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CURRENTS: FIRST READ
Learning from Consumer Behavior

The same guy who’ll buy a new iPod without a second thought will walk away from a $20 six-pack of compact fluorescent lamps. Making him change his mind is not as easy as it seems.

07/2009

By Charles Linn, FAIA

At its heart, the green design movement is all about “market transformation.” A market transformation occurs when a new technology or method of doing things emerges which is so superior that everything which came before it eventually becomes obsolete. In our case, a market transformation could be the ubiquitous adoption of a better technology, or it could come in the form of a change in the way we do business. LEED, for example, has transformed our ability to evaluate how successfully we have constructed a sustainable building, and as a result, advanced the way we design and build.

Learning from Consumer Behavior
Image © Brian Stauffer
Many lessons about consumer behavior can be learned by looking at the CFL’s failure to make a timely impact as a market transformer.
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Consumer electronics is replete with examples of market transformations. Portable audio, for example changed forever when the Sony Walkman knocked off the transistor radio in 1980. The Walkman offered superior audio, and listeners got to select what music they heard. Sound quality got even better when tape gave way to portable CD players in 1993. But the CD was king for just five years when the Rio MP3 player changed everything again. Each product came to market more quickly than its predecessor and we marvelled at its leap in technical sophistication. Typically, it wasn’t long before the price of the new product was lower than the product it replaced.

This is Econ 101: Early adopters pay dearly for the mystique that comes from having a spot ahead of the curve. The company that hits the market first makes money by setting a high price point; those who enter the market later gain market share by undercutting the price and adding innovative features. If the device catches on, production ramps up, and increased sales make up for shrinking profit margins. Consumers who buy into the market transformation late do so at a lower cost, and enjoy better products. Meanwhile, someone starts developing the next big thing.

But, the story of the compact fluorescent lamp illustrates that just because it is obvious a product ought to be a market-transformer doesn’t mean it will succeed as one. CFLs are a one-for-one solution to a universal energy-efficiency problem—the use of incandescent lamps. Anyone can screw one in and an immediate reduction in demand will result, no expertise required. Compared to typical incandescent lamps that last 750 hours, they use roughly 75 percent less energy and last up to 10,000 hours. These days color is a non-issue, as is cost. There is little not to like about them except for trace amounts of mercury that can be managed through proper disposal.

But, as market transformers CFLs failed to make a timely impact. For almost 20 years after they were introduced, the retail price was near $25 each, and they were available almost nowhere. When utility companies began to push them through product giveaways and rebate programs, early adopters were rewarded with oversized lamps that blinked and buzzed, and had terrible color rendering. Consumers who thought watts were a measure of brightness didn’t know what to buy, and most people didn’t see how giving up something that worked for well over 100 years could help the environment. There were rumors that they caused cancer. Is it any wonder that for years manufacturers couldn’t sell enough to drive the innovation curve upward and prices down? CFLs gained a terrible reputation that still plagues them.

The errors made when CFLs were brought to market can teach us a lot about the challenges faced by those who wish to manufacture or specify innovative sustainable-building products. Thankfully, the U.S. Department of Energy has known for a long time now that to affect market transformations it is essential to influence behavior up and down the entire supply chain, from manufacturers and power producers to retailers, contractors, and consumers. DOE’s Energy Star program, which gives excellent guidance to almost everyone in the chain, is essentially a tool for market transformation.

One fundamental lesson to be learned from the saga of the CFL is that if consumers have a negative experience with something new, they will return to what’s familiar, even if they know their decision will cost more in the long run. So much damage was done by the rush to market that if something better had come along, CFLs probably never would have been improved to a point where the public would buy them today. Some believe if LEDs live up to their promise, CFLs will be superceded anyway. Others say LEDs will fail for the same reasons CFLs did: too expensive, too little benefit, poor color, and overhyped to boot.

When the desires of consumers cannot create a market transformation, public policy is sometimes used, either to create carrots, in the form of incentives or sticks, in the form of regulations. Take the lowly cell-phone charger. Wouldn’t it be nice if it would turn off when you unplugged your phone instead of sucking down power night and day? This isn’t technically difficult to do nor is it costly. And similar circuitry would work in almost any kind of power adapter. But, that’s not the kind of innovation that drives sales—gadget junkies care more about getting the phone with the best video player. So why should a manufacturer redesign the charger? Because it’s the right thing to do? We wish they would—by the end of the year, 1 billion cell phones will be in use worldwide. Their chargers—with their vampire plug loads—are proliferating far more quickly than the photovoltaic panels required to keep up with them. In this case it may very well take public policy, in the form of the stick, to get the job done.

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This article appeared in the July 2009 print issue of GreenSource Magazine.

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