Table 1. Market segmentation scheme.
|By Unit Type|
|Multi-family detached house||Office building|
|Single-family detached house||Restaurant, cafe, diner, etc.|
|Apartment||Hospital, clinic, pharmacy, etc.|
|Cottage, bungalow, etc.||Store, mall, retail chain, etc.|
|Young working adult||Tenant|
Evaluation of the Attractiveness of the Identified Sub-Segments: Size, Responsiveness, Reachable
- Multi-family and single-family detached house. The construction of multi-family and single-family detached houses is increasing considerably while the sales are somewhat decreasing by up to 17% in some states (National Association of Realtors, 2020). Despite this trend, the prices are growing steadily (Conerly, 2020). The size of this sub-segment is considerable and is growing, and its responsiveness is high as the consumer residential market is increasing, and people are becoming more focused on efficiency (Research and Markets, 2019). The sub-segment is reachable as such communication channels as real estate companies, community-based organizations, and authorities can communicate with consumers through social media, email, awareness campaigns, sustainability projects, and so on (Malekpour Koupaei et al., 2020).
- Apartment. Apartment ownership and rent have been increasing and remain a traditional alternative to detached housing, so the size of this segment is large (Conerly, 2020). This sub-segment of the market is also reachable through the channels mentioned above. The responsiveness of the sub-segment is high due to the people’s need to ensure the efficiency of their dwelling and their mobility (as they mainly work long hours).
- Condo. This subsegment is another alternative to houses, but the size of this market is smaller than that of apartments or detached houses (National Association of Realtors, 2020). Condo dwellers are easily reached through the channels mentioned above, and their responsiveness is similar to other segments due to these consumers’ willingness to make their dwellings efficient.
- Cottage, bungalow, etc. This type of housing is often associated with the luxury market, although other price options are also available. The market for luxury housing is also increasing with strong prices, so the size of the sub-segment is considerable (Research and Markets, 2019). The market segment is reachable through real estate companies and online marketing campaigns. The responsiveness of consumers is high due to their focus on efficiency and sustainability, as well as remote control.
- Working young adult. Such consumers are concentrated on their dwelling’s efficiency and the ability to control diverse features from a distance, which makes them responsive to technology. The size of the market is growing, especially in urban areas (Research and Markets, 2018). These customers can be easily reached through online marketing campaigns.
- Family. The population of the USA is steadily growing, especially in the largest cities and their suburbs, which drives real estate sales in these regions (National Association of Realtors, 2020). The responsiveness of these customers is high due to people’s willingness to make their houses efficient (and minimize their expenditure). Families can be reached through online campaigns, local organizations, and authorities advocating for sustainability.
- Middle-aged people. This subsegment should be considered as these people often become the owners of residential or commercial units. They are more efficiency-oriented than younger people, which makes them responsive. Middle-aged individuals often become care providers to their elderly parents (who often live in the community). These consumers can be easily reached through online marketing, as well as local organizations and authorities.
- Office building. The subsegment of office buildings is attractive as its size is substantial and growing rapidly, especially when it comes to large cities (National Association of Realtors, 2020). The responsiveness of the market segment can be high as efficiency is one of the methods to cut costs and increase profit (Business Wire, 2020). The market is reachable through online marketing campaigns.
- Restaurant, cafe, diner, etc. This market sub-segment is large, although the sector has been highly affected by the pandemic. The present sub-segment can be reached through online marketing activities and direct sales. Responsiveness will be high due to the focus on efficiency and cost reduction.
- Hospital, clinic, pharmacy, etc. The size of this subsegment is large and constantly growing due to the high investment in the industry. Health-related organizations need to ensure certain conditions for their customers and employees, which makes smart thermostats a necessary utility. The responsiveness within this segment will be rather high due to the need for efficiency. It is possible to reach these consumers through direct sales, online marketing, and authority.
- Warehouses and stores, malls, retail chains, etc. These two segments are similar in terms of their size, responsiveness, and reachability. The size of the market is large as retail markets are growing and new retail units and warehouses (for traditional and online retailers) are being constructed. The need for a specific environment in these units makes consumers in this subsegment responsive. The ability to manage certain features remotely is important for this segment. Consumers can be reached through online marketing and direct sales.
- Tenant. Tenants represent an attractive market subsegment as they make major decisions regarding the equipment of their property. Their responsiveness is high as they want to make their dwelling units efficient and more attractive to potential customers. These people can be reached through online marketing campaigns.
- Top managers and business owners. These two subsegments are similar in terms of size, responsiveness, and reachability as top managers and business owners make decisions regarding their companies’ operations. The size of the market is considerable irrespective of certain economic issues the country is facing. These customers can be communicated through online marketing, direct sales, and authorities who can encourage businesses to be more sustainable (which can be achieved through the use of the product in question). The subsegments will be responsive due to their willingness to cut costs, make operations efficient, and be sustainable.
Targeting Strategy Used by Thermostat Manufacturers
Demographic and Psychographic Variables
Manufacturers tend to employ diverse targeting strategies to increase sales. Thermostat manufacturers tend to concentrate on demographic and psychographic variables. They focus on the consumer residential market, which is regarded as the most responsive segment (Ponce et al., 2017). Honeywell, Google Nest, and Ecobee are major players in the market accounted for approximately 40% of the entire global market of smart thermostats that tend to use this strategy (Grand View Research, 2016).
For instance, the Google Nest thermostat is marketed as smart technology for homes to keep the necessary atmosphere in every room (“Nest learning thermostat,” n.d.). The promotional texts and pictures feature residents who use the product in their homes. Thermostats’ convenience is stressed as the company promises that customers will forget about the device, which will work properly without excessive user control. The major advantage, as communicated by the company, is the creation of the necessary atmosphere.
Honeywell also features users of consumer residential units rather than the commercial segment (Honeywell Home, 2020). The company also emphasizes people’s comfort and convenience as users can create the atmosphere they need easily with the help of their product. At that, the company also refers to people’s lifestyles as the promotional texts contain parts concerning people’s habits and their pastime away from home. Ponce et al. (2017) note that smart thermostats are designed to address the specific needs of the target consumers, which is associated with ease of use and efficiency. It is necessary to note that this targeting strategy is rather effective as consumers focus on these features of the product, although quality and convenience are most valued while efficiency is not the priority (Malekpour Koupaei et al., 2020). At that, the commercial residential market offers significant opportunities for smart thermostat manufacturers.
Product Life Cycle Stage
Overview of the Concept
Researchers identify four major stages of the product life cycle: introduction, growth, maturity, and decline. Smart thermostats are at the second stage of their life cycle, growth. At this stage, the product that has been introduced is further developing, and people are learning about it and adopting the technology (Kuka, 2018). Competition is not very stiff since the number of competitors is still limited. However, the number of manufacturers is growing, so the market is steadily becoming more competitive.
Smart Thermostat Product Cycle: 4 Ps
The development and introduction of the technology date back to 2007 when the first thermostats were created by ZigBee (Research and Markets, 2018). The analysis of 4Ps is instrumental in identifying the peculiarities of the product life cycle stage (Kuka, 2018). As far the price of the products, they are still quite high, but the growing competition makes manufacturers lower prices to attract more customers and win a larger market share. Google (a follower in this market) offers its learning smart thermostat, Nest, at $249 (“Nest learning thermostat,” n.d.). Honeywell Home (which can be regarded as one of the leaders in the market) has similar prices for products with the same technological characteristics (Honeywell Home, 2020). The prices are likely to decrease as companies want to increase their sales in an increasingly competitive market at the growth stage.
As for the place, the market is confined to developed countries due to rather high prices that are still maintained (Grand View Research, 2016). Nevertheless, it is clear that the product is becoming more popular globally, and the rise of sales is predicted (Research and Markets, 2019). The product is in its growing stage as it continues developing, which is a feature of this phase of the product life cycle. New features are introduced, and the technology becomes more sophisticated (Kuka, 2018). Companies try to meet customers’ needs and add more value. Malekpour Koupaei et al. (2020) state that energy efficiency and cost-saving, which have been primary features to focus on, are becoming less discussed. People are more interested in additional options such as usability and convenience.
As far as promotion efforts at the stage of growth are concerned, it is possible to trace certain shifts. At the introduction stage, manufacturers concentrated on raising people’s awareness of the product. At present, companies pay more attention to meeting people’s needs and addressing such aspects as lifestyle, environment, efficiency. As mentioned above, the texts available from the major players’ websites include such major themes as efficiency, comfort, and lifestyle.
It is noteworthy that the adoption of the product at the growth stage is increasing considerably. More groups of customers start buying thermostats, which shows their growing popularity. Initially, technology-oriented and environmentally friendly young adults were the major users of the product. At present, middle-aged and older customers are also using thermostats. People who are not keen on new devices start using this technology as well, and it is becoming more known and understandable.
Competitive intensity in the market is growing, which is another feature of the growth stage. The costs are still quite high due to a comparatively limited supply of components and their prices. At that, the power of buyers is high because they can easily switch to different manufactures whose number is increasing. Differentiation potential is significant, and companies start offering products with added value. Although companies can leave the market rather easily, they do not do it because the market is not saturated yet, and newcomers can ensure appropriate sales of their products.
Limiting the Adoption of Smart Thermostats
The adoption of any product can be hindered by several factors, including compatibility, relative advantage, complexity, observability, and trialability. When considering potential threats to the adoption of smart thermostats, it is necessary to pay specific attention to complexity, trialability, and relative advantage. Complexity is the most influential hindering factor as some groups of consumers may find the utilization of these products rather difficult (Cheng, 2018). Older generations are not active users of mobile applications, while this component is important for smart thermostat use.
The Trialability of the product is also important for its successful adoption because consumers should be able to try it easily, which is not quite easy with smart thermostats. To use it and understand its advantages, it is necessary to equip the consumer’s house with it, which presupposes buying the product. At that, people can see the way smart thermostats function when visiting people who have already installed the product and enjoy the advantages of its use (or complain because of its disadvantages).
Relative advantage is also quite a significant factor hindering the adoption of the product in question. Smart homes are equipped with various systems that ensure efficiency and the necessary comfort. The development of technology is making such systems more affordable, so such alternatives to smart homes as thermostats may soon lose their competitive advantage. There is also a threat to the emergence of new technology that may replace thermostats.
Accelerating Smart Thermostat Adoption
At present, smart thermostats are gaining momentum due to people’s search for efficiency and comfort. To accelerate the adoption in the consumer residential market, it is necessary to make the product more user-friendly by improving the interface, adding more options, adjusting the product to different groups’ needs (Ponce et al., 2017). When it comes to the commercial residential market, it is important to improve the characteristics of smart thermostats by creating integrated systems for many devices in diverse places. The marketing strategy should involve the development of a plan of communication with businesses. Smart thermostat manufacturers should emphasize the advantages of their products to different types of businesses.
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Nest learning thermostat. (n.d.). Web.
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