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  • A Marketing Challenge

    Posted by David Foster on February 11th, 2008 (All posts by )

    If the marketing class will come to order, we have an interesting case study today. We’re going to focus on a product, the market penetration of which is being limited by an attribute that–on first glance–would seem to be a good thing.

    Home geothermal systems reduce heating and cooling costs. They do this by running vertical pipes underground–about 150 feet–to levels where the ground will be warmer than the surface in winter, and cooler than the surface in summer. And, unlike some “green” technologies, they aren’t aesthetically intrusive. Once the holes are filled and the system is complete, there’s nothing much visible. Unlike, for instance, a solar-cell system with its rooftop arrays.

    And that’s exactly where the difficulty comes in. “The problem is that we don’t have some big, fancy piece of equipment outside,” says John Kelly, head of a Washington trade group for geothermal companies. So–unlike the case with a solar system or a Prius–a homeowner’s investment in geothermal will not be obvious to neighbors and passers-by.

    To which Sarah responds:

    This is just too rich. You know there are people out there who are dying to go green, but only if it’s ostentatious. You mean geothermal is the way to go, but my friends and neighbors won’t be able to tell I’m doing anything? Nevermind. What a riot — it’s good for the environment, but they’re having a hard time marketing to ecotards who only want solutions that shout “Look at me, I’m saving the planet!”

    Let’s try to help Mr Kelly out. You have a new job as head of marketing for a geothermal company. Let’s stipulate that the financial return on investment for geothermal systems is variable with location–in general, it will be better in places with severe weather and lower in temperate zones. You are competing for the home-improvement dollar–and, in particular, the “green” home-improvement dollar–with lots of other project types and technologies.

    What will you do to market geothermal to people who want, not only to be “green,” but to be seen to be green? Or will you ignore this segment and focus only on those for who geothermal provides absolutely unbeatable ROI?

     

    17 Responses to “A Marketing Challenge”

    1. Dan from Madison Says:

      I can’t help you market this but I can give you information. You have indeed hit my sweet spot as I own a business that distributes heating and air conditioning products to contractors. We are not involved in the geothermal market.

      These systems are incredibly expensive, and the government makes them difficult at times to install. Depending on where you are, your local DNR (Department of Natural Resources) may make you pull permits and jump through many more hoops to get the job done as far as the drilling goes. AFAIK in the city of Madison, WI itself you also need a variance of sorts from the city to install these systems.

      Yes they do save energy and money, but not today, nor for the past few weeks. Below zero and you are down to using ELECTRIC backup heaters, unless you have a backup gas furnace. Anyway, days like today push back your ROI.

      Many geothermal manufacturers market directly to contractors, skipping the distributor. This has advantages and disadvantages. Like I said before, we are not involved in distributing these products at this time. There are a couple of reasons for this – the volume is very low, and that is dictated by the astronomical initial price. There just isn’t critical mass yet. In the article they say that the initial price is only twice for a gas furnace – that is flat out wrong. A lot depends on the job, of course and every job is different. But a replacement job – an easy one – would be at least three times more expensive than a standard gas furnace.

      Oh yeah, if your furnace conks out right now, there is three feet of snow in your yard and two feet of frosted ground under that, which is basically like concrete. There is no drilling this time of year in a huge swath of North America. Joe six pack’s wife wants heat and NOW, not in the spring. Gas furnace replacement is the only choice.

      I am not trying to bash geothermal because it has its place with people who have a lot of disposable income and are interested in saving energy in the long run. There are a lot of commercial buildings that use this technology as well, and that goes for up here too. I am simply laying out some facts to help those who would like to take up your challenge of marketing these machines in some of the harsher climates.

    2. David Foster Says:

      Thanks, Dan–lots of useful information. I haven’t researched geo enough to form a strong opinion on its usefulness & future, but I think it’s interesting to ask: IF geo (or any energy technology) is at least marginally good on economic grounds, AND if ecostatus types are refusing to buy it because it isn’t visible/recognized enough, then how might one go about solving the problem?

    3. David Foster Says:

      Just to clarify, I’m not trying to market geothermal nor do I have any investments, AFIK, in geo companies. This is purely an intellectual exercise.

    4. Jack Diederich Says:

      How about a sign for the mailbox post like security companies provide? My parents have two of the small signs at last count: one for the security system and one announcing the dog’s invisible fence.

      They could offer a range of ways to advertise the owner’s green cred: a flag for people who rotate their flags (by holiday or whim), a mailbox with some green logo, etc.

    5. Jay Manifold Says:

      Jack beat me to it, so I’ll enhance the idea by suggesting, not a small sign, but a big honkin’ sign, complete with cool-looking diagram of the system.

      I would also recommend big referral payments (if legal) for early adopters.

    6. Tatyana Says:

      I would try make lemonade out of lemons.
      I.e. – stress the fact that there is no exterior signs of using geo.

      You just mentioned one plus of it – no aesthetic interferance, and it’s a big one.
      It’s hard to camouglage solar panels on traditional-style home. Bumm – half of potential market gone. Tell them your geo system will be green and inconspicuous, you have a selling point.

      Another plus vs. exterior systems: if they are outside, they are vulnerable to outside conditions. Muggy days/rain/clouds: not good for solars. No wind: not good for windmills. So on. When you have a system that’s using as buffer the Earth itself, your chances for less interruptions are higher. Selling point: “you can’t see it” means it’s working for you more reliably than exposed systems.

      Etc.

    7. Mrs. Davis Says:

      I could care less about green cred. Hell would freeze over before I would be caught dead riding in a Prius let alone buying one.

      But I invested in geothermal two years ago when the furnace and air conditioner in my 25 year old Central PA, 4,000 sq ft house gave too many signals of being at EOL. For rational reasons.

      Fuel oil was out. Natural gas doesn’t come to the house. I’ve seen what propane does when it leaks and frankly I don’t want to depend on another truck getting out to my house from a supply that is even more erratic. Coal and pellets are alternatives, but have problems if you want to leave the house for an extended period in the winter. And you still need an air conditioner regardless. So that left heat pumps.

      Because of local geology, I would have had to case the drilling which would have doubled its cost. Instead, I had an extra 1/4 acre of land where the tubing was laid, in trenches 8 feet under ground. I also had an inoperative fireplace so my supplement is a high efficiency fireplace insert that gives me nice fires I otherwise would not have enjoyed. The trenches settled substantially after a year, as expected, so I had to have the lawn re-leveled and re-seeded. All in cost about $20K less tax advantages of about $2K as I recall, net $18K. I expected to have a 7 – 10 year payback with oil at $2.00 which was OK because I expect to be in the house 15+ years. Monthly heating cost is less than $100 for the six months of the year we heat and air conditioning less than $50 for the other 6 plus $130 for a cord of fire wood stacked. We keep the thermostat at a constant 72 in winter and 74 in summer.

      I haven’t run the numbers, but at $3.00 for No. 2, I’m way ahead of where my heating bill would have been had I done nothing and ahead of where I would have been had I replaced with more modern, higher efficiency oil or propane. (And I think Dan is right about the 3X + multiplier versus conventional alternatives.) I should still hit my 7 – 10 year payback target. Even when electric rates go up 30% upon de-regulation I expect to remain happy. Even after the price of oil crashes next year.

      And they’re right. I have no big box outside to show off. Or to generate lots of noise when I’m barbecuing or lots of combustibles in the house in the winter or to wear out faster as a result of exposure to the elements.

      The whole problem is that big nut for the new system up front. Most people don’t expect to be in a house for 10+ years and can’t afford to sock down that amount of money up front. I’m lucky. While if we have to move before the 10 years are up, I think we’ll get our money back by showing prospective buyers our utility bills, I doubt the average American believes they would and they may be correct. But still, getting that up front payment is the problem. And it is not just limited to geothermal, though that is where the big money is. Insulation is the same. So are fiberglass windows, insulated and tight duct work, and tankless hot water heaters. As long as Americans move frequently, they just aren’t going to invest big $ up front for benefits they don’t expect to fully realize from a house they’ll move out of before the payback period is over. Nor will contractors build houses with those price raising features when they know competitors will sell more houses without them for more profit with lower prices. It may be penny wise and pound foolish at the macro level, but I’m not sure it’s irrational at the micro level.

      My solution?

      A minimum oil import fee that assures the price of imported oil will not drop below $75 per barrel with a 10% annual escalator in the floor price. After that, let the market work its magic with price information and reduce the risk in payback for alternative solutions, including conservation. Then stop spending billions to protect the tyrannic Saud family and all the other fruitcake petro-tyrants around the world, including Mexico.

    8. Just Me Says:

      It’s simple. The unit will feature a large green pole – 10-15 feet high, with a white ball on the top.

      The purpose of the pole – absolutely nothing. But, put it in your front yard, and everyone will know that you are doing something environmentally conscious.

      If that doesn’t work, put a flashing light on top of the pole.

      Next question?

    9. Dan from Madison Says:

      Mrs. Davis – sounds right except for the tankless water heater. Those have come down in price dramatically and pay for themselves very quickly. The difference between a tankless vs. a traditional power vent water heater is only a couple of hundred dollars, made up in only a year of not heating your huge tank of water while you are at work or on vacation. And if you could turn back the clock, ending in 2007 was a federal tax credit that gave you $300 back (not a write off, actual money back on your taxes) if you installed one. Sadly that legislation did expire at the end of 2007. It was a great marketing tool for the tankless industry, and us wholesalers and the contractors.

      David Foster – boy I thought about his all night and for the life of me cannot come up with an effective marketing campaign for you. Tat had some pretty good ideas though.

    10. david foster Says:

      Lots of interesting thoughts. Some things I’d think about doing are:

      1)A nifty control panel that shows energy savings, ground temperature, CO2 saved, whales saved, etc

      2)Promote the system as “the beautiful energy alternative” in house magazines

      3)To deal with Dan’s point about local-government obstacles: get some investigative reporters to run a series about how bureaucrats are interfering with energy savings

      4)Try to sell the thing through builders as much as possible, so that it can get added into the mortgage rather than having to be paid for separately.

      5)Offer an optional roof applicance which is a combination solar hot water heater and an additional heating stage for the geothermal system. This would give the ecosnobs something to crow about, while maybe actually increasing the overall efficiency of the system. Though it would be difficult for this to coexist with the “beautiful energy alternative” positioning.

    11. Mrs. Davis Says:

      The permitting issue is legitimate for several reasons.

      First, in densely packed neighborhoods, drilling can damage the foundations of neighboring houses.

      In addition, there are two types of piping systems. What I wrote about was what is called “closed loop” in which a liquid is pumped through a continuous loop down the ground and back up to the heat exchanger. The other is called “open loop” in which underground water is pumped up, the heat transferred, and the water either returned to the underground aquifer or dumped on the surface, never to be used by the system again. It’s easy to see why DNR guys and civil engineers get excited about this, especially if you’re anywhere near a flood plain. Not to mention that they believe it’s their water, and frequently it is.

      Finally, if you use closed loop, you’re pumping some sort of refrigerant (such as glycol?) through the ground and it will eventually leak. They get excited about that, too.

      This is a bigger problem in places like Madison where membership in the National Socialist Party is a pre-requisite for working in the Codes and Inspection Department. In my neighborhood, they tend to be a bit more relaxed about things and the contractors know what the rules are and don’t try to slide things by the inspectors as much.

      I am obviously a true believer. I also believe Beta was a better VCR system and Mac a better OS. So I find it no surprise that I’ve put the hex on a third technology. But, the point I tried to make above, in all three cases lots of people have evaluated the same evidence against their preference functions and reached a different conclusion than me, usually correctly for them and usually for very good reasons. The fact that on one dimension, from one perspective, it appears to be a bad decision does not make it so. And all the marketing budget in the world won’t change that as Sony and Steve Jobs have proven.

      What’s great about America is that we all get to make our choices and then live with the consequences. And we don’t really know what they will be until we live with them all, including the unintended ones. That’s why I tend to be conservative and have a lot of respect for tradition, even if I can’t figure out why it’s the tradition immediately. If they really did find a trillion cu ft of natural gas in the Appalachians I’ll have made a losing decision and would have been better off using the extra 10K$ I spent up front having the gas company to put a gas line down my street. And if Obama gets elected, I’ll be sad but far less expensively warm.

      Dan, can you suggest some tankless electric hw systems?

    12. Anonymous Says:

      “Yes they do save energy and money, but not today, nor for the past few weeks. Below zero and you are down to using ELECTRIC backup heaters, unless you have a backup gas furnace. Anyway, days like today push back your ROI.”

      If I recall the ambient, constant, temperature below ground is aprox. 60F so I’m guessing the air on a very cool day must be warmed to about 45 or 50F as it comes out of a geothermal system. Dan, wouldn’t this warmed air, entering the backup heater do well more than half the work of raising the temp. in the house to an acceptable level thus saving about half the electrical energy otherwise required?

      I have to consider my own situation, here in S Florida: Ample land around the house, sandy soil, neighbor down the road is an excavator….hmm. I’m wondering if such a deep excavation (100+ feet) is really a requirement or just an optimum depth and if a more shallow, long, system would be effective.

    13. Mrs. Davis Says:

      Anonymous,

      As I noted, for geologic/cost trade-off reasons I installed the shallow long system, often referred to as “slinky” because that’s what the unrolled coil of pipe looks like when spread in trenches 4′ wide by 8′ deep in my case, and it is effective. This was an alternative to five(5) 275′ wells. But you need a lot of space, in my case about 1/4 acre that will be lawn only, no trees, shrubs, etc. I suspectyou would find it cost advantageous to use this method in sandy soils if you have the space available, but you should consult the folks who sell and install these systems in your area.

      The ambient temperature down below is 54 degrees here. But it is not constant. When you remove some of that heat to take up to the heat exchanger, whether open or closed loop, it takes time for the earth to convect heat over to the area near the pipes where the heat was removed. If you run the system hard enough, long enough, you’ll be removing heat faster than the earth replaces it.

      One solution is to initially install more pipe, but that costs more money. And no matter how much pipe you lay, there will always be a probability that some combination of circumstances will result in taking heat out faster than the earth will replenish it. So it is prudent to optimize the system for general operation and provide for a backup that will operate reliably in extreme circumstances. Understanding these tradeoffs is part of the art of these systems and you pay your installer/contractor for their experience and expertise in making recommendations there. This is an area where you’re likely to get what you pay for and subsidizing the low bidding contractor’s education can be an expensive bargain. Be sure to get references.

    14. Dan from Madison Says:

      Mrs. Davis – a minor nit, but a nit nonetheless – glycol is not a refrigerant, it is a type of “anti freeze” that is placed in your system in the case of a failure of sorts. If you pump dies (common) and you are away from home your pipes would burst if it was cold and you simply had water in the pipes. Glycol brings the freezing point of your solution way down, depending on how you cut it with the water. Glycol does have some thermal transfer properties so I guess you could say it is a sort of a refrigerant, but not a traditional one like what is inside most residential air conditioning systems. People get nervous about ethylene glycol mostly. It is toxic. Propylene glycol is not toxic and actually a better product to use in this application. Of course, any government agency will get nervous with any chemical, whether it is toxic or not.

      As far as electric tankless goes it is not really a market I am involved in, as here in Wisconsin it doesn’t make any sense. Our electric rates are fairly high. Not to say that gas is free, but still better than electric. I am sure that in certain regions where electricity is cheaper you would find that tankless electrics are coming on stronger. The problem is that a tank style electric is still relatively cheap – I sell a 50 gallon unit to the contractors for about $300. I don’t see a tankless electric even coming close to that kind of number, but then again, I don’t market those devices.

      Anon – I don’t quite understand the question but sort of get what you are trying to say. The main thing I was getting at is that since the ground temp is stable, as the outside ambient drops, your capacity goes down. In other words, with a geothermal you are only able to transfer heat at rate “X”. If the needed heat transfer goes up (i.e. it is insanely cold outside) and you are still transferring heat at the same rate “X”, you either freeze, or backup has to kick in and that wastes energy.

    15. bobby b Says:

      Using flat styrofoam sheets and black paint, make fake solar collecters – really, really BIG ones – biggest in the neighborhood – and mount them on the roof.

    16. kelly from upper wisconsin Says:

      To Dan:

      Madison must be the exception, because in this neck of the woods, both electricty and propane is expensive. our electricity is $.10/kwhr and propane is $2.10. I have done extensive research–tankless is 67% more efficient–it isn’t about what is more cost effective now, it is about what is better for our future. (Although at that savings, it pays for itself quite quickly).

      What needs to be remembered about tankless is that it only heats the source when it is triggered by you when you turn the hot water facet on. Verses a 50 gallon drum of water constantly being heated–24/7 because the minute it drops one degree, either the propane or the electricity kicks in. And if you need hot water during peak time, forget it, you aren’t going to get it because that energy needs to be used elsewhere in the county. One last thing to consider–how about all the bacteria, minerals, and other stuff that builds up on the inside of a water heater? Tankless heaters last longer–that alone makes them more cost effective.

    17. Total Says:

      Wait a minute: your evidence for why people are installing these things comes from a spokesman for a trade organization? Really? Do you have any *actual* credible evidence that that’s why people aren’t putting them in?