Nest Marketing Plan MAR 4824 - Marketing Management .

Security systems: 20 million Americans already have some sort of security systemand another 20 million more are interested in one but either can’t afford it oravoid the hassle of installation and maintenance. The challenge now is to integratethese systems into one that holistically integrates all into one.2 “Internet of Things”: Current industry trends reveal an evident move toward theinterconnection of different products at once. According to Forbes Magazine,Major technology companies are aiming conclusively at developing strategies toaccomplish this task, but are failing pervasively; the reason is that thesemanufacturers are poor innovators and are instead trying to force the integrationof products that were never designed to work with each other in the first place.Key Market Drivers- Smart thermostats have increased penetration in North Americaand Western Europe mostly because of steady rising energy costs, newly gainedenvironmental consciousness as well as more strict regulations regarding energyefficiency. According to CleanTechnica these trends are only expected to increasethroughout the next years.Accelerated retirements of coal-fired and nuclear electricity generation capacitywill cause natural gas and renewables to gain an increased share in the nation’s electricitygeneration mix. Natural gas is most often the lowest-cost option for replacementcapacity; the rising use of natural gas in the electric power sector results in priceincreases for both natural gas and electricity in all sectors.B. Market SegmentsExpected industry growth- According to Navigant Research, global revenue forcommunicating and smart thermostats and associated software and services is expected togrow from 146.9 million in 2014 to 2.3 billion in 2023.3Untapped Market Potential- Laterally, based on studies by the Energy InformationAdministration we have found that the adoptions of smart thermostats in Americanhomes is barely 37% for central cooling and 29% for central cooling; this means that thepotential untapped market for smart thermostats is still enormous.4C. Needs and DemandsExpanded market segments- Neil Strother, senior research analyst with NavigantResearch says smart thermostat technology appeals to a wider range of segments such asutilities, residential builders, heating and air conditioning system installers as they can allsignificantly gain value from energy efficiency optimizing alternatives. This representsan opportunity to expand Nest’s services to develop strategies that better address theemerging needs and demands of additional segments such as these.54

Residential Security Industry- Security system experts point out that the processof home automation represents significant potential to the residential security industry.Per Mar Brad Tolliver, owner of a leading security system provider says “Previouslyhome automation was for the high-end residential and facility management companies.Today, it’s an add-on to our core business burglar/fire alarm control panels and a costeffective option. It brings home automation to the masses and the end users will benefitfrom the new technology in the form of enhanced services and energy savings”.6 Aspioneers in the home automation and integration shift, this clearly signals out anenormous potential for Nest to take a lead advantage and guide the residential securityindustry into a brilliant renaissance.D. Switching CostsConsumers are hooked. Nest is currently at the forefront of a revolutionaryindustry. It has established the foundations of a simple and economically viable homeautomation system. Nest is attempting to engage in several key partnerships with leadinghome appliance manufacturers and developers such as Logitech, Whirlpool and Lifx, toconsolidate a comprehensive integrated home environment. These products are beingdesigned to work integrally together. This expansive joint venture strategy consolidates aclosed environment that makes it too uncomfortable for consumers to switch to othercompetitors; it ultimately hooks consumers to the Nest environment. 7Additionally, the financial burden implicated in switching brands is considerabledue to the fact that alternative options are priced significantly higher than Nest products.It makes no economic sense for consumers to invest higher amounts of money in devicesthat provide less value and higher installation hassle.E. Revenue AttractivenessLack of constant flows of Revenue - Nest currently relies upon a passive revenueflow represented solely by the sale of Nest thermostats and Nest Protect devices.Although these products are successfully penetrating the market (selling 100,000thermostats per month (Business Insider)),8 they provide Nest with a single transactionper customer and eventually a saturated market. We identified that Nest lacks a steadyand constant revenue flow. By developing a strategy that creates this kind of revenuestreams we can boost Nest’s profit margins and ensure a healthy revenue flow forprolonged periods of time.5

4.2 Industry ForcesA. Competitors/incumbentsOne of Nest’s top competitors in home automation is Honeywell. Honeywelldevelops several home automation products to make homes smarter, safer and moreenergy efficient. Honeywell’s Lyric thermostat is Wi-Fi, learning thermostat with voicerecognition that can be controlled through a smartphone. Lyric is also a platform.Honeywell aims to launch a full suite of Lyric products that can all be controlled througha smartphone.iControl Networks is a company that powers smart house solutions offered byleading home security companies and service providers, and the all-in-one Piper HomeAwareness device for consumers. Piper adds energy savings and convenience to theconsumer’s home experience. It allows consumers to automate, schedule and remotelycontrol lights and appliances directly from the Piper app. Its door/window sensors notifythe consumer whenever a door or window is opened and can be automated to take actionwhen that happens.9Vivint Inc. is a leading provider of home technology services that was acquired byBlackstone in 2012. Vivint services are delivered through a technology-based platformthat integrates a wide range of wireless features and components to provide simple,affordable home security, energy management, home automation, and solar solutions.Vivint’s platform, Vivint Sky allows the consumer to control all automated controls fromthe phone, on the web or from the Vivint panel. Vivint’s home automation systemcontrols door locks, thermostats, and anything at home that plugs into the wall. Vivint’ssystem provides home security with video feed, energy management, and fire and carbonmonoxide protection.10B. New entrants/insurgentsApple HomeKit is a framework in iOS 8 for communicating with and controllingconnected accessories in a user’s home. It enables users to discover HomeKit accessoriesin their home and configure them, or users can create actions to control those devices.Users can also group actions together and trigger them using Siri. By selecting Apple TVas the hub for the home (not an iPhone or iPad app), Apple is including loyal Androidusers in its vision.Apple is partnering with several home-automation, application and hardwaredevelopers to create products that will integrate with the HomeKit platform. Apple is alsopartnering with the several companies to create HomeKit-integrated products, such asAugust Smart Lock, Philips Hue lightbulb and Honeywell’s Lyric thermostat.To compete with HomeKit, Nest must obtain as much market share in the homeautomation market while it is still the leader in the “Internet of Things” movement. Forthe loyal Apple users who currently use Nest and will switch to the HomeKit platform nomatter what, Nest must work on making all of its current and future products compatible6

with the HomeKit platform. So, when those Nest users switch to HomeKit, they will stillpurchase Nest products to work with the HomeKit platform in their smart home.C. Substitute products and servicesInstead of using Nest Learning Thermostat, consumers could manually control thetemperature in their homes with a traditional thermostat that requires the consumer tocontinuously make physical adjustments to the temperature. Consumers could manuallycontrol the heating and cooling in their homes by turning adjusting home appliances suchas ceiling fans, floor fans, window fans, window air conditioning units, and space heaters.Instead of using Nest Protect, consumers could use home security services, suchas ADT. Consumers could rely on basic security measures, such as door/window locks toprotect their homes. Consumers could use traditional smoke and carbon monoxidedetectors to detect house fires and high carbon monoxide levels.Instead of using Nest’s system to save and manage energy use, consumers couldcut down on electricity usage by manually turning off appliances. Consumers could turnto alternative sources of energy, such as solar energy systems for the home.D. Suppliers and other value chain actorsGoogle, Inc. acquired nest Labs for 3.2 billion in cash on January 14, 2014. Nestacquired Dropcam for 555 million in June 2014. Nest Labs integrated Dropcam, a WiFi, and video-streaming camera, into its Nest Learning Thermostat and Nest Protectsproducts.In February 2014, Direct Energy and Nest laboratories launched their Comfortand Control plan. The plan allowed Canadian customers in Alberta to receive a learningthermostat when they signed up for a 5-year electricity contract. In April 2014, Nestannounced a partnership with the United Kingdom energy supplier nPower. Thepartnership offers customers a cut on the Nest installation price and locked energy pricesfor 5 years, when customers receive both gas and electricity from nPower and pay withdirect debit. In June 2014, Direct Energy and Nest Laboratories expanded the package toDirect Energy's United States market.11Nest is integrating products with the following partnerships: Google Now, IFTTTapplications, Logitech Harmony remotes, Whirlpool appliances, Chamberlain garagesystems, LIFX bulbs, Jawbone UP24 bands, and Mercedes-Benz vehicles.4.3 Key TrendsA. Technology TrendsSmart phones are being used to control the thermostats. As well as voice controlsoftware that allows you to speak from anywhere in the room and adjust the thermostat.Green appliances are a new trend as well with people trying to be energy efficient andalso save money as well. Nest allows and sells this quality of their products guaranteeing7

that it will save consumer money as well as letting them know when they are beingefficient with their products.B. Regulatory TrendsToday, a typical household saves about 225 per year off their energy bills, and aspeople replace their appliances with newer models, they can expect to save more than 320 annually by 2030.12 New Air conditioners use about 50% less energy as comparedto older models. Federal energy efficiency standards benefit manufacturers as well. Theyreduce the regulatory burden on appliance and equipment manufacturers by pre-emptinga potential patchwork of state standards with a single federal standard. This regula-torystreamlining enhances industry competitiveness, profitability and its ability to protect andcreate jobs.Further, efficiency standards can help lower the costs of innovative energyefficient technologies by facilitat-ing their entry into the market and providing economiesof scale. Plus, the test procedures that underlay standards enhance the ability to test theperformance of newer technolo-gies. The result is higher efficiency products that aremore widely avail-able and more affordable to own.C. Societal and Cultural TrendsPeople are beginning to look for everything to run through their smart phones.This includes their home appliances. Smart phones make everything easier to access andcontrol with just a touch of a few buttons. Energy efficiency is also a trend as wellbecause everyone is trying to either save money or save the environment.4.4 Analysis of macro-economic forces includes:A. Global market conditionsThe current overall market conditions at the time are perfect for a company likeNest. Coming out of a recession in the last few years the job market is finally increasingand the average household has the extra money now to spend on the newest technology.With the world turning into a more technologically advanced “green” planet Nest’sproduct line will flourish. Millennials, Nest’s primary demographic are born between1980 and 1995 and make up about 80 million people. These millennials are taking overthe workforce of the baby boomers who are now around age 60. Replacing the generationprior means that millennials will be taking the higher paying executive positions in bigcompanies, which will drive up their average income. Higher income in a demographicthat is already introduced and inclined to use the newest technology places Nest’sproducts into the perfect global market conditions to be successful. When Nest’s targetmarket, millennials begin to start their families their children are going to be introducedto technology immediately creating a long lasting product and service. As long as the8

economy allows families to have extra spending money for products that are notnecessarily essential the longevity of Nest products may become infinite.13B. Capital MarketsNest Inc. founded by Tony Fadell and Matt Rodgers never imagined Googlewould buy their company for 3.2 billion dollars after just two years. Being purchased byGoogle and for such a large amount of money shows the potential Google sees in Nest.Starting Nest Inc. required quite a bit of capital, which was acquired from two mainventure capital firms. Kleiner Perkins Caufield & Byers a venture capital firm invested 20 million in two fundraising rounds, Kleiner also stated they are expecting a 400million return from their investment.14 The second venture firm involved in the initialinvestment was Shasta Ventures who invested 250 million over 2 rounds.15 The lastround of investors came from Google Ventures and Venrock.16 Due to the sophisticationof the product as well as the business model Nest had no issues finding venture capital.C. Resource availabilityThe availability of resources based on Nest’s business model was very easy toachieve. The biggest resource Nest needed was funding to start everything. This was veryeasy to do based on the business model Nest has completed. Nest Inc. received venturecapital from four main sources and plenty of it. Now that Nest has been bought out byGoogle the availability of resources has grown yet again. Google has technologicalresources, partners, and funding readily available for Nest Inc.D. Economic InfrastructureThe economic infrastructure of the market Nest operates in is not very complex.The overall goal of all companies in the industry is to use technology to providesimplicity and ease of use while being more “green”. Sustainability is a big trend in mostindustries in today’s era. For our products directly the only thing you need to connectthem is Wi-Fi. You have the ability to connect all your Nest products to one controlsystem being your smart phone, tablet, laptop, or desktop computer. Nest products have abrief reliance on local and national infrastructure because the more availability andcheaper pricing from internet providers allows more people to gain the full potential ofNest products. Also the price of utilities is important. A major benefit of the NestThermostat is the efficiency and availability to reduce your heating and cooling expenses.9

5Current Business Model Analysis5.1Customer Segments- This area of the business model includes FamilyHouseholds. The ideal consumer is an owner of a home, technologically advanced and isapart of the middle or upper class.5.2Value Proposition- Innovating home accessories to be more energy efficient,convenient, secure and safe by reducing cost and being customizable.5.3Channels- Nest currently reaches its customers through the sales in stores likeHome Depot, Lowes, Apple, Target, Best Buy, Amazon, and Nest’s own website,nest.com.5.4Customer Relationships- Nests uses its service of Nest Pro, which is a trainingprogram used to teach electricians about how to install the Nest products, to reach itscustomers.10

5.5Revenue Streams- Nests current revenue streams include in store sales, Internetsales, and money coming from Google.5.6Key Resources- The assets required to make Nest’s business model work aretalented, skilled employees, intellectual properties for Nest’s innovative technologies, andits research and development team.5.7Key Activities- These include Research and Development and Production of itsproducts.5.8Key Partnerships- Nests partners it needs to continue to do business include NestPro businesses, Google, Utilities Companies, Distributors, and Home ApplianceDevelopers. By establishing collaborative partnerships with home appliancemanufacturers, Nest is able to add value to its own products and services and become themain platform for home integration systems.5.9Cost Structure- The costs incurred to operate Nest’s business model are the costsassociated with researching and developing new Nest products, manufacturing anddistributing Nest products, and marketing and sales of these products.6. SWOT SummaryOur team has done extensive research into the strengths, weaknesses,opportunities and threats that are associated with the company Nest. Based on ourfindings we can summarize each of the following points:A. Internal StrengthsA major strength that Nest has is that it is backed by Google, Inc. Googlepurchased Nest in January of 2014 for nearly 3 billion dollars. Since then Google has leftNest to operate as its own entity, keeping everything the company is doing intact. Thereason this is a strength is because Google is the second most valuable company with amarket capitalization of almost 395 billion. This makes Nest more appealing toconsumers who already are associated with Google through the other companies that theyown.Another reason why Google owning Nest is a strength is because such a largecompany would not make a purchase of this size without realizing the potential that Nesthas. That being said, they know that the consumer world is evolving into a market thatallows users to connect technological items through the Internet of Things. Thisinterconnectivity allows for more options that Nest can pursue later down the line as wellas the recommendations that we plan to set forth for this company.11

B. Internal WeaknessesNest however does have a few weaknesses associated with it. They currently onlyoffer a five products, of which three that they actually own and produce. These includethe Learning Thermostat, Nest Protect, and DropCam. This can really hamper them goingafter separate market segments. If they were able to offer more products then they canreach out to different segments and boost sales of the products that they currently offer.Recalls on previous products are never good for a company’s image. In May of2014 Nest recalled over 440,000 Nest Protects for having an issue with its software. Thismay deter potential future buyers from purchasing new Nest products because of alreadyhaving faulty equipment. This can be easily fixed by allowing for more testing timebefore releasing software updates and new products.C. External OpportunitiesNest has like what it seems unlimited possibilities for growth as a company. Theycan use their products that they currently offer in order to create a security service for theconsumers. Creating a system that allows emergency authorities to respond quickly toemergencies calls can do this. As

In Public Relations, we plan to have the owners of the company speak on Ted Talks in order to get on a reputable information series. On social media, we plan to have a contest where those who purchase the Nest Protect and take a selfie with it and post it to one of our social media outlets they will receive 2 Nestlets to use with it. We also .