May192020
Posted by:admin
How does a start-up enter the large residential energy efficiency market?
By starting small and recognizing that customers do not value energy efficiency.
A report by the Alliance for an Energy Efficient Economy (AEEE), estimates that India’s building sector energy consumption could rise faster than twice the global average. About 70% of the building sector energy demand growth would be driven the residential sector. It estimates that the potential for Indian consumers in terms of bill savings by adopting energy saving would be ₹ 17-51 billion in 2030 (at today’s rate)[1]. News reports indicate that the Indian room AC industry market is expected to be of around 4.5 million units with more than 20 supplying companies[2] and the fan industry to be around 55 million units of which 40 million units is in the organized market. [3]
Atomberg Technologies manufactures energy efficient fans that consume 28W at full speed as compared to 75W by conventional fans. Set up by two IIT Bombay graduates, Manoj Meena and Shibam Das, in 2015, it sells its fan to retail customers via online channels (such as Amazon.com) and through retail shops.
The founders realized that all household electrical appliances have a motor: fans, air-conditioners, refrigerators, water pumps. An energy efficient motor would have the ability to target a very large range of household appliances. It focused on developing a motor for fans in order to get a product out to the market with a relatively small investment. If they had picked air conditioners, the amount of money required would have been much higher.
Move through a sequence of niche segments
Atomberg focused on very specific niches in its early days when it started in 2015. The savings from one fan was about Rs. 1500 per year and so it targeted industries that used a large number of fans. Atomberg’s first port of call, even before it had set up manufacturing facilities, was the ceramic industry in Gujarat. The young, just fresh out of college, founders demonstrated their working prototype to about dozen potential customers. One of them not only gave the company an order forking out a princely advance of Rs. 5 lacs but also took its distributorship in the industrial cluster. With the first early adopter customer willing to vouch for the product, Atomberg rapidly acquired a substantial market share in the cluster.
The product evolved as the founders targeted other segments. For example, the cold storage in the eastern part of the country required a product that could work with higher revolutions per minute. In each segment, the company on-boarded a few customers and then appointed a distribution partner to increase sales. The feedback from the industrial customers and partners helped improve the product quality. The founders of the company are frank. “Our business customers supported us, if we had first launched our product in the consumer market, we would not have received feedback only complaints.”
Sharply focus on small groups of customers
Atomberg first started selling to retail customers through on-line channels early in the financial year 2017. This allowed them to test the market without spending a lot of money. More crucially, in the early days, it also allowed them to reach out to early adopters who were actively researching these types of products. By talking to these customers the company started understanding the retail customer’s preferences. They were convinced about the product value when customers started coming back after a few months of experiencing savings in electricity bills to order their second and third fans. This customer validation made it easier for the company management to make investments and patiently grow the sector. The retail segment contributed to less than 20% of sales in the first year (2017). In the second (2018) it was up to 33%.
Even as the company started selling in the off-line market through shops in markets, it kept the focus on engaging with customers. This time it meant engaging with not only the end customer but also the shop owner and the shop assistant. The shop assistant was most often the person who talked to customers. Atomberg deputed young business graduates at each newly-recruited shop. These young business graduates sold the fans themselves and in doing so trained the shop personnel.
Understand that customers do not just buy energy efficiency
Consumers consider both the cost of purchase and the savings in operations. Aesthetics is key. So are product operating features such as the air flow qualities. Atomberg introduced fans with different blade sizes and colours. Since Atomberg fans consumed much less electricity, it also produced much less waste heat. The company could, therefore use plastic materials in the body of the fan to enhance aesthetics. Ease of operation is an additional consideration. The Atomberg fans work with remotes. Some people liked that but some preferred the regulator. The company has a range of products at various points (from Rs. 2000 to Rs. 5000) to satisfy various customer preferences. It also a pipeline of planned products. One of them would also work with a regulator. The other would have smart interoperability with home automation.
But the key thing customers are looking for is quality. “There is always scepticism about a new product.” Atomberg’s promise to attend to all customer issues within a few days helped assure customers. It could do so because it made customer quality a priority and empowered frontline personnel. The company founders focused on hiring the right core team and giving them the right atmosphere to do their jobs. Atomberg’s ability to deliver on this quality promise also helped convince retail shop owners to partner with them.
Lessons from Atomberg
Atomberg’s young founders teach us a few things in creating impact in the energy efficiency market.
Start by dominating small niches where your product has a significant competitive advantage.
They focused on small niches such as the ceramic industry in Gujarat, the cold storages in Siliguri,. In each place, it onboarded customers and then appointed a distributor who was well connected in the cluster.
Test ideas frugally as you evolve into new customer segments.
Atomberg tested the market through online portals where they did not have to compromise on gross profit margin. Only after establishing dominance in the online market it moved to the larger retail market. Here, they invested by sales people and tracked data on how long they needed to become productive.
Invest in product development because retail customers value multiple attributes
Atomberg invests heavily in product development as retail customers value a whole range of attributes (price, aesthetics, operational ease and flexibility). Customers need options on what they can buy and companies need to create the options for today and for tomorrow.
At Caspian we are privileged to partner with Atomberg Technologies as they explore this important market. Atomberg first entered our portfolio in the financial year March 31, 2018. In the very next year, Atomberg received enhanced facilities that enabled them to grow rapidly in the retail market. We hope this blog would help the other entrepreneurial company founders and managers to adapt lessons from Atomberg.
[1] https://www.aeee.in/wp-content/uploads/2019/03/Behavioral-Energy-Efficiency-Potential-v1.pdf
[2] https://economictimes.indiatimes.com/industry/cons-products/durables/ac-makers-expect-a-double-digit-sales-growth-this-summer/articleshow/68764512.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
[3] https://www.thehindubusinessline.com/companies/orient-electric-eyes-25-share-in-fan-market/article22798314.ece