"Making the smart home a reality is another way Verizon is breaking down barriers between 'home' and 'away' to support a borderless lifestyle," said Eric Bruno, vice president of product management for Verizon. "In addition, we're giving our customers the tools to live greener lives and provide valuable information essential to making decisions about their home-energy usage." (BASKING, 2011)
Verizon, known as Global Broadband Telecommunication Company, has long provided to the customers one of the most reliable and safe phone and internet services. By leading the telecommunication sector, the company has grown its business and entered in to the quadruple play (Gaudrault, 2011) market by elevating its position at GSM service sector (Verizon News Center, 2009). Having succeeded in quadruple play and getting deal with the iPhone4s, Verizon has seen another market opportunity as Smart Home has turned to be a reality from utopia of back to the future movies. In this market, the company has launched its new product Home Monitoring and Control Kit (Verizon Shop) and put more stress on Energy Efficiency (Marchetti, 2011), which is becoming tangible issue for energy sector, when households’ awareness in energy consumption is increasing.
Being Home Monitoring tool, new application downloadable to one’s phone allows owner to monitor its home by switching on and off the lights, see inside home through network enabled web cameras, adjust thermostat, lock the door, and see how much electricity is being used by any appliance, even at a remote place. As part of convenience, one can switch on the air conditioner when he or she is leading towards home. "These kinds of two-way communication and intelligent management tools can create a dynamic and interactive relationship between energy users and providers, which is essential to creating a smart energy ecosystem," Bruno said. (BASKING, 2011)
The novel feature of this product is mainly being able to control energy consuming devices from a remote location so that owner can monitor and measure energy usage of appliances. At that sense, value proposition of this product is to lower energy consumption when one is in or out of home. This could be done by applying wireless technology and application available on the phone or laptop. However, such a value proposition does not seem in line with what household customers need. First of all, customers need to lower energy cost by using energy star appliances when they actually use at home, meaning they will not use energy when they are outside and thus there is no need to monitor energy at a remote location. This also opens doors to the fact that they just want to get rid of vampire power at all (Connected World, 2011) when they are away. Secondly, they truly want to understand how efficient they use energy for their homes (Dooley, 2011) . Let us ask the question as prima facie way; this product allows me to monitor energy usage of my appliances, yet what are the criteria to compare them? I cannot understand energy efficiency of my home if I am not able to compare it to other households. That is to say, the created value by Verizon does not get the job of energy efficiency done. (Johnson, Christensen, & Kagermann, HBR December 2008). To well position and create strategy, 5 forces analysis should be done, yet rivalry and substitute analyses are crucial for this market (Porter, HBR January2008). For example, when we look at Microsoft’s Hohm (Microsoft Corporation, 2011) based on Power Cost Monitor, (Optimum Energy Products Ltd., 2009) the product not only provides energy monitoring during the usage, but also provides comparison with regard to other households in the vicinity and advices by making use of cloud computing technology. Another product Kill-a-Watt (P3 International, 2010) provides the same remote wireless control in a very simple way. These substitute alternatives provide customers more value and since competition is on dimensions other than price, profitability is less likely to erode. That is, Verizon should create a positioning and value strategy depending on the capabilities of its technology to increase support services and features of the product to ensure profitable customer base (Porter, HBR January 2008). Otherwise, the product will fall short of claims and get bashed. To avoid such a failure, either delay the product, or take immediate steps to prove energy cost decrease. (Schneider & Hall, HBR April 2011)
Here, it seems that the problem arises from poor understanding of how energy efficiency is adopted and which industries are more lucrative and promising. That is, Verizon tries to take advantage of its customer base and thus being myopic in understanding the energy business. The research should be conducted in a backward fashion (Andreasen, HBR May-June 1985)
- First, after collaboration of manager and the researcher, the problem should have been defined as which customer segments are there in the sector, what are their needs and complements with regard to industry structure and which of them would yield more competitive market positioning for Verizon.
- Then, the scenario analysis for each segment should be run and manager should see what the final report would look like to incorporate necessary hardware and software in the product. Through different scenarios, manager can see the profitability analysis.
- More statistical analysis will enable Verizon to understand which customer segments have more desire in adopting energy efficiency, so that efforts can be directed towards certain sub segments.
- After statistical methods are chosen, then the data sought after for clusters of customers as peak load one or low efficient ones that will actually need efficiency or energy cost reduction will be able to be gathered by the research.
- Later steps will include the relevant research steps such as secondary and primary data collection, sampling plan and instrument design, field work, and the report with the intended effect.
If such a process was adopted by Verizon, the mostly likely outcome would be that, intensity of rivalry in household market is increasing and more cost reduction products and services supported by consultancy is required to gain the heart share of the customers. On the other hand, industrial customers segment stays bachelor and will create most value and quickest return on investment for the new entrant, though it requires high installation cost. The latter segment also includes complement as power producing company services in that, the power usage decrease during the peak hours will most benefit such power generators. As Virtuwatt (Constellation Energy Group, Inc., 2011) benefitted Constellation Energy’s industrial customers, Verizon should agree with power generators in order to create dashboard for its industrial customers who will be able to monitor price information and decrease energy usage so as to decrease input cost.
Verizon should be smart about creating value creation in that it is bringing a new communication type with the smart homes (Johnson, Christensen, & Kagermann, HBR December 2008) so that the old business models of subscription fee or one time sales may change. On the other hand, the opportunity to satisfy a real customer who needs a job done (Johnson, Christensen, & Kagermann, HBR December 2008)lies in cost savings by using this product and service. After such a Value Proposition is defined, then it is obvious that the profitability of this product lies in the lowered costs that creates revenue stream for the customer so that the customer can pay back the amount. That is, the created value can be used as a profit formula for the company at the end. At that sense, as it will be self-fulfilling prophecy that the product will prove its competency in energy efficiency, the value proposed to the customer will be delivered through the key resources as the call centers that provide extra advices, the mobile service that creates remoteness for industrial customers, broadband network that will transmit the data and cloud computing by the servers to compare the energy consumption of any household. Yet, as long as Verizon invests in such key processes as data computing, energy consumption pattern analysis, peak hour energy demand and price computation, and future risk estimation of consumption and production gap, it will be able to lock-in its customers and create a long term relationship with them. By doing so, it will create both value for itself and satisfaction for them.
Energy Efficiency is an issue of focus that becomes tangible as companies proves their values for the customers. Yet, household segment has low barrier to entry and thus becoming very competitive. Verizon should make use of its customer base by renewing customer experience again and again by taking full advantage of its organization (Harvard Management, HBR November 2008) which has many end-points with the customers, or it should focus on blue ocean strategy to build on industrial customers segment.
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