Cleantech executive teams are almost universally concerned with the impact of commoditization of their companies’ long-term growth. But if your product isn’t differentiated, then competing is just about winning on price – otherwise known as commoditization.
Making a Business Plan for Cleantech Companies: Differentiation in Cleantech Products to Reduce Price Competition
Note: this article was updated in July 2022 to reflect recent changes in the industry.
The drop in the costs of solar, wind and battery storage have been dramatic: In the last four years, utility-scale solar costs dropped 36 percent and wind costs declined by 24 percent, according to Lazard. Lower prices made solar and wind the cheapest forms of new power generation in many parts of the country – one of the big drivers in their rapidly growing adoption.
This is a favorable trend for industries, but it comes with a requirement for cleantech companies to differentiate or see their growth squeezed. And, real differentiation is something that’s been hard to come by in the cleantech space.
There are a number of reasons for that. We’ve gone deep on that topic in several pieces (here, here, and here). But the meat and potatoes reasons are:
- CEOs with technical backgrounds (financing and engineering) want hard-and-fast numbers from marketing differentiation, which is naturally resistant to cause-and-effect quantification.
- Most cleantech companies sell B2B industrial products and services, the sort of sales that have historically been driven almost entirely by sales staff.
- The focus on dropping costs has produced a cost-first mentality in marketing.
Commoditization is why most domestic air travel sucks. The customer base is buying on price first and foremost, so airline profitability relies on packing planes with bodies, and packing bodies into small spaces. Airlines get away with it by delivering people from Point A to Point B without spilling soda on too many laps.
What is Commoditization?
At the dawn of every large industry, one unique product or service catalyzed an entire competitive field of companies. In the early stage of cleantech, each company offered a different quality, cost, purpose or other meaningful differentiator. But as an industry matures, those traits that once distinguished each item or service begin to blur together, making brand distinction harder (and more important) to maintain.
Challenges with Commoditization in Cleantech
For cleantech companies, commoditization is a serious constraint on profit margins. And it’s typically a self-inflicted one. As young industries, solar, wind and battery storage companies are actively training their customers to buy like airline travelers. But commoditized buying is at odds with the realities of most B2B cleantech sales. A cleantech purchase is typically a long-term investment involving a range of factors in the long-term user experience, if you will.
Take wind farms. Training the customer base into commoditized buying customers overlooks some very important considerations that will play into the long-term value of the project: The track record of the project development team, the strength of its community acceptance program and the return on investment over 20 or 30 years. For rooftop solar installation, there’s the quality of financing, the skill with which the homeowner’s roof is treated when the panels are installed, and the customer service after the installation is completed. And for energy storage solutions, it could be the ability to tap into ancillary services and capacity markets and contributions to grid modernization.
But if a company under-invests in educating customers on what to consider, they’ll just consider price. That’s what’s happening in the cleantech industries right now because of chronic under-investment in differentiation.
Traditional Cleantech Products and Practices are Becoming a Problem
Legacy marketing is slowing the growth of the clean economy. I’ve talked about this in depth in our most popular analysis, “No Time for Legacy,” which you can read here. Essentially, consumer attention spans have shortened while information volume has grown. Human attention is finite, online distractions are infinite. The result is that goods and services can become commoditized easier and faster – unless there’s a sustained, deliberate effort by a brand to maintain its distinction with customers.
The Reason Behind Low Profits in Cleantech Products
Cleantech companies are often disruptors in the energy industry. Attempting to match the advertising budgets of incumbents can lead to low profits. But, the drop in cost of solar, wind and battery storage is transforming the sector and will make cleantech a smart investment in upcoming years.
There are multiple ways to take advantage of this through strategic marketing plans for renewable energy companies.
Sales Team-Driven Product Strategies
Many small clean energy start-ups don’t have a big sales budget; that’s why we advise you make your owned content do the sales work for you. Having a robust thought leadership stream can garner more qualified leads than an expensive ad or generalized sales pitch. Producing insights — not “content” — for your customers that tell them something about themselves will keep your company and cleantech products in their minds long after they’ve clicked off of your website or LinkedIn page.
The channel, frequency and level of engagement will depend on your company’s needs and goals — but overall, aiming for high-quality earned content will get you on the right path.
So what does this actually look like? For starters, many cleantech companies that are new to the clean economy space try to rely on distribution-only tactics, even though they’re on social media platforms whose main purpose is to facilitate conversation. Focusing on long-term engagement is key in the marketing plan for renewable energy companies — and that can be through thought leadership, inbound marketing, owned content like blogs and podcasts, customer-engaging events, and more. We write about this concept, the Digital-Social Criticality Scale, in more depth here.