Market Disruption Driving Creative Strategies in the Demand-Side Management Space

Posted on December 9th, 2011 by
   

Wrenching transformation and consolidation is sweeping across the once stable and conservative lighting industry.  New technologies such as LEDs, digital networks and wireless communications are displacing legacy products.  Component companies such as CREE are acquiring fixture manufacturers and thereby creating new lighting conglomerates.  And, lighting is no longer about discrete applications – lighting is now a citizen in a broader energy intelligent enterprise.  Similar change is taking place in other energy efficiency product categories – from HVAC to compressed air – with mature and well understood products being replaced by intelligent and complex technologies requiring significantly more solution design, customer support and hand holding.  Moreover, these new energy efficient technologies are increasingly factoring into smart grid and demand management strategies deployed by utilities and grid operators, layering-in both additional opportunity and complexity.

New clean, intelligent and energy efficient technologies have re-set market lifecycles in many traditional product categories.  Product categories that were in the late maturity phase a few years ago are now categories back in the early adoption phase.  This has tremendous impact on go-to-market strategies.  The technical and engineering knowledge and processes required to sell, deploy and support these new technologies are dramatically different.  Late maturity is typically characterized by high sales velocity, low cost of sales and broad distribution through highly efficient, high-turn channel partners.  In contrast, early adoption requires more consultative, hands-on sales processes across an elongated sales cycle – usually executed by well-trained, high cost direct sales forces and specialized channel partners.

This reset is forcing manufacturers to move quickly to find new strategies and paths-to-market.  Channel participants are scrambling to remake their business models and to up-level their competencies.  This disruption has caused new channel models, innovative go-to-market strategies, and novel industry partnerships to emerge.  Here are some examples:

CHANNELS HARNESSING THE POWER OF INFORMATION

The rear-view mirror days of relying on utility bills to understand energy consumption are gone.  Real-time information is the new gold standard in the energy management business. The smarter channel players have figured this out and have reworked their business models and solution offerings. Two such companies that are leveraging data and analytics to differentiate are McKinstry, a larger company in the Pacific Northwest, and Groom Energy, a smaller company based in Boston.  McKinstry has evolved over time from a traditional mechanical contractor into an integrated Design-Build-Operate-Maintain firm that offers facility and energy management services in addition to engineering and construction services.  However, what distinguishes McKinstry is how it leverages information.  McKinstry recognized early the power of information and has invested heavily in its state-of-the-art operations center.  This operations center enables McKinstry to leverage real-time building energy and operating data to “tune” buildings to operate at peak efficiencies at all times.  By acting as its clients’ “eyes and ears,” McKinstry is able to anticipate breakdowns and dispatch service teams before costly disruptions occur.  Similarly, Groom Energy, recognizing the power of information, has successfully transformed its business from lighting retrofitter to a full service energy management company that helps its clients capitalize on what they’ve coined the Enterprise Smart Grid.  Groom competes against larger, slower moving competitors by helping clients become more energy intelligent.  Groom not only helps its customers evaluate the myriad of software and analytical tools available, it goes further to integrate the submeters, sensors and software technologies to make it happen and also acts on the information coming back to design and implement solutions.  The good news for McKinstry, Groom and other forward thinking companies is that they are the exception rather than the rule.  There are still far too many companies in the energy management space that are living in an analog world and driving blind.  These laggards will need to adapt quickly or risk obsolescence.

MANUFACTURERS PIONEERING NEW PATHS TO MARKET

Manufacturers of demand-side management technologies are also rethinking their paths to market.  These companies are realizing that sales strategies centered on traditional dealer networks and broad-line distributors may no longer be the most relevant.  Let’s take a look at Ice Energy, a newer player in the HVAC space.  Ice Energy has developed an innovative thermal energy storage technology – branded the Ice Bear — that enables customers to use low cost off-peak power to meet cooling demand during costly peak hours.  The technology is a great compliment to traditional HVAC units manufactured by companies such as Carrier and Trane and Ice Energy has fostered partnerships with these companies.  However, Ice Energy is not content to surrender its destiny to these partners and wait for sell-through by channels it doesn’t control or influence.  Instead, Ice Energy decided to drive sell-through with its own unique strategy.  Ice Energy recognized that aggregating its units and deploying them at scale offers utilities megawatts of clean, peak power capacity at less cost than constructing new peaking plants.  Putting rubber to the road, Ice Energy cut an innovative deal with Southern California Public Power Authority deploying Ice Bear units across 1,500 distributed sites in the utility’s service territory to offer 53 megawatts of stored capacity.  Many of these units will coincide with rooftop unit replacements, enabling Trane and Carrier to realize sizable sell-through as a result of Ice Energy’s innovative thinking.  A win for all involved, including ratepayers!

NOVEL INDUSTRY PARTNERSHIPS

The shifting industry landscape is also resulting in some interesting partnerships.  One such partnership is between Redwood Systems and Anixter.   Redwood Systems, an innovative venture funded upstart is looking to shake-up the lighting industry with its DC-based power, networking and controls technology, has aligned with Anixter, an established structured cabling distributor that hasn’t historically played in the lighting space.  A few years ago it would have been laughable to think that structured cabling professionals could become significant players in lighting.  Now some smart people are betting on it.  However, before too much high-fiving takes place it is important to realize that the business world is littered with distribution agreements that never gained traction.  What’s tricky about this deal is that Redwood’s new-to-world technology is supposed to be sold by mature structuring cabling professionals.  Can these old dogs learn new tricks?  Can their profit models, based on minimizing cost of sales, support the requisite high touch approach?  For this deal to succeed, Redwood and Anixter will need to collaborate on training programs and tightly script sales playbooks on how to position, sell, deploy and support the new technologies.  Redwood will also need to make its “factory direct” sales and technical resources easily accessible to Anixter and its cabling professional customers.  And, given the higher cost of sales associated with selling Redwood’s products, Redwood may also need to offer more attractive pricing terms and market development funds to support demand creation.  Although they will not want to cross the legal line into the franchise realm, franchise systems with tightly scripted processes and strong factory support may be an antecedent to review as they think about making this relationship a success.

It’s clear that business as usual will no longer suffice for technology and service providers competing in the demand-side management market.  Moreover, companies will not prevail solely on having the best mousetrap.  The winners will be those companies that complement great technology and great service offerings with innovative go-to-market strategies that are not only creative but also lifecycle appropriate.

Written by  Erik G. Birkerts and Thomas G. Knight, founding partners of Evergreen Growth Advisors,  a boutique  strategy consulting firm serving clients in the Clean Energy industry.    

 

 

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