PV Technologies, Inc.:Were They Asleep At The Switch?(Case originally prepared by Prof. Frank Cespedes & Prof. Diane Badame)

(Harvard Business School)

A Presentation by Group-1

Section – B

Alliance School of Business

Company Background PV Technologies was founded in 1993 in San Francisco, California

Was a global specialist in renewable energy

Were among the industry leaders in five product groups: Industrial Automation, Process Management, Network Power, Drive Technology & Climate Technologies

In 2010, it served the electric power industry and large-scale solar project developers in more than 25 countries giving them revenue of $30 Billion

By October 2011, global revenue from the PV Inverter division, a unit within the Industrial Automation Group had reached $1.24 billion (4.1% of the total revenue)

It earned this market share & revenue growth primarily because of its R&D and reputation for product reliability and efficiency

Case Intro People Involved:

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

Jim Salvatori (PVT’s Salesperson)

Greg Morgan (Solenergy’s Chief Electrical Engineer)

Solenergy Development LLC (one of the largest customer of PVT) was a major developer of energy generation systems.

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

Case Intro 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

Photovoltaic Solar Renewable Energy Market Total installations in 2010 was 878MW and the revenue was $6 billion

Total installations in 2009 was 477MW and the revenue was $3.6 billion

US market for solar PV was forecasted to expand at a 30.4%CAGR during the period of 2010-2015 reaching 1906MW by the end of the period.

Buying and selling PV inverters PV engineers designed and manufactured a variety of PV inverters for application

ranging from small residential to large scale commercial, industrial, and utility scale systems.

Segments of PV inverters market : Residential

Commercial/industrial

Utility companies

IN 2010 utility companies comprised 27.6% of the market commercial 42.4% and residential 30.1%

Integrated Marketing Communications

Relation between Salesperson and Decision makers

Trade journals & Sales collateral materials to Raise product awareness

Information on new products

Build image and reputation

Catalogs

Trade shows

PVT Website Product features and benefits

Inform target audience about current developments

Demonstration through videos

Provide point of initial contact

IEC 62446 standard is established by IEC

Central inverter-most failure-prone component

Entry of Chinese firms into US market

Commoditization of PV Inverters

Factors affecting specifications of PV central inverters

Solenergy’s product evaluation Program Financial condition & the Product

OUTCOMES:

Bid prices of PVT are much higher than its competitor’s

Focus on expense control

Morgan’s dilemma about cost of products and its performance & operating cost

PVT’s Management concerns Salvatori’s discoveries about the evaluations

Negative impact on PVT

They came up with four alternative responses

How PVT’s products are different?9

PRICE is not the only element to take in consideration.

 SOMA Energy BJ Solar

PV Tech(Old)

PV Tech (New)

Nominal AC output power 1.0 MW 1.0 MW 1.0 MW 1.25 MWEfficiency rate 96.5 95 97.5 98.5

Expected service life (years) 12.5 10.7 13.2 13.2

List price $170,000 $160,000 $180,000 $187,500 Warranty (years) 5 5 10 10

  SOMA Energy BJ Solar PV Tech(Old) PV Tech (New)

Effective Power Output 0.965 0.95 0.975 1.23125

Expected Lifetime Power Output 12.0625 10.165 12.87 16.2525

List price/Exp. Lifetime Power Output 14093.26 15740.28 13860.01 11536.68

ANALYSIS OF COMPARATIVE FEATURES AND PRICE

Note: Effective Power output = Nominal ac output power * efficiency rate Expected lifetime power output = effective power output * expected service life

Different alternatives10

1.Offer to extend the product

WARRANTY at internal cost from 10 to 20 years

3.Accellerate the introduction of NEW INVERTER (1.25 MW

with 98.5% efficiency)

4.Initiate a DIALOGUE with

Morgan to find out the real output of the evaluation

2.Offer a 99% UPTIME

GUARANTEE at no cost for the customer

Alternative 1: Extending Warranty

Extending the product warranty from 10 years to 20 years while the industry standard is only 5 yearsPROs : Reliable – Sign of good quality. High standard.CONs : Relatively costly. Warranty is not key factor.

Alternative 2: 99% 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: Introducing a new model of 1.25 MW

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

PROs :More personal approach – Personalize the product for them.CONs : We rely not on public information. Call for help could make us appear as desperate.

CONCLUSION