Every Christmas I get reminded how irrational human behavior sometimes is. Every year, just to make friends and family happy, we go through the holiday shopping madness; just to buy presents we don’t even know if they will want/need. I am sure most of you did it this year too. But irrational behavior influences consumers even outside the holiday season; even when buying electric vehicles (EVs).
But before we talk about customer needs in disruptive markets, lets start by congratulating Atieva and Faraday for bringing out their first brand videos this week. Both videos offer a glimpse into what they are working towards – the automotive future. While the videos follow different colors schemes and story line, the main message stays pretty consistent. Customers want a different car buying, car owning and car using experience in future. Both firms are trying to satisfy the user of modern mobility solutions.
To deliver on this promise both companies need to develop a deep understanding of future user behavior with a changing technology landscape in mind. Because of the long development cycle, car firms have traditionally not been able to satisfy modern customer needs outside the hardware realm. Until today, it is still difficult to connect our smartphones to a car’s infotainment system. Until today, we prefer using navigation on our small phone screens instead of the car’s internal navigation system. Until today, our car is a hardware chamber with little software functionality.
With EVs improvement in range, further development of self-driving features and new entrants in the automotive infotainment space (for example Apple and Google), how can new entrants like Atieva and FF create a differentiating value proposition? How can incumbents reinvent themselves to satisfy a modern customer?
Behavioral economist Dan Ariely describes in this short 2009 video that human beings are not capable of always making rational decisions. While it is rational to buy an electric car to reduce our environmental footprint, reduce cost of operation and create quieter city environments, Tesla customers don’t claim any of these as their number one purchasing criteria. The best selling EV in the US sells to its customers because of its outstanding performance (acceleration, handling and range) as well as the brand association with Elon Musk.
The content personalization firm Gravity confirms my research findings: for example, Tesla owners are 4x less likely than Prius owners to be interested in environmentalism, 42x more likely to be interested in SpaceX than the general public, and 96x more likely to be concerned about traffic congestions than the general public.
Other brands do a capture more customers who are concerned with saving the world. BMW’s i3 is a 95% recyclable electric vehicle purchased by the environmentally conscious premium customers. Prius customers are equally concerned about saving the environment and saving operating costs and certainly don’t buy a Prius because of its design. Well, at least it seems that some customers buy electric vehicles for rational reasons.
But, if EV customers were trully rational I would assume that basic economic pricing theory would hold up. That means that lower prices lead to higher quantities, or better said a product with a high price, should ceteris paribus sell at lower volumes compared to cheaper products in the same category. Lets take a look at 2015 EV sales numbers in the US:
The 2015 EV sales numbers draw a strange picture. Tesla’s Model S, one of the most expensive EVs, is the best selling vehicle in the segment followed by the Nissan Leaf, one of the cheaper cars in the segment. Both however, are among the 5 longest range BEVs sold starting 01/2015. Certainly, we can claim that Tesla’s performance is significantly better; so much better that it would be irrational to buy anything else (more on range anxiety). Agree, if you have $75,000 to spend then you should definitely consider buying a Tesla. However, for that price you might be able to buy 3 Nissan Leaf at the dealer.
It is not the customer’s job to know what they want - Steve Jobs
The 3 insights:
1. To deliver on a new car buying, car owning and car using experience new EV entrants need to develop deep understanding of future customer behavior with regards to technology development
2. Electric car brands already attract different types of customers with different interests
3. Sales numbers shows that the perceived value of some electric car models is strong enough to outweigh effects of price sensitivity on purchasing behavior
According to the famous model developed by John Howard and Jagdish Sheth, two Professors of marketing, the “Theory of Buyer Behaviour”, the decision-making process of consumers is divided into three stages: Extensive problem solving (EPS), Limited problem solving (LPS), Routinized response behavior (RRB). EPS is when consumers discovers a new product category or want to buy a product they don't know well and / or is particularly expensive and / or which present a significant risk regarding their economical or psychological point of view. The electric vehicle customer is clearly in the EPS decision making stage. Theconsumerfactor.com writes: "With a lack of benchmarks and usually in a state of uncertainty and confusion, these consumers need reliable, detailed and concrete information about the products to “build their choice”. They need guidance and should be given confidence throughout their buying process. They want to be certain to make the best possible choice."
Thus it makes sense that new entrants in the automotive market try to raise confidence in electric cars by focusing on describing advantages like performance, clean energy or costs in detail. Incumbents try to downplay advantages of BEVs, even officially through their advertising campaigns. Sometimes they go as far as cannibalizing on their own EV sales (Link and Link)
Ultimately, to deliver on the promise of changing the car buying, car owning and car using experience the success of entrants will depend on spending time with mobility users, watching for current workarounds, and exploring non-consumption helps to highlight differentiating innovation opportunities. To truly innovate those entrants have to translate insights into ideas that can be incorporated into the car environment and deliver against the their most important metric, customer satisfaction. So far, only Tesla has been able to clearly communicate advantages of its BEVs and deliver on this metric by creating the highest rated vehicle ever tested by consumer reports. Not only has technology changed since the Model S has entered the market in 2012 but a diverse set of mobility solutions has influenced the way we use cars; leaving an opportunity for new EV players to disrupt the market.
I wish everybody a merry Christmas and a happy new year! 2016 will be an exiting year for every EV fan ;)
Sini Ninkovic analyzes the EV market and its customers since 2012. He helped bringing BMW's i3 and i8 to market and currently works as Product Planner for Lucid Motors.