Case Study

PV Technologies, Inc.:Were They Asleep At The Switch?

Hasan Mehfooz- 14648Floyd Fernandes- 14196Beatrice Louis – 14399Shairose Ukanji – 14127Daniyal Bin Wajahat - 14600

Industrial Marketing – Case StudyPresent to: Mr. Syed Asghar Raza

What Do All These Companies Have In Common??

They are the Top Five Fortune 500 Companies using Solar Power*With “green” being all the rage these days, many Fortune 500 companies are making the

switch to solar power by partnering with solar power companies and using solar energy to power their offices and retail establishments. A voluntary program called “The Green

Power Partnership” encourages organizations to go green and tracks their annual green power purchases.

Renewable Energy Market- Developmental Factors

•Shrinking supply sources (Oil, Natural Gas).

• Rising costs of traditional energy sources.

• Unstable oil market.

• Increasing environmental awareness

Currently the world’s total energy mix has 85% of energy being derived from oil, natural gas & coal. But……………

Renewable Energy Market- Developmental Factors

•All the afore mentioned reasons attributed to governments to create Public Policies in favour of green energies and has promptedmany governments to:

Offer Tax IncentivesOffer Subsidies

As a means of encouraging the development of renewable energy initiatives for new power

sources.

•Much of the growth in the Photovoltaic (PV) industry has been in European Countries, such as Germany, Spain, Italy and France.JapanIn the US, in the states of California, Arizona & New Jersey

The U.S “Green Market”

The US Federal Govt. envisions reducing fossil fuel dependence by

satisfying 80% of the country’s electricity demand from clean

energy sources by 2035.

The US Govt. incented PV growth with investment tax credit and

favorable legislation. This has lead to an,

Expected Growth of 30.4% CGAR from 2010-2015

Company Background- PV Technologies

• Founded in 1993 in San Francisco• Specialist in RENEWABLE ENERGIES• $30 billion in revenues (2010)• 25 countries

34%

24%

22%

12%

8%

% of Revenues (2010)

Industrial Automation

Process Management

Network Power

Drive Technology

Climate Technologies

AT A GLANCE

• They offer integrated solutions across multiple

market segments, including energy infrastructure.

• PV inverter division is a Unit within Industrial

Automation, has 38% of the market share in the US,

with $ 1.24 billion in sales.

Company Background- PV Technologies

PVT had:

Strong Balance SheetsStrong ProfitabilityHigh Cash Flow Investments in R&D

All this lead to

Industry leader in

• PRODUCT INNOVATIVENESS• QUALITY• PERFORMANCE

PV Technologies Communications

PV Technologies followed an Integrated Marketing Approach

Personal SellingPVT’s sales success was

driven largely by the nature and quality of the

relationship a salesperson developed and maintained with the decision maker of

the firm.

Company WebsitePVT’s website was used to:

1) Showcase product features & benefits.

2) Inform target audience about current developments.

3) Demonstrate through video streaming.

4) Provide initial point of contact.

Trade ShowsPVT took part in trade shows, like SOLAR POWER INTERNATIONAL- the largest and best attended

trade show.

Current Situation- The Product

A PV inverter is a critical component in a photovoltaic

systems i.e. they are Fundamental components in a

PV system. Photovoltaic Inverters

convert the direct current output of a solar panel into alternative current that is

compatible with residential or commercial use.

The PV Inverter market was composed of three segments: ResidentialCommercial/ IndustrialUtility Companies

The market share of each segment is:Utility companies 27.6%Commercial 42.4 %Residential 30.1%

The greatest growth was in the utility segment, while profit margin less in this segment their scale and visibility attracted the largest and strongest in the industry.

Current Situation- The PV Market

Current Situation- The Customer

Solenergy Development LLC• Major developer of energy generation

systems • Among the biggest customers of

PVT’s solar energy business unit• Strong relationship with senior

management team

The project :• Construction of a PV solar energy

power plant in Barstow (California)• Looking for a supplier of utility scale

central inverter

Case Introduction

Major People Involved in the case:

Nathan Rubenstein (PVT’s Director of Sales and Marketing)

Jim Salvatori (PVT’s Salesperson) Greg Morgan (Solenergy’s Chief Electrical Engineer)

Solenergy was brought by Jim Salvatori.

Solenergy got an offer from City of Barstow, California, to construct a PV solar energy power plant and was seeking a supplier of utility scale central inverters.

Solenergy conducted periodic confidential evaluations of the select group of companies it invited to bid on its major projects which was directed by Greg Morgan

In late July, PVT received Request for Proposal (RFP) from Solenergy. The closing date for the response to RFP was October 31,2011

In late November, Salvatori came to know from his sources that PVT was trailing the other competitors- SOMA Energy & BJ Solar

Salvatori’s sources were vague; they believed the evaluation was based largely on price but weren’t certain this was the only factor

Morgan’s updated evaluation would drive the purchase decision ultimately

Rubenstein & Salvatori were concerned with this, as their company’s reputation & position in the marketplace were at stake

Case Introduction

Factors Affecting Specifications of PV Central Inverters

The industry had not yet developed a set of standardized metrics to measure reliability and efficiency of PV inverters.

As a result of this manufacturers used performance measures that were not universally applied.

IEC 62446 standard is established by IEC , which defined minimum requirements for documenting.

Central inverter-most failure-prone component- the greatest challenge to was

inverter reliability, uptime and power conversion.

A recent consideration for manufacturers and developers was the entry of Chinese Firms into the US market. Their equipment was of inferior quality and performance, but the cost differential was significant. This signalled the approaching “commoditization” of PV inverters.

Solenergy’s Vendor/ Product Evaluation

Evaluations are conducted by Greg Morgan, chief electrical engineer at Solenergy and very respected among the industry.

Solenergy is used to

evaluating the companies

they invite to bid on their major

projects.

Solenergy often includes its

comments and opinions in

press releases. Morgan

judgements are highly influential

throughout the entire industry

PV Tech needs to get a

GOOD EVALUATIO

N of its projects in order to get the contract and to

confirm its leadership

The Problem !!!!!!

Morgan’s Evaluation

PVT’s prices are significantly higher than competitors ones. PVT’s better quality could explain the difference but Morgan was surprised of the spread being so wide.

Solenergy was committed to cut costs among the company.

Inferior performance could be compensated developing an enhanced maintenance schedule and a proactive quality control program

Salvatori Learnt

Salvatori heard that Morgan’s evaluation was bad for PVT.• Solenergy was about to conclude the selection process.• The evaluation was mainly based on prices.

PROBLEM: the evaluation had not been published• Information only based on rumours.• Hard to contact Morgan.

Key Pointers of the Case

PVT seems to have taken it’s market leader position as a given and almost taken the contract from solenergy for granted. It’s lack of knowledge about the new competitors from China who are offering cheaper solar products in PVT’ s dominant market is troubling.

Salvatori, especially in light of the huge ramifications of this contract, should have been a lot more proactive in maintaining contact with Morgan, the lead engineer in charge of evaluations.

Information should be solid. A major issue is that PVT really doesn’t know what is going on. There seems to be a huge lack of communication that is apparent when no concrete evidence is brought out to support the claim that PVT is doing poorly compared to it’s competitors.

Key Pointers of the Case

PVT should have taken it upon themselves to be more proactive in trying to understand what Solenergy is really looking for in its RFP. PVT has gone through all this time and energy in producing an RFP that might not even be close to what Solenergy is looking for. This is absolutely unacceptable given that Solenergy is currently their biggest customer.

PVT is a long established leader in the emerging market of solar energy. However, despite the quality of our products, there seems to be a lot of uncertainty in the face of new competition from China in the form of extremely cheap products that compete with our own. The lack of PVT’s response to this growing threat has manifested itself in the form of uncertainty in PVT’s ability to get a contract from its biggest customer.

PVT Management Concerns

Rubenstein the Marketing Director, got Salvatori’s discoveries known to the Executive Committee at PVT- which was met with disbelief, surprise, disappointment and deep concern.

They were concerned about the probable effect that Solenergy's implied endorsement of SOMA Energy and BJ Solar products would have on PVT.

Rubenstein and Salvatori came up with four alternative responses, that had to be presented to the Committee.

Different Alternatives

1.Offer to extend the product

WARRANTY at internal cost from 10 to 20 years

2.Offer a 99% UPTIME

GUARANTEE at no cost for the customer

3.Accelerate the introduction of the

NEW INVERTER (1.25 MW with 98.5% efficiency)

4.Initiate a DIALOGUE with

Morgan to find out the real output of the evaluation

Comparison

Alternative 1: Extending the warranty to 20 years

Extending the product warranty to 20 years while the industry standard is 5 years.

• Marketing and sales department: high economic value for Solenergy and would offset any product cost-related shortcoming.

• Finance, production and engineering department think: competitive advantage already in place (10 instead of 5 years).

Alternative 1: Extending the warranty to 20 years

Extending the product warranty from 10 years to 20 years while the industry standard is only 5 years

PROs : Reliable – Sign of good quality. High standard.

CONs : Relatively costly. Warranty is not key factor.

Alternative 2: Uptime Guarantee

PVT would offer its 99% uptime guarantee for each inverter-s in-service life at no cost.

Sales & Marketing, thinks this would reinforce the quality, durability and reliability .

Finance & Production thinks this approach would lead to lost warranty revenues and would negate most of the profit in the deal.

Alternative 2: Uptime Guarantee

PROs :

The offer would be unmatchable by the competitors. Signal of high reliability.

CONs :

Too costly, high impact on the profit. Other customers would ask for it.

Alternative 3: Investment in a new model

Alternative 3: Introduction of the new 2.5MW

Model

Profitability would be in line with the other options and it would be the most efficient and reliable inverter on the

market.

Marketing & Public Relations thinks the new technology is what the market wanted.

Finance & Production is concerned with malfunctions and weren't convinced the offer would impress Solenergy.

Alternative 3: Investment in a new model

The most efficient and reliable inverter on the market.

PROs :No change in pricing strategy, this is what the sector is looking for.

CONs :Extremely risky and Expensive.

Alternative 4: Direct approach to Morgan

Another solution that, Rubenstein and Salvatori suggested before any changes were made to product and market strategies, PVT should approach Morgan directly.

If Morgan confirmed, they could attempt to persuade him to share or even re-evaluate the criteria from which conclusions were drawn.

Finance & Production were sceptical about the existence of Morgan’s Report, as the conclusions were at odds with PVT’s recent evaluations of the same competitive products.

Alternative 4: Direct approach to Morgan

PROs :• More personal approach: we demonstrate we are ready to

personalize our product for them;

• First step to build a long term relationshipCONs :

• We rely on not public information;

• Call for help could make us appear as desperate

Which one do you think is the best solution?

Criteria are not aligned

Relevant criteria for PVT:

• Efficiency;• Reliability;• Productivity

From PVT’s perspective these are elements that real add value to the customers into the long run

Relevant criteria for Solenergy:

• Price

Due to new cost cutting strategy, Solenergy has developed different priorities

Speak with Morgan

Understand if the evaluation

is real and what his real

needs are

Adopt an ad hoc strategy

If Morgan confirms that the evaluation is real, PVT should understand the roots of the problem and figure out with him a solution, after proving him that PVT’s product is the best one.

If PVT do not manage to convince him about the superiority of the product, PVT can adopt a strategy based on his needs to sell their products.

The strategy