What’s already known

Don’t waste your time and money reinventing the wheel. Much is already known about consumers and renewables. Here we summarize what’s already well-documented and clear. As we show, there is already abundant evidence on:

• generic preferences for renewables
• stated willingness-to-pay for renewables
• market segments most likely to buy a green energy product
  

General preferences for renewables

One of the clearest and most consistent findings from energy-related market research is consumers’ preference for renewables and efficiency over other energy sources. A comprehensive review of the energy market research literature concluded:

• Trends in public opinion polls have also shown long-standing preferences for renewables and efficiency over other energy sources and usage patterns. Majorities of respondents to national polls dating back to 1979 prefer renewable energy and energy efficiency over other alternatives when cost or price are not mentioned. The pattern of preferences for using renewables to supply energy and energy efficiency to decrease demand has been consistent in the poll data for 20 years. This is one of the strongest patterns identified in all of the national poll data on energy and the environment.

There is no evidence that these results differ markedly by region: In other words, there’s little reason for you to waste your time and money doing market research in your region or location that seeks to document overall preferences for renewables, as you already know what you’ll find: consumers prefer renewables.

It’s all too common, unfortunately, that utility decision-makers think that their customers’ generic preferences are different. Utility researchers, therefore, may find themselves in the position of having to document what’s already known. There are two ways to respond with this situation: first, try to educate the decision-maker that such research is unnecessary; or second, go ahead and do the research but write the survey questions so as to yield useful information on, for example, preferences considering cost.

That said, note that the results above are for polls in which cost or price are not mentioned. Consumer preferences when costs are considered are less well documented, and are certainly an appropriate area for market research.

Willingness-to-pay

When considering a green pricing program, utilities almost invariably start by doing willingness-to-pay research. Here again, such research is well-intentioned but is also a waste of time and money. Numerous utilities have already done such research, and the results are clear, well-documented, and do not vary significantly by region. (The results are misleading as well, as discussed below).

Insightful researchers at NREL pulled together results from 14 different utility willingness-to-pay studies. The results were amazingly consistent. As shown in the figure below, the data points are well-represented by the curve. (This figure is taken directly from the report. Given the variety in populations surveyed, survey question wording, and survey methodology; the consistency of the results is incredible.

What does this mean for your market research? As the report authors note, "given the coverage of the research, it is likely that any market survey asking residential customers about willingness-to-pay for power from renewable sources will obtain results similar to those represented by the curve." In other words, if you want to know what percentage of your customers will say that they will be willing to pay X amount additional per month for renewable energy, you don’t have to actually ask them. Instead, just look at the curve. Consumers’ stated willingness-to-pay is well-documented, and putting a few more points on the graph is not a good use of scarce market research resources.

There’s another, and even more compelling, reason not to do market research on willingness-to-pay: the evidence suggests that there’s little match between stated and actual willingness-to-pay. There are over 100 green pricing programs in place in the U.S., and most show participation rates of less than 5 percent – one percent is typical. This is in sharp contrast to the willingness-to-pay research, which consistently finds that over fifty percent of interviewees say they would pay a premium for renewable electricity.

Market Segmentation

A fair bit of work has already been done on market segmentation of the green energy market. A large survey of green energy buyers and nonbuyers across North America was undertaken in 2001 and 2002. This survey took data from 2,800 residential electricity users and is the most comprehensive and useful to date. The survey asked participants a number of questions related to political beliefs, views on environmental issues, and other possible indicators of green buying behavior, as well as standard demographic indicators. The results were then broken down into green buyers and nonbuyers. Results from this survey confirm some commonly held beliefs about green buyers but also show that a few beliefs are incorrect.

Indicators showing the greatest difference between buyers and nonbuyers were political persuasion and support of environmental groups. Almost two-thirds of green buyers identified themselves as "liberal" (as opposed to just 38 percent of nonbuyers), and just under two-thirds of green buyers were supporting an environmental group (as opposed to just 28 percent of nonbuyers). Education level was also a strong predictor, with green buyers much more likely to hold advanced degrees. Green buyers are also more likely to be politically active.

As the study’s authors noted, environmental activism was a surprisingly strong indicator. "(We were) not surprised to find that participants were more likely to have knowledge of, and interest in, the environment. We were, however, surprised by how powerful an indicator environmentalism proved to be. And when we asked participants to explain why they joined the green energy program, they most often gave explanations couched in environmentalism: ‘It’s an opportunity to do something for the environment’; ‘Because I think we should protect the environment and it’s convenient’; and simply, ‘For environmental reasons.’" Also notable is what didn’t show up as significant. Neither income nor gender showed much variation between buyers and nonbuyers, in contrast to the usual belief among marketers that higher income groups and women are more likely to buy green.
Of the many consumer segmentation schemes available, PRIZM has emerged as particularly useful for identifying green energy buyers. The 2001/2002 survey identified five PRIZM clusters as containing those most likely to participate in a green pricing program (see Tables).

Table: PRIZM cluster green indices
Cluster name	Green index*
Urban Achievers	4.5
Blue Blood Estates	3.5
Winner’s Circle	2.5
New Empty Nests	2.4
Pools and Patios	2.2

*Green index is the normalized ratio of participants to nonparticipants in that segment, and is thus a measure of the relative likelihood of a member of that segment buying green.

Table: PRIZM cluster definitions

Urban Achievers—Mid-level white-collar urban couples. Often found near urban
public universities, these neighborhoods are ethnically diverse with a blend of
youth and age. Single students mix easily with older professionals who work in
business, finance, and public service. Affluence is "middle" among the clusters.
Age groups: 25–44, 65 and older.

Blue Blood Estates—Elite, super-rich families. Established executives,
professionals, and "old money" heirs live in America’s wealthiest suburbs. They
are accustomed to privilege and live luxuriously. One-tenth of this cluster are
multi-millionaires. Age 45–64.

Winner’s Circle—Executive suburban families. These "new money" families live
in expensive mini-mansions in major metropolitan suburbs. They are well-educated executives and professionals who are married with teenagers. Big
producers and big spenders. Winner’s Circle families enjoy globetrotting.
Age 45–64.

New Empty Nests—Upscale suburban fringe couples. Hard work in professions
and industries has rewarded New Empty Nesters with the affluence that
comes from double incomes. Most of these married couples are in their "postchild"
years, are far more conservative than Young Influentials (a cluster of
high-tech managers and professionals), and live in the Northeastern and
Northwestern U.S. Affluence is upper middle, ranked 15 among the clusters.
Age 45 to post-65.

Pools and Patios—Established empty nesters. Empty-nester executive and
professional couples are living the good life in their "post-child years." Their
dual incomes support rich active lives filled with travel, leisure activities, and
entertainment. Many live in the densely populated Northeast corridor of the
U.S. Affluent, in top 10 among clusters. Age 45 to post-65.

Although these market segmentation schemes can seem rather imprecise and ad hoc, there’s more value here than one might think. Most U.S. households are already classified into PRIZM clusters based on zip codes. Most marketing, from direct mail to television advertising, already makes use of PRIZM-like market segmentation techniques. It’s only the energy industry, with its legacy as a regulated monopoly and an attendant indifference to consumer preferences, which has been slow to recognize the value of such methods. Greater use of these techniques will clearly lower marketing costs and increase green power market penetration in the future.

What’s the implications of this for your market research? First, that some market segmentation work has already been done, and that you may want to just use the PRIZM or another similar method, rather than coming up with your own. Second, that commonly held ideas (such as gender and income as strong correlated with green energy purchasing) are often wrong, and market research needs to be designed carefully so as to exclude untested assumptions.

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