Energy Star Appliances Market Research Study

Energy Star Appliances Market Research Study August 15, 2001 Prepared for: NSTAR Services Company Western Massachusetts Electric Company National Grid USA Service Company, Inc. Fitchburg Gas and Electric Light Company Prepared by:

TABLE OF CONTENTS 1 EXECUTIVE SUMMARY... 1 2 INTRODUCTION... 3 2.1 QUESTIONS OF INQUIRY... 3 2.2 METHODOLOGY... 3 2.2.1 Sampling... 3 2.2.2 Literature Review... 6 3 RESULTS BASED ON INTERVIEW QUESTIONS... 8 3.1 COMPANY POLICIES & STRATEGIES ABOUT ENERGY STAR APPLIANCES... 8 3.2 CURRENT SALES CLIMATE FOR ENERGY STAR APPLIANCES... 8 3.2.1 Current Sales Climate... 9 3.3 WHAT KINDS OF BARRIERS STILL EXIST THAT BLOCK SALES OF EACH OF THESE PRODUCTS?... 10 3.4 IMPACT OF DECREASED UTILITY FUNDING OF ENERGY STAR MARKETING... 11 3.5 EXAMINING POTENTIAL MARKETING ELEMENTS... 11 3.5.1 Marketing Elements Examined with Interviewees... 12 3.5.2 Suggested Marketing Tools Not Used Before... 15 3.5.3 Reversing Lead Role... 15 3.6 MARKET SHARE LOSSES AND EXPECTED RECOVERY IF REBATES ARE ELIMINATED... 16 3.7 EXAMINATION OF A STATE BASED INITIATIVE... 16 3.8 EXAMINATION OF THE PROVISION OF SALES DATA AFTER REBATES END... 17 4 COMPARATIVE ANALYSIS... 18 4.1 MONOGRAPH SUMMARIES... 18 4.2 SUPPORT FOR RESULTS... 19 4.2.1 The use of multiple marketing tools in a well designed strategy... 19 4.2.2 Specific marketing elements... 20 4.2.3 Predicting sales dip and recovery for Energy Star clothes washers if rebates eliminated... 21 4.2.4 Reactions and concerns on a state specific program... 22 5 RECOMMENDATIONS... 23 TABLE OF TABLES Table 1: Appliance Manufacturer Sample... 4 Table 2: List of Sampled National Retailers... 5 Table 3: Sample List of Independent Stores... 5 Table 4: Industry Actor and Program Administrator Sample... 6 Table 5: Summary of Interviews Performed... 6 Table 6: Summary of Reported Barriers by Product Type... 10 Table 7: Interviewee Familiarity with Potential Market Elements... 12 TABLE OF FIGURES Figure 1: NW Alliance WashWise Program Monthly Sales Chart of Energy Star Washers... 22

Acknowledgements The authors wish to thank all of the people who provided their time and data to the research, including individuals in the sponsoring utilities and Collaborative Consultants. Regrettably, we cannot thank everyone individually, but we do want to acknowledge the contributions made by the individuals indicated below. The data, insight, and support provided by these individuals helped to establish the foundation for this report. This report, however, does not necessarily reflect the opinions or policies of its research sponsors. The authors assume sole responsibility for any errors or omissions. Sponsoring Utility Team Steve Bonnano, Team Leader, NSTAR Services Company Kate Evans, Western Massachusetts Electric Company Bill Blake, National Grid USA Service Company, Inc. Deborah Jarvis, Fitchburg Gas and Electric Light Company Non-Utility Parties and External Stakeholder Participants Ralph Prahl, Collaborative Consultant Jeff Pratt, Pacific Energy Associates RLW would also like to thank Glenn Reed, Northeast Energy Efficiency Partnership Paul Berkowitz, D&R International Heather Barnes, D&R International Dana Banks, Consortium for Energy Efficiency Lisa Rehbach, Portland Conservation Energy Marci Sanders, Northwest Energy Efficiency Alliance Dave Leishman, APT, Market Contractor for EE CW Program Mike DelNegro, APT, Market Contractor for EE CW Program Bud Fischer, Western Massachusetts Electric Company Peter Bardhi, National Grid USA Service Company, Inc. Aprille Soderman, Western Massachusetts Electric Company Gary Epstein, EPS, Market Contractor for Unitil Kara Chakiris, NSTAR Services Company

1 Executive Summary This is a market research study that investigated for answers to the questions of what the sponsoring utilities should do to promote Energy Star clothes washers to sustain existing sales trends while no longer providing rebates, what strategies should be used to promote other Energy Star appliances, and what are the concerns manufacturers and retailers have if marketing programs were made specific to Massachusetts. RLW used a research methodology of combining primary data through market actor interviews with secondary data in the form of a literature review. A discrete sampling method was used to identify key marketing executives for national retailers and manufacturers and program professionals familiar with past utility or agency programs that supported energy efficient appliance sales. Store managers of independent dealers and national retailers were also interviewed to collect a field level viewpoint. The literature review identified five studies or reports that provided significant background support for this research, as well a number of contemporary trade articles. The interviews revealed that manufacturers and retailers are supportive of Energy Star product sales. Some manufacturers have dedicated their production lines to all Energy Star qualified appliances, and evidence exists that at least one is currently promoting its horizontal axis washer with no outside utility or agency funding. Retailers and manufacturers realize the value of the utility funded efforts to maintain and increase those sales, and feel that a loss of this support would make a distinct negative impact. Energy Star clothes washer sales have reached significant market shares in a number of U.S. markets, and outside utility or agency support is now characterized less by cash incentives and more by promotional and educational activities. Other major appliances with Energy Star choices (refrigerators, dishwashers, and air conditioners) are gaining market acceptance, but still face first cost barriers. Air conditioners are volume driven, seasonal purchases, and customer education and awareness of Energy Star qualified models is as an important barrier issue as first cost. A wide variety of marketing tools and elements for tactical strategies were solicited from the interviews and literature review. The elements most commonly identified as successful pieces of a creative and well-planned marketing strategy were rebates, spiffs, coop advertising, sales training and field visits and public displays. Both the interview results and literature review enforce the concept that an effective marketing strategy utilizes a number of these tools simultaneously to create a synergy of customer demand and awareness (the push ) and point of sales persuasion (the pull ). These marketing elements are specific to retail sales direct to consumers. There are also other market segments, such as new construction, that can also be pursued in support of Energy Star qualified appliances. An evaluation was made of the impact of market share for Energy Star clothes washers if rebates were eliminated by the sponsoring utilities. Interview answers were broad and marked by a number of qualifying factors. The recent experiences from the Wisconsin and Northwest Alliance programs suggest a model that can be used as a predictor for the sponsoring utilities. Reports examined in the literature review identify specific market characteristics with the success of the Energy Star clothes washer initiative in the Northwest. These market characteristics need to be considered against other Energy Star appliance marketing situations to determine if the Northwest experience is suitable for forecasting similar results. Mixed reactions were collected from the interview question about the potential benefits or problems forecasted if Massachusetts-specific programs were initiated for Energy Star Page 1

appliances. There was an equal degree of positive, negative, and unsure responses on the perceived impact. Positive comments were made about the direct benefits to Massachusetts ratepayers from such a concentrated, consistent effort. Negative comments circled around issues of potential reactions from across the border shoppers and the lack of a regional focus. The implication derived from the interviews and literature review is that manufacturers and retailers, by virtue of their sales volumes and organizational structures, work best on at least a regional scale, and a large regional marketing focus would increase opportunities for working with them. Lastly, an inquiry was made about maintaining a flow of sales data once rebates end. National retailers and program professionals were generally pragmatic about it. One executive from a national retailer expressed that any of their sales data is proprietary and not available to anyone, while another expressed a reasonable willingness to help out. Program professionals identified cash incentives in the form of spiffs or store incentives as the best method to ensure collection of sales data. Appliance sales have to be reported to collect these incentives, and there was no strong alternative method recommended if these cash incentives are not used. Page 2

2 Introduction The Massachusetts electric utility sponsors of the Residential Energy Star Appliance Program (NSTAR, National Grid, NU, and Fitchburg Gas and Electric Light Company/Unitil) have worked successfully with the Northeast Energy Efficiency Partnership (NEEP) to establish a regional program (TumbleWash) that supports awareness and promotion of high-efficiency clothes washers. In 1998, the utilities joined a broad regional effort to offer a common residential Energy Star Appliance program, into which the clothes washer program was incorporated. The Energy Star Appliance Program now includes refrigerators, room air conditioners, dishwashers, and clothes washers. This expanded program seeks to raise the awareness of the importance and benefits of purchasing energy efficient appliances. These utilities commissioned this market research project in July 2001 to assess the anticipated market reaction to various program re-design options. The primary objective of this study is to update the ES Appliances 2 metric associated with ENERGY STAR consumer awareness. The ES Appliances 2 metric charges the utilities of Massachusetts to complete and report on market research with retailers and appliance manufacturers to assess program design features that may lead to an improved Energy Star Appliances program. 2.1 Questions of Inquiry The substantive focus of this study rests upon three primary questions of inquiry: What should the sponsoring utilities do to promote Energy Star clothes washers in order to sustain existing sales trends while no longer providing rebates? What marketing strategies for promoting Energy Star air conditioners and refrigerators will optimize the funding provided by the sponsoring utilities? What are the manufacturer and retailer concerns, if any, if separate marketing strategies for Energy Star rated appliances were made for the state of Massachusetts instead of regionally throughout the New England states? 2.2 Methodology RLW conducted this research in a qualitative approach. The two main tasks were to perform a literature review and phone interviews with program professionals, manufacturers, national retailers and their Massachusetts store managers, and independent appliance dealers. A review and refinement of the work scope was done in a phone kickoff conference July 11, 2001. Interview guides were developed and submitted for approval, and comments were received by RLW on July 18th. The literature review and interviews were conducted during the latter weeks of July and the beginning of August. 2.2.1 Sampling The manufacturer sampling process included identifying all manufacturers and ranking them for preference based upon two sources: a manufacturer brand matrix from a consumer internet site 1 1 "Appliance Brand Advisor." www.applianceadvisor.com, 7/12/01 Page 3

and a 1999 RLW market assessment study for clothes washers 2. The ranking for room air conditioners were derived from another 1999 RLW market study 3. The prime factor for prioritization of these manufacturers over others was to capture the largest percentage of the national market share of Energy Star appliances, with a secondary factor being an interest in also contacting off-shore manufacturers. The six manufacturers where RLW completed surveys are shown in boldface print in Table 1. Sample Preference (A = 1st, B = 2nd, C = 3rd) Manufacturer Appliance Type Notes A Frigidaire CW, Rfg, & Dsh The Electrolux flagship brand of North America. A GE CW, Rfg, & Dsh Middle of the road market share A Kenmore CW, Rfg, Dsh, & RAC Sears flagship brand A Maytag CW, Rfg, & Dsh Significant market share A Whirlpool CW, Rfg, & Dsh #1 Appliance manufacturer in U.S B Bosch CW & Dsh High end products B Asko CW & Dsh High end niche products C Avanti CW Compact appliances C Fisher & Paykel CW & Dsh High end product - New Zealand manufacturer C Gaggenau Dsh High end product - German manufacturer C Imperial CW High end product - adapted from commercial line C Miele CW & Dsh High end product - German manufacturer C Viking Dsh High end pro-style appliances C Equator CW & Dsh Limited European brand Table 1: Appliance Manufacturer Sample RLW also contacted 2 national retailers who sell a significant percentage of Energy Star rated appliances at both the corporate and store level. First, key marketing or sales managers on the corporate level were identified and interviewed, followed by contacting two key stores in Massachusetts from each retail chain targeted. This was done to compare and contrast corporate level information and store level information to ensure consistent information is provided. In total, RLW contacted 28 retailers and 5 corporate level retailers under this sample design. Table 2 presents a listing of the retailer population and the ultimate sample that RLW contacted in this phase of the data collection, along with the appliances sold. Also as part of this group of interviewees, RLW completed an interview with the marketing director of a large wholesale buyer group for independent dealers in Massachusetts. 2 Barbagallo, Leslie, et al. "Clothes Washer Market Assessment and Tumblewash Program Evaluation". Prepared for the Northeast Energy Efficiency Partnership, October 1999, page 37. 3 Barbagallo, Leslie, and Thomas Ledyard. "Market Assessment for Energy Star Appliances - MA, CT, and NH." Prepared for the Northeast Energy Efficiency Partnership, September 1999, page 29. Page 4

Corporate No. Stores No. Store Manager Retailer Appliance Type Completed in MA Completed Bernie's CW, Rfg, Dsh, & RAC N 2 1 Best Buy CW, Rfg, Dsh, & RAC N 4 2 Home Depot CW, Rfg, Dsh, & RAC N 13 4 Lowe's CW, Rfg, Dsh, & RAC Y 2 1 Sears CW, Rfg, Dsh, & RAC Y 13 1 Ind Dealers Buyers Group CW, Rfg, Dsh, & RAC Y NA 0 Table 2: List of Sampled National Retailers In addition to the national retailers, 7 independent retailers were also interviewed. RLW performed the sampling based upon rebate data from EFI, the contractor who processes rebates for the Energy Efficient Clotheswasher Program in the interest of identifying those independent stores where the most Energy Star units have been sold and rebates processed from January 1998 through December 2000. The independent store that processed the most rebates had a total of 322. RLW contacted a total of 21 stores to complete the 7 interviews. Table 3 shows those independents where RLW completed interviews. Store Name City # Rebated (1/1/98 12/8/00) Kam Appliance Mart Hyannis 295 Manny's TV & Appliance Greenfield 142 Gray s Appliance Melrose 108 George W Toma TV and Appliance E. Weymouth 100 Beach Sales Revere 91 Nauset TV and Appliance Orleans 87 Stan And Paul's Appliance North Dartmouth 66 Table 3: Sample List of Independent Stores Table 4 shows the list of program managers, market research professionals, and other program/initiative implementers that RLW completed interviews with. This list was generated from a brainstorming session at the kickoff meeting, with some interviews also being performed as a result of suggestions of other interviewees. In selecting these individuals, RLW sought to contact both administrators of Energy Star programs and individuals in markets that have considered and/or implemented market stimulus to enhance Energy Star appliance presence. Page 5

Name Glenn Reed Paul Berkowitz Heather Barnes Dana Banks Lisa Rehbach Gary Epstein Dave Leishman Mike DelNegro Bud Fischer Peter Bardhi Aprille Soderman Lara McNaughton Kara Chakiris Company Market Actors Northeast Energy Efficiency Partnership D&R International D&R International Consortium for Energy Efficiency Portland Conservation Energy EPS, Market Contractor for Unitil APT, Market Contractor for EE CW Program APT, Market Contractor for EE CW Program Program Administrators Western Massachusetts Electric Company National Grid USA Western Massachusetts Electric Company National Grid USA Service Company, Inc. NSTAR Services Company Table 4: Industry Actor and Program Administrator Sample Table 5 below summarizes the number of interviews held for each targeted group. Pgm Professionals & Mkt. Actors Manufacturers National Retail Corporate Professional National Retail Store Manager Independents Targeted 12 6 6 10 10 Attempted 15 9 6 28 21 Completed 13 a 6 3 c 9 7 Declined/Wrong Number Listed/Out of Business - - - 16 3 Did Not Respond b 0 3 3 13 11 a Two targeted contacts demurred to others b Those contacts which did not respond after a minimum of 6 phone attempts c One interview was a from a referral from APT to a major buyer for independent retailers Table 5: Summary of Interviews Performed 2.2.2 Literature Review A short literature review was conducted to find studies, reports, and articles that would be used as information to support the conclusions built from the primary interviews. RLW found the following monographs to be significant and comprehensive, and can be used as trusted sources for decision making by the sponsoring utilities: Energy Star Qualified Appliances: 1999 Sales Data Report, published by D&R International, September 19, 2000. Appliances and Global Climate Change: Increasing Consumer Participation in Reducing Greenhouse Gases, prepared for the Pew Center on Global Climate Change by Everett Shorey and Tom Eckman, October 2000. Page 6

National Residential Home Appliance Market Transformation Strategic Plan, prepared by the Consortium for Energy Efficiency, Appliance Committee, December 2000. The Residential Clothes Washer Initiative: A Case Study of the Contributions of a Collaborative Effort to Transform a Market, prepared for the Consortium for Energy Efficiency by Shel Feldman Management Consulting, Research Into Action, and XNERGY, June 2001. Energy Star Resource-Efficient Clothes Washer Program: Market Progress Evaluation Report #5, Final Report, prepared for the Northwest Energy Efficiency Alliance by Dave Hewitt, Jeff Pratt, and Gary Smith of Pacific Energy Associates, June 30, 2001. In addition, the following studies were used as secondary support sources for this report: Market Assessment for Energy Star Appliances in MA, CT, and NH, Final Report prepared for Northeast Energy Efficiency Partnership by Leslie Barbagallo and Tom Ledyard of RLW Analytics, Inc., September 1999. Clothes Washer Market Assessment TumbleWash Program Evaluation, Final Report, Prepared for Northeast Energy Efficiency Partnerships by Leslie Barbagallo et. al. of RLW Analytics, October 1999. A few trade articles and news stories were used as research support materials as well, and are cited as appropriate in the footnotes. Page 7

3 Results Based On Interview Questions For the sake of clarity and consistency, the questions in the interview guides were repeated (with small changes for language and context) for each interviewed group. In this section, each segment is given as the general inquiry with a summation of the responses below. Questions that were given only to specific groups are noted. 3.1 Company Policies & Strategies about Energy Star Appliances The issue of company policy and strategies about Energy Star appliances was asked to national retailers, independent retailers and manufacturers. Nearly all retailer and manufacturer respondents were very positive and enthusiastic about their efforts to offer and promote Energy Star labeled appliances. In fact, of all retailers and manufacturers contacted, only one independent store and one local store from a national chain reported little activity in Energy Star marketing and sales. Instances of retailers and manufacturers decisively participating in the Energy Star strategy included three manufacturers who reported that they only manufacture Energy Star rated products for most or all of their product lines, with one reporting they are already manufacturing clothes washers that meet the 2007 standards. Another manufacturer reported that their mission statement incorporates a statement of selling green (i.e. energy efficient) products. One corporate retailer reported that Energy Star appliances are the wave of the future. In addition, two large US manufacturers reported they are actively marketing the Energy Star logo and appliances and most national and independent retailers reported the use of promotional materials with customers and staff training among other efforts to make customers aware of the benefits of Energy Star. This activity among manufacturers and retailers in the distribution chain suggests that these market actors believe the demand and opportunity to sell Energy Star products will continue. This also suggests that these actors have a stake in the success of the Energy Star initiative and are likely to want to provide input to and/or cooperate with future initiative changes. During the research phase of this project, it was discovered that Whirlpool is conducting a nationwide contest that promotes their Calypso line of energy efficient washers. Follow ups to NEEP and the NWEEA confirmed that no outside agent was known to fund this initiative, and that it appears to be done on the company s own initiative. This provides a good anecdotal example of a major manufacturer now taking a vested interest in the continuing sales growth of its energy efficient product. 3.2 Current Sales Climate for Energy Star Appliances Each subsection below summarizes the answers by product type. It is important to note that some respondents commented that it is difficult to characterize the current sales climate against past results due to a number of reasons: a) the slower economy compared to the recent past has deflated all white good sales; b) sales data for Energy Star labeled appliances for 2000 have not been released yet, and c) the January 2001 new agreement in Energy Star standards have changed market conditions, and make unadjusted comparisons difficult (below). It is interesting to note that despite being asked an open ended question on the current sales climate, six respondents (1 manufacturer, 1 corporate retailer, 2 local national chain store and 2 independent stores) reported that as customers become more aware of Energy Star it becomes easier to sell them. This suggests that there is a continued causal relationship between customer education and Energy Star sales. Various levels of awareness were also perceived or reported by Page 8

respondents. One corporate retailer reported that 50% of consumers are aware and a manufacturer reported consumers were 30% aware, while another manufacturer and a local chain store reported that their evaluation of consumer Energy Star awareness rated five on a ten point scale. Five respondents reported that consumers were very or extremely aware, while three reported that consumers were not really or somewhat aware. Four interviewees also reported that people seem to be becoming continually more aware of Energy Star. Overall, these responses suggest a continued opportunity for Energy Star education among potential appliance buyers. 3.2.1 Current Sales Climate RLW asked a general question regarding the current sales climate to gather broad information on the current market today. Most respondents provided general responses, which are captured below by product type. Clothes washers Nearly all respondents were upbeat about the current sales climate of Energy Star labeled washers. From what they know, most respondents felt these washers have either sustained or grown in sales over last year and will continue to be strong. However, one respondent reported that the decreased rebate caused a drop in the Energy Star washer market share. Good or well were two terms typically used to generally describe the sale of Energy Star clothes washers. Program administrators did report that sales were going strong in the Northeast due to the rebate and the availability of many models. Refrigerators It was explained by some program professionals that the January 2001 change in refrigerator standards makes it hard to comparatively evaluate sales of Energy Star rated models. When the change was made all past Energy Star labeled models no longer qualified, and labels were removed from existing inventories. It took the entire first quarter to have this existing stock sold off, and newly qualified models appeared on sales floors around April 2001. However, about 200 models now qualify, and inventories of these models have become tight. Some program professionals pointed out these conditions as optimistic signs about the level of commitment manufacturers are making about Energy Star rated products and consumer buying response. One manufacturer reported that right now they are selling more Energy Star refrigerators than standard refrigerators. Dishwashers The Energy Star rated dishwashers received mixed reviews. A few retailers have good reports on these models (one such interviewee reported that Energy Star dishwashers are flying out the door while others report these sales are about the same as other Energy Star appliances. Other retailers and some program professionals have felt sales have been flat and have struggled against standard models. It was pointed out from one interview that soil sensing models are becoming more prevalent, but current Energy Star standards don t accurately reflect the soil sensing aspect of those washers (i.e. an energy efficient washer with a soil sensor may use more hot water and electricity under dirtier loads, but current test procedures don t accommodate for that difference). In turn, consumer articles about this situation appear to cloud the energy savings effectiveness of Energy Star rated washers, and so may have imposed a partial drag on existing sales. Room Air Conditioners ( A/C ) Like refrigerators, the Energy Star standards for A/C also changed in January, and about 75% of all formerly Energy Star rated A/C units no longer qualified. The recent heat spells in July and August have boosted sales; however, in the analogy of a rising tide raises all boats, this might not be significant. Interviews with store managers and owners revealed that the recent summer Page 9

heat spell drives people into stores seeking relief. At that point, the store staff doesn t have the time or opportunity to upsell customers to Energy Star models. However, customers will clear out whatever is in stock anyway, so those dealers or stores with large Energy Star model inventories will move them just as fast as standard models. 3.3 What kinds of barriers still exist that block sales of each of these products? This study asked market actors about what barriers still exist for each of the specific product types of interest to this study. It is important to note that while the utilities have reduced market barriers to Energy Star clothes washers, other Energy Star appliances are experiencing the same barriers as those experienced in the early phases of the Tumblewash and WashWise initiatives. Table 6 presents the reported barriers by product type. First, cost and the price differential between standard and Energy Star rated models was the most prevalent barrier mentioned by respondents. In the program administrator interviews, it was noted that this incremental cost difference presents a long payback on energy costs. This is a critical barrier to note, for if the choice of an Energy Star model does not make economic sense for consumers they are less motivated to purchase it. This was further supported by several respondents who noted that Energy Star appliances of all types tend to be price positioned as higher end or upscale models with more features and options than comparable standard models. 4 Customer education was a distant second barrier according to the market actor interviews. Educational opportunities to move customers towards buying decisions that put life cycle costs over first costs still can be pursued. 5 However, one program administrator noted that independents are more likely to spend time educating consumers in the interest of building and sustaining return customers (in addition to differentiating themselves from chain stores). Product Type Energy Star Refrigerator (n=18) Energy Star Dishwasher (n=19) Energy Star Room AC (n=18) No Barriers Lack of Education High Cost Availability Lack of Information 4 6 4 12 0 2 1 5 13 1 2 2 5 11 1 2 Table 6: Summary of Reported Barriers by Product Type A secondary barrier broadly applied to all appliances was information, both on the part of consumers and of salespeople. On the consumer end, most respondents estimated that about half of potential buyers are aware of the Energy Star label and what it means (as detailed in Section 3.2, Current Sales Climate ). Retailers and manufacturers feel that consumers could need more opportunities to be aware of energy use with appliances, and to learn specifically about Energy 4 The Market Progress Report #5 (cited in Section 4, Literature Review) explains on page 40 that early entry manufacturers and retailers decided to position these products in higher price ranges to appeal to early adopters (who do not place cost as a prime buying consideration) and to recoup costs in R&D and manufacturing changes. 5 Even for a well-established technology like CFLs these educational gaps still exist (pointed out, for example, in Braiker, Brain, Building a better bulb, Newsweek, August 13, 2001, p. 38). 6 Two of these respondents reported that there are many different prices for Energy Star refrigerators, as opposed to the other Energy Star appliances. Page 10

Star appliance features and benefits. A number of respondents also pointed out that sales knowledge of Energy Star appliances continues to be a secondary barrier due to the natural high turnover of sales staff. Overcoming poor past Energy Star performance issues was also cited as a secondary barrier to the adoption of new Energy Star products. Finally, as mentioned earlier in section 3.2.1, Refrigerators, availability is currently an issue with these products, and is viewed as a secondary barrier right now with some program professionals (albeit as a sign of strong consumer demand). 3.4 Impact of Decreased Utility Funding of Energy Star Marketing National retailers, independent retailers and manufacturers were asked about the potential impact of dropping utility support for Energy Star products. Not surprisingly, all respondents expressed that the existing rebates positively impact sales, and a removal of support would be negatively felt. Among the respondents, it was widely acknowledged that utilities provide significant marketing for these products. Most respondents (16 out of 17) acknowledged that sales may drop or stagnate, but a number of them felt that they might be able to educate customers enough to keep Energy Star sales going. One local chain store respondent reported In-store education and general increase in customer awareness will still cause sales to increase but probably at a slower rate, while another reported that [The market share] would stay the same if manufacturers made an extra effort to educate, but would decrease if they did not. These types of responses indicate that market actors generally believe the market could sustain the current Energy Star market share through education and their own efforts, but it is uncertain whether or not they would collectively take these steps. One retailer did point out that sales of Energy Star air conditioners would suffer the most because these products are largely driven on volume, and a typical sales staff have little time or motivation attempting to educate a customer on the features and benefits of the Energy Star models. 3.5 Examining Potential Marketing Elements When asked about their knowledge of marketing tools and elements, the respondents overall listed a wide variety that they either used or are familiar with from other regions. We have presented this list in Table 7. The table identifies all the elements currently being considered for inclusion in the initiative as per the original RFP, as well as others given from particular interviews. These results also present a brief description of how well they ve worked according to the interviewees. Program professionals emphasized that a creative, well thought out, and properly executed marketing strategy can use a number of these elements. The clear implication derived from the interviews is that each element, if used alone with no others, may have a limited effect. Page 11

Potential Initiative Stimulus Rebates Sales training and field visits Spiffs In-store marketing tools and POP materials Public displays, public events Mass market advertising Return/recycling programs Mystery shoppers Store cash incentives Coop advertising Sweepstakes/contests Coop marketing Distribution intervention (mid-stream intervention) Comments There were a number of good and bad stories about past experiences with rebate programs that clearly implied that planning, clear goal definition, and close communication to retailers and manufacturers were vital elements in making rebates a successful element in a marketing mix. This was a well-espoused element that program professionals found desirable and retailers enjoyed. Successfully used in Wisconsin, Northwest, and New England This element has also worked well in many program areas; good tool to ensure return sales data These have been used successfully in conjunction with sales training; independent retailers depend on these tools to reinforce and validate sales points to customers These have been used successfully by the Northwest Alliance to create awareness and interest; displays in stores that do not sell appliances work well to permit see and touch experience without sales pressure The use of newspaper, radio, and/or TV to build awareness about the Energy Star label was cited as a necessary element in raising awareness and acceptance with potential appliance buyers. Retailers and some program professionals explained that they enjoy higher level of success in upselling a buyer to an Energy Star product if he/she has already walked in with a positive awareness about the label. Have been used on occasion for refrigerators With an award and feedback, this has usually have been used in conjunction with sales training or product knowledge programs; without the above, it is used as an evaluation tool Have been used in a variety of ways to influence product displays in size or prominence; can be used as per unit incentives similar to spiffs Works to a good extent with independents; successful and cost effective use in Wisconsin where manufacturers contributed to the coop total Low cost, secondary tools useful for awareness building used in a number of utility programs and initiatives Partner equally with others; includes idea of reverse roles where manufacturers and retailers create and run programs with agent or utility funding support (SEE section 3.5.3 Reversing Lead Role ) Has been attempted or proposed in the past; not been used in any large extent Table 7: Interviewee Familiarity with Potential Market Elements 3.5.1 Marketing Elements Examined with Interviewees Rebates, spiffs, sales training, co-op advertising, and public displays and events were the most common answers among the respondent as good elements to incorporate in appliance marketing strategies. The same elements (apart from rebates) were also equally cited as good to use to Page 12

replace the existing rebates for Energy Star rated clothes washers. No one expressed a distinct approach for each appliance, although some independent retailers pointed to the larger need for consumer awareness and education of Energy Star air conditioners over sales training (see section 3.2.1, Current Sales Climate, Air Conditioners ). There are some separate market strategies, however, that are identified in the CEE Strategic Plan for Residential Appliances for each appliance (described later in section 4). As mentioned earlier, program professionals emphasized that the real success in market transformation marketing activities lies in knowing the marketplace well and designing a marketing mix that uses a variety of marketing tools to achieve the desired results. With that caveat, respondents provided their opinions on the pros and cons of the marketing elements mentioned. Answers are consolidated and bulleted into the sections below for ease of reading. Rebates Pros Easy to administer and track for documentation Well accepted among retailers and manufacturers Most desired by respondents For salespeople, it s a handy tool for motivating buyers Helps deflate the first cost issue Cons Costly Not really conducive to long term market transformation; tends to act as a subsidy rather than permanent transformation tool Without proper advance planning and close communications with manufacturers and retailers, they can unexpectedly skew inventories significantly off forecasted numbers Issues of free ridership Spiffs Pros Independent retailers like them Best for maintaining data flow of sales numbers if rebates aren t used Less costly than rebates Provides good motivational incentives to salespeople Cons Some national retailers, like Sears and Home Depot, don t allow them; possibility they may be perceived as running counterproductive to a retailer or a manufacturer Sales people and retailer participation have to be monitored Page 13

Like rebates, don t ultimately contribute to permanent market transformation efforts Sales Training, including field visits and product knowledge training Pros Positively viewed by many respondents as an effective means to optimize the opportunities for buyers to decide on Energy Star labeled appliances Armed with point of purchase tools and materials, an educated salesperson provides the best means to persuasively demonstrate the product features and benefits to customers while they are preparing to buy Provides competitive differentiation to independent dealers; they are more likely to strive for and maintain long term customer relations, and therefore likely to make the time and effort to educate buyers Necessary to overcome gradual loss of knowledge from high turnover typical of the retail industry Cons Can require significant amount of cost Coop Advertising Pros Combined with other marketing elements, provides a cost effective means for the marketing push, i.e. moving customers into asking for and selecting Energy Star products Cost effective if marketing dollars are shared by manufacturers Liked and used by independent retailers Cons Pros Avoid heavy co-op ads they look too busy and bogged down with too many pictures and messages A potential turn off to retailers if they are required to use utility name and logo; media coverage areas don t necessarily match utility service areas, which can create a tedious task of trying to determine which logo to run Public Displays and Events (Primarily attributed by the respondents to the ideas used by the Northwest Alliance) Provides a relaxed, low key way for consumers to touch and feel a product with no salesperson presence Provides synergistic marketing opportunities with manufacturers and retailers Potential to generate positive public relations and good will Fun and interesting for staff or contractors to manage and run Page 14

Cons Can be labor intensive for both utility administrator and contractor The following were viewed by many as secondary in nature in moving Energy Star appliance sales. Respondents tended to ascribe these as useful in support to the other elements described above, but not necessarily used as primary tools. Comments are provided as given by respondents. Mass market advertising Good to continue building awareness and sustain the marketing push ; not as necessary for washers as in previous years; tends to be ignored by those not actively considering purchases; may make too much emphasis on energy savings (e.g. other desired product features could be clouded by the efficiency benefit). Return/recycling programs Good to eliminate re-use in a secondary market; sometimes hard to justify in terms of cost and effort. Mystery shoppers Good as an evaluative tool; combined with an award bonus, can be a strong motivator for sales staff to deliver the desired message (one interviewee indicated that a program he was aware of in which a mystery shopper plan was put into effect experienced a net increase of 30% in sales after the start); on the other hand, there s a need to be cautious that this tool does not create a turn off to retailers whose staff does not perform well; some positive impact may be attributed to a Hawthorne effect 7. Store cash incentives, including display incentives Good for maximizing the opportunity for Energy Star products to be seen and touched by potential buyers; may be needed to ensure access to sales data; may conflict with manufacturers, as well as a retailer s relationship with other manufacturers, distributors, or buying groups. Sweepstakes Effective consumer motivator to go to a display or store; on the other hand, need to carefully consider what the desired opportunity for education, awareness, or sales will be and if it will be effective (to paraphrase several respondents, once you get them to cross the street and enter your door, what do you want to do with them? ). 3.5.2 Suggested Marketing Tools Not Used Before One new element was suggested in the interviews. Although minor when compared to the total amount of responses, it interestingly came from both a local retailer and two program professionals. In these interviews, it was suggested that having informational or educational web sites designed towards consumer use would be beneficial. It was expressed that potential buyers utilize internet searches to gain information on appliances, and that there could be more direct sites or pages to detail Energy Star appliance features and benefits. 8 3.5.3 Reversing Lead Role Several program professionals discussed the success of past programs in Wisconsin that put the retailers and manufacturers in the lead roles for developing marketing programs. In this case, the 7 Referring to the commonly cited classical performance studies done in the 1930 s at a Western Electric plant in Hawthorne, Illinois, where it was discovered, in part, that employee productivity and output changed if they knew they were being observed, regardless of what the observation was for. 8 These parties understood and knew that the EPA Energy Star web site provides informational pages, but felt that more on-line opportunities existed. Page 15

utilities pooled their funding into open solicitations with these two industry groups. Cooperative marketing in sales training, spiffs, and distribution incentives with shared funding from manufacturers and retailers were reported to work well. The main concept reinforced from these professionals is that good results can be obtained if the manufacturers and retailers are allowed to create and lead programs according to their desires. 3.6 Market Share Losses and Expected Recovery if Rebates are Eliminated The overall general response among all interviewees is that if rebates were eliminated on clothes washers, there would be some loss with an eventual recovery. Few people felt comfortable enough to give specific estimates because they either were not able to readily foresee the probabilities or they considered that a number of factors will make a large difference. Of those retailers and manufacturers that did provide a quantitative response, one suggested it might take up to 4 or 5 years to recover, while two suggested a year or two was all it would take. Broad estimates of what might be the initial percentage drop from current market share ranged from 3% to 25%. Some independent retailers expressed a reasonable optimism that continuing manufacturer support along with a substitute utility promotion would sustain the existing trend. Program professionals knowledgeable about the past experiences in the Northwest Alliance and Wisconsin programs felt that these past experiences were reasonable predictors (this experience is discussed in section 4.2.3). However, the majority of interviewees qualified their responses, pointing out that the dip and time for recovery depends on these factors: Whether manufacturers and retailers continue to provide support on their own volition. The national economy improves (which minimizes the factor of buyer hesitancy on first cost). The utilities having a good relationship and close communications with retailers and manufacturers. A utility funded replacement program is set up and in place, with transition details worked out and fully communicated, before rebates are dropped Program professionals tended to be more pragmatic and measured in their responses. Some pointed out that, if the factors above are addressed, a certain amount of sales loss can be comfortably expected and lived with. These respondents pointed out that rebates, by their very nature, are artificial stimulants to buying behavior, and it would be expected that the sales trend would go down a little once they disappeared. One respondent noted that understanding the natural growth versus the intervention driven growth of washer sales was important, and it is helpful to evaluate the difference as programs proceed. Most program professionals indicated that the most critical element to ensuring the least amount of market share loss was to have a next phase marketing plan in place before removing rebates. 3.7 Examination of a State Based Initiative When asked about the benefits and problems associated with the implementation of state level initiative, reactions were evenly spread out between positive, negative, and unsure. Some respondents had further questions instead of answers: how would it be funded? Would the municipal utilities participate? Would these programs be coordinated with other states? Positive comments were scattered across the respondent groups. These comments pointed out that Massachusetts businesses and consumers would benefit from the consistent and concentrated effort that statewide programs would bring. Page 16

Negative comments were either related to outside shoppers and on the issue of regional efforts. Store managers, independent dealers, and manufacturers expressed concerns about reactions from shoppers in bordering states. Program professionals and corporate retailers felt that regional efforts were more important than statewide efforts. A number of these people explained that manufacturers and national retailers, by virtue of their size and organizational structure, can offer better coordination and cooperation with regional efforts. Independent dealers and their buying groups also cover more than just one state, and likewise would rather work on a regional level with utility programs. 3.8 Examination of the Provision of Sales Data after Rebates End This question was particularly posed to national retailers on the corporate level, although some program professionals also proffered or were asked about this question during the interviews. For the two corporate executives from national retailers, one said they just will not provide any proprietary information, while the other said they don t mind helping out. A question about the equity of the relationship between utilities and retailers shows that these retailers understand the value of utility support, so it doesn t appear to be a relationship issue that hurts the potential flow of data. Program professionals are pragmatic about this concern about maintaining good data flow, and some said that it really comes down to having to pay for it in some way. Some said that spiffs are good in maintaining a sales data flow because they have to be reported anyway in order for the store to collect the incentives. Without a direct cash incentive to the retailer, some program professionals said, there s no sure way of obtaining sales data to measure other types of marketing unless it s paid for. This point of view was reiterated in the interview with an executive from a buyers group. One specific suggestion by a program professional was that sales data can be secured in an indirect way called retailer cash incentive, which simply provides a fixed cash amount to the retailer in exchange for participating in a program. Page 17

4 Comparative Analysis This section compares conclusions from the five significant monographs identified in the literature review with the results from the primary research. RLW found that the interview results were consistent with the recommendations given in these monographs (apart from the last citation, Energy Star Qualified Appliances, which did not have conclusions or recommendations). 4.1 Monograph Summaries National Residential Home Appliance Market Transformation Strategic Plan ( NRHA MT Plan ) The Consortium for Energy Efficiency ( CEE ) Appliance Committee released this plan in December 2000 with the intent of providing program planners with a well-researched template to create and sustain market transformation strategies with energy efficient appliances. It provides overarching market goals and strategies for all Energy Star appliances, and then specific marketing strategies for refrigerators, clothes washers, dishwashers, and air conditioners. The recommended strategies in this Plan target other market areas besides retail purchasing; to stay within the context of this report, RLW will assume the other market segments are separate issues beyond this study, and utilize the Plan elements that relate to retail sales. Appliances & Global Climate Change ( A&GCC ) The Pew Center on Global Climate Change issued this study in October 2000 to report on customer motivation and behavior towards buying appliances and examines past experiences with government and utility-run programs in influencing those behaviors. The main premise of this report is that effective market transformation planning for appliances rests on the characterization of consumer buyers into three types: buyers, considerers, and satisifieds. The writers recommend marketing strategies and tools that would be effective in influencing each of these groups. Energy Star Resource-Efficient Clothes Washer Program: Market Progress Evaluation Report #5 ( MPER #5 ) This is the final report of the Northwest Energy Efficiency Alliance s WashWise program released in June 2001. This study describes the chronological progress of the program; gives status reports relating to key indicators, manufacturers, retailers, and Federal appliance standards; documents energy savings and benefits from the program; and presents key findings and lessons learned. The Residential Clothes Washer Initiative Case Study ( RCWI study ) This is a comprehensive case study to review the effects of the RCWI, and identify and evaluate the contributory efforts made the Consortium. The applicability of utilizing the same model for transforming the marketplace for other energy efficient appliances as well as predicting results are examined at the end of this study. ENERGY STAR Qualified Appliances: 1999 Sales Data Report ( 1999 ESQA report ) D&R International reported on the sales of Energy Star appliances in six major geographical areas, and highlighted the marketing strategies and tools used in 1999 to support sales of Energy Star labeled washers, refrigerators, dishwashers, and air conditioners. Page 18