort level and costs of operation and maintenance. Unlike other durables there are no substitutes for technical factors which consumers can use for making decisions. The majority of heating and cooling equipment sales go into new construction. It is therefore the builder who typically makes the equipment purchase decision. The builder's choice of equipment is strongly influenced by the installer. The installer serves as a "final manufacturer," of the system. Installers exhibit control over equipment selection by assembling components from different equipment manufacturers into a functional system. The design of the hone and general node of construction do provide parameters for system design. However, the installer still has considerable latitude in component selection and system design even when the requirements for heat gain and loss and air flow are considered.

Homeowners are rarely involved in heating and cooling system decisions except when they are confronted with replacement decisions which arise from equipment failure. Until recently, equipment failure was the only real motivation for shifting fuel source. There was seldom reason to consider replacing systems which were performing well. Owners have normally not seriously considered changing fuel source in the replacement decision because of the high initial cost of replacement. Now the high cost of oil is causing many homeowners to consider other fuel sources.

Even in replacement decisions, homeowners have traditionally deferred to the experts in making decisions. System decisions are rather technical in nature, involving degree days, heat gain and heat loss calculations, comparison of relative efficiencies, air flows, and equipment design features, to name a few. The primary consideration for the homeowner has been price and soliciting bids from several installers. Homeowners have been forced to rely on the installer's assurance that the replacement system would offer the same level of performance as the previous one. In some cases brand name recognition becomes an influential decision variable for consumers in the absence of technical knowledge.

The decision process for heating and cooling systems is a complex one, involving multiple decision makers and decision roles. The consumer's role has been minimized by a lack of technical knowledge and competence to judge the critical decision variables. Yet, in the case of solar options, which are merely an alternative method of heating and cooling, the majority of information and incentives are being directed at the consumer. The consumer is being asked to become the principal actor in evaluating products and making purchase decisions for residential solar systems. This is being done without adequate educational preparation of consumers.

SOLAR DISTRIBUTION: A MISMATCH OF CHANNEL AND PRODUCT

Channels for distribution and sale of residential heating and cooling system are well established and functional. However, these traditional channels have been little utilized for the distribution of solar space heating products. Of twenty-five solar installers listed in the 1975 Oregon Solar Directory, only five were also sellers of conventional heating systems. Conversely, this also means that only five of the hundreds of Oregon heating and cooling contractors were selling solar equipment. Solar installers are typically new, small firms specializing in solar equipment.

The selection and/or development of distribution channels for solar products is a sticky problem. There is no single "product," but rather a vast array of different products many of which are distributed in different channels. The basic differentiation of passive and active systems exposes the difficulty in identifying appropriate channels of distribution for the divergent products.

Many solar proponents consider passive solar systems to be the most feasible and desirable alternatives to conventional fuel systems. However, formal distribution channels for passive systems do not exist. Passive systems are largely design concepts which do not require distribution of physical products. They do require dissemination of designs, engineering specifications, performance data, etc. to architects, engineers, and builders. Because this is not a normal physical product supplied by manufacturers for profit, distribution becomes quite difficult to organize and coordinate. It is not yet clear how this can effectively be done on a large scale.

In contrast, active solar systems are mechanical products, for which distribution channels are available. However, unlike most other new heating and cooling products, solar equipment has not come from standard industry suppliers. When central air conditioning and heat pumps were introduced, they were distributed through the same channels as other heating and cooling products. This was largely due to the fact that the manufacturers were the same as for existing products. When technological innovations come from manufacturers who are new to an industry, these new manufacturers do not have established relationships with existing channels of distribution. So the distribution difficulties being encountered with solar should come as no surprise; it is common to technological innovations.

Carrying the problem a step further, the different forms of active solar products may even require different channels. For example, water transfer system may require plumber/installers, air transfer system may require ventilation/installers, and photovoltaic cells may require electrician/ installers. Such a pattern could preclude one channel of distribution from supplying all types of solar heating and cooling systems. It can further create problems for equipment suppliers, who may be forced to build and maintain relationships with multiple channels, which can be very costly. It can also create problems for installers who may have to build relationships with multiple suppliers. Finally, such a pattern could severely dilute the kind of concentrated effort which is generally needed to launch a new technology. Another major difference between solar and conventional heating and cooling equipment is that of sizing, installation and maintenance. Existing installers are presently ill-equipped to handle these activities. A substantial investment in training and equipment is required to adequately prepare for handling these new and different products.

Non-Acceptance by the Channel

Solar options are merely another way of heating and cooling buildings. It therefore seems logical that regular heating and cooling contractors would be best equipped to handle sales and distribution. However, it appears that they have been generally less than enthusiastic to date. That is not to say they have no interest at all. From a profit perspective, market demand is insufficient to warrant the required investment in training and preparation. Solar equipment will not be marketed by distributors of conventional heating and cooling equipment until such time that it becomes profitable for them to do so.

However, the blade cuts both ways. Francis DeWinter, Chairman of the American Section of the International Solar Energy Society (1978), commented that "designers balk at marketing their products through existing networks." [Cited in "Solar Conference Hunts for Keys to Future Growth," Engineering News Record, Vol. 201, No. 9, September 7, 1978, p. 10.] The apparent lack of interest shown by the established channels has caused these channel members to be viewed as competitors and anti-solar, simply because they are carrying on business as usual. Thus, they are labeled as outsiders, and producers of solar components or systems look elsewhere for distribution. As solar equipment manufacturers are learning, it is very difficult and expansive to build new distribution channels from the ground up. If the installers are not existing businesses with years of experience and a good local reputation, they may have difficulty gaining either consumer or designer/builder acceptance. Thus, distribution of solar systems may be the classic "chicken and egg" situation. Conventional distribution channels may not handle them until they are successful and the systems may not be successful until they can be processed by existing channels.

FUTURE DISTRIBUTION PATTERNS FOR SOLAR OPTIONS

Distribution channels evolve just as consumer adoption evolves over time. Distribution channels for a new technology often change as part of an evolutionary process. The introductory stage of the product life cycle for solar products has been characterized by a select group of solar innovators. These innovators are generally homeowners who have designed and built their own solar systems. They are motivated more by their interest in the technology and lifestyle than by economic justification for the investment.

Solar distribution channels have evolved from a state of non-existence, where the consumer innovators designed and assembled their own systems to the current state where many solar specialty firms now sell and install solar products. These firms are the channel innovators. Like the consumer innovators, they are motivated more by their interest in furthering the cause of solar technology than by a profit motive. The widespread lack of business experience, operating capital, and economic rationale will result in a high mortality rate for this group of channel innovators.

Just as the mass market, or majority of homeowners, will differ in characteristics from solar innovators, so will the eventual seller/installer differ from the retailer innovators. There will be heavy capital requirements for inventories, installation and test equipment, and education for sizing, installation, and maintenance. This investment may be compounded by the increasing sophistication and diversity of solar products. Therefore, it may become increasingly difficult for new firms to assume the role of the seller/installer, and thereby force solar options to be distributed through existing channels for heating and cooling products.

There are differing views as to the future development of solar distribution channels. Some believe that new channels must be created because of the lack of interest exhibited by members of conventional channels. One scenario is that the "solar system packager" is the best distribution alternative, but this is merely a solar specialist who operates in the same manner as conventional heating and cooling contractors.

The more prevalent view reported in the literature is that conventional channels will be the primary outlet. This seems logical and there are numerous signs of such development:

1.  industry is the most reasonable method for integrating solar options.

2. Overtures toward the solar industry are being made by conventional channel members. Trade publications in the traditional heating and cooling industries are increasingly reporting on the solar industry.

a. Air Conditioning, Heating. and Refrigeration News is the major weekly information source for this industry. It runs many news reports as well as frequent articles on solar activities.

b. The primary trade publication for the oil heating industry has been for years Fuel Oil & Oil Heat. This monthly periodical not only includes regular articles and reports on solar systems, but it recently added and Solar Systems to the title of the publication. This appears to be a sign of things to come.

c. Many of the articles which appear in these and other industry publications are focused on the interface between these conventional channels and the solar industry.. For example, fuel oil suppliers and installers are being encouraged to become involved in selling and instilling solar systems. It is claimed that they are compatible and that the dealers' future livelihood may be dependent on such a transition.

3. One recent article predicted that if solar is to achieve the market share being predicted over the next five to ten years, conventional distribution channels will have to be utilized in order for solar to become a mass market item (Air Conditioning, Heating and Refrigeration liars 1977).

Regardless of whether new or existing firm eventually assume the principal role of seller/installers, the traditional decision making structure for heating and cooling systems -- including solar options -- can be expected to remain unchanged. That is, the majority of the purchase decisions are made by builders, and the majority of the sizing and configuration decisions are made by the seller/ installers. Therefore, the current focus of marketing research on the homeowner as the decision maker is both inadequate and short sighted.

FACILITATING DISTRIBUTION TO THE BUILDER AND SELLER/INSTALLER

If solar heating and cooling is to meet growth targets, technology may have to take a back seat to marketing and industry organization. Channel members must see demand creation, manufacturer support, and profit opportunity if they are to adopt new technologies and incur the accompanying expanses. There ere a number of facilitating factors which are critical to converting existing channel members to solar.

1. Involvement of conventional heating and cooling contractors could be enhanced by the development of packaged systems which could be more easily sized and installed by contractors.

2. Development of industry standards for comparison of. solar system performance would dramatically reduce the frustration of explaining systems features and performance to prospective buyers, who are presently confused by conflicting information.

3. A substantial improvement in promotion and effective dissemination of technical information is needed. For the most part, solar manufacturers are underfunded and cannot afford adequate promotion. As yet, total industry sales are insufficient to provide the needed funds.

DIRECTIONS FOR CONSUMER/MARKET RESEARCH

Three areas for future research appear promising using solar products. Decision making research has to date focused on the homeowner/consumer of the solar product. Future decision making is expected to shift from the homeowner to the builder and finally to the seller/installer, following the same pattern which presently exists for conventional heating and cooling products. The study of solar products offers a unique opportunity for research. Major product innovations that cause shifts in consumer decision making processes are rare. Suggested topics for study include causes of shifts in decision makers, and differences in the information acquisition process that occur at various points in the product life cycle for different decision askers. As consumer researchers we must explicitly recognize the different decision making segments and decision making roles as they shift over time.

Solar products are in search of a channel for distribution. As such, a longitudinal analysis of evolving distribution channels for a series of high technology innovations is possible. Worthy topics for investigation might include the modeling of variables that facilitate and enable shifts in the predominant channel decision maker. Channel conflict is another topic that is interesting in the study of traditional vs. new channel members.

Industrial marketing is a third area of research related to channel decision making. Multiple decision makers in the homeowner -- builder -- solar seller/installer triad permit the analysis of interaction both within and between channels distributing solar products.

DIRECTIONS FOR PUBLIC POLICY DECISIONS

It was pointed out earlier that homeowners/consumers have been the focus of promotion and incentives for solar products. This runs counter to the distribution and decision patterns for conventional heating and cooling products. Promotion and incentives for conventional beating and cooling products are primarily directed from the equipment manufacturer to seller/installers and builders, much the same as the pattern for industrial goods. In contrast to industrial promotion, consumer durable goods promotion is usually through or tied in with seller-installers. Solar promotion and incentives have come primarily from government and private sources -- rather than existing channel members.

We have suggested that as solar products mature along the product life cycle, alternative distribution channels for solar products will necessarily unfold. This change in distribution, along with the associated shift in decision makers dictates that public policy programs and research be segmented. Information and incentive programs must eventually be shifted from the homeowner, and tailored for the designer/architects, builders, and retail solar sales and installation firms. Lastly, information and programs must be developed for conventional heating and cooling, plumbing and electrical contractor channels as cost effective air, liquid and photovoltaic systems are developed. Again, both information and incentive programs are needed for the specific decision making segments as they develop to meet the changes in product technology and market demand.

A higher level of government involvement could accelerate the solar adoption process. For example:

1. Federal and state governments could carry the burden of "institutional" selling, or promotion of solar systems in general. Then the producers would only have to promote their own products, as the product class would be presold by public funds. This approach could, however, encounter opposition from competing industries.

2. A very strong impetus could be provided by government mandates of energy conservation or solar options. Two California communities have recently provided such a boost. The city of Davis has a performance standard for energy conservation which has resulted in the incorporation of solar options in new construction. San Diego County has mandated solar water heating in all new homes constructed in unincorporated areas of the county. These activities will obviously result in demand creation which will heighten the interest and involvement of conventional channel members.

Conclusions

When viewed in the larger context of developing technologies, it is obvious that the problems confronting residential solar heating and cooling are not unique. These adoption and diffusion problem are characteristic of most new technologies. When looking at the history of residential heating and air conditioning, it can be seen that similar problems have been previously encountered with new products in the same industry.

One of the primary causes of the slow rate of adoption of solar heating and cooling is inadequate and ineffective distribution of the products. This is often a problem with new technologies, but it is compounded by some unique aspects of solar technologies. The diverse array of solar products and complexity of application decisions create difficulties for both seller and buyer. There are many suppliers of solar products, most of whom are undercapitalized and are not traditional suppliers to the heating and cooling industry. A lack of product standards and slow accommodation of building codes pose problems for seller/installers. These factors combine to deter the type of demand pull and facilitation which normally help to develop functional and effective distribution channels. Solar heating and cooling products are presently at a very difficult stage in the evolution of distribution channels. Many of the current seller/installers are "innovators" who will eventually give way to more traditional heating and cooling operations. In the opinion of these writers, the conventional heating and cooling distribution channels are well equipped to handle solar products and they or similar outlets will eventually assume the role.

A separate but related problem is that solar products are being treated erroneously as consumer durable goods and marketed directly to consumers. This is in stark contrast to traditional distribution and marketing patterns for conventional heating and cooling products. They are treated more as industrial goods with technical decisions made by installers and most purchase decisions made by home builders. Prospective solar consumers are being asked to make product evolution and application decisions which they have previously not made for this product class. Research, information, and incentives for solar products have been directed at consumers. These efforts have, however, failed to adequately consider the critical decision roles played by the seller/installer and builder. In the future, both marketing research and marketing strategy development must address the multiple decision makers and their interactive decision roles if they are to be meaningful and effective.

REFERENCES

Johnson, Augustus C. (1976), "Commercialization of Solar Heating and Cooling of Buildings," in Sharing the Sun: Solar Technology in the Seventies, Joint Conference of the American Section of the International Solar Energy Society and the Solar Energy Society of Canada, Inc., Winnipeg, Manitoba, Canada, Vol. 10, 35-39.

Oregon Solar Energy Directory (1978), University of Oregon Solar Energy Center.

"Solar Conference Hunts for Keys to Future Growth," (September 7, 1978), Engineering News Record, Vol. 201, 9, 10.

"Solar Industry Needs to Straighten Out Messy Distribution'' (September 12, 1977), Air Conditioning, Heating and Refrigeration News.

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