The global home automation system market has been growing a lot in the past years and more specifically it is expected to grow from $32.1 billion in 2015 to $78.27 billion by 2022 (MarkeMarkets, 2016). With the advancements in technology, home automation is now giving people the ability to control, monitor and automate almost all the activities and aspects of their home (IMARC, 2016).
Nest Labs is an American home automation company, founded in 2010 by two former Apple Engineers. Their mission is to create a “thoughtful home” by providing simple and delightful things (Nest, 2017). In 2014, Nest was acquired by Google for $3.2 billion and incorporated into Alphabet. It is currently working with Google Home.
The purpose of this essay is to evaluate Nest's marketing strategy through the analysis of the 4P framework. Each area of the framework is going to be explored through the use of: the Ansoff Matrix, the Product Life Cycle and the Three Levels of Product. Moreover, Nest's use of segmentation, targeting and positioning is going to be analysed in order to provide recommendations and draw conclusions.
A product is “anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need” (Armstrong, Kotler, Harker, Brennan, 2009, p232). Nest currently offers four products: the Nest Learning Thermostat, Nest Protect, Nest Cam Outdoor and Nest Cam Indoor. In order to explore the nature of a product, three levels of product are considered (Appendix A). The most basic level is the core benefit, which represents the key, problem-solving benefits offered by a product. For each of the products, the core benefit is different. For example, the Learning Thermostat is an energy-saving programmable device that can be controlled through Wi-Fi. The “smart” part of the device is a key selling point since it is predicted that at least 130 million smart home devices are going to be bought in 2017 (Olick, 2017). The second level is the actual product, which includes design, quality level, branding and packaging. Nest products are well designed and packaged, with their revolutionary design winning multiple design awards like the Red Dot Award and the Gold International Design Excellence Award (Nest Blog, 2013). The final level is the augmented product, which connects the two previous levels by offering extra services and benefits. Nest offers free shipping on its website along with a two-level warranty and the ability to have the products installed.
The product lifecycle is the course of a product's sales and profits over its lifetime and it includes five stages: product development, introduction, growth, maturity and decline (Appendix B). For instance, the Nest Cam Outdoor, released mid-2016, is the newest product and it is on the introduction stage, where its sales are starting to grow. On the other side, the Learning Thermostat, is on the growth stage, where profits are increasing and the market has accepted it.
Price is “the amount of money charged for a product or service” (Armstrong, Kotler, Harker, Brennan, 2009). Nest Labs currently adopts a value-based pricing strategy (Appendix C). This pricing strategy uses buyers' perception of value as the main factor for determining the price of the product. Nest's products offer unique and highly valuable features that differentiate them from their competitors, thus the adoption of this pricing strategy is successful for the company. The prices of its products can be seen at Appendix D. The price point is crucial when potential customers are deliberating about the purchase of a product. Even though Nest's prices are quite high, it does not market towards a specific social class. Its biggest selling point is saving energy. According to the Bureau of Labour Statistics, in a society where unemployment rate is still over eight percent and gas prices fluctuate continuously, it is practical to assume that saving money will appeal greatly to most people (Labour Force, 2012). Based on that, customers choose to invest in Nest's products due to the long-term cost saving benefits of using its products.
Place is the activities a company engages in in order to make a product available to target consumers (Armstrong, Kotler, Harker, Brennan, 2009). Nest Labs uses a multichannel distribution system, where more than two marketing channels are used in order reach the customer segments. Its products are luxury items aimed at energy conscious homeowners. In order for the products to maintain their “luxury” status, Nest chooses to have selective distribution. It offers its products on department stores like John Lewis, which are well established companies with good reputation, that provide the company with access to a wide customer base. Moreover, its products can be purchased online from the Nest website as well as a selective amount of other online retailers like Amazon and Google Store. Lastly, Nest has recently partnered with energy companies like Direct Energy, which is one of the biggest energy and home retailers in North America, in order to encourage consumers to save energy while creating a smarter home. The deal offered by Direct Energy is that if customers sign a 2-year contract with the company, they are going to receive a Nest Thermostat for free. This is a big move for the company because it is gaining a lot of exposure, especially to one of its main targets: energy conscious people. By selling its products online, Nest manages to the remove intermediaries along with their costs, while offering their products to a wider range of customers. Overall, the use of three distribution systems, which are really streamlined, has been quite effective for Nest.
Promotion includes the activities that communicate the merits of a product and persuade target customers to buy it. The promotion mix, which includes advertising, sales promotion, direct marketing, public relations and personal selling, is really important in order to communicate customer value and build customer relationships (Armstrong, Kotler, Harker, Brennan, 2009). Nest Labs has chosen to implement a pull marketing strategy, which includes any method that is used in order to induce customers to buy a product (REFERENCE). It has been proven that pull marketing generates more engagement and loyalty from customers and simultaneously demonstrates a better return on investment (Carlton, 2015). Nest has tried to avoid adding a “techie” feel to its advertising campaigns and instead its strategy is to be as simple as possible (Urry, 2015). The company is trying to sell tech as the new normal, which can be seen through its advertising campaign on TV, where relatable humour is used in order to share its message, without putting off a techie vibe. Nest uses informative advertising, in order to inform the market about its products, while explaining the way the products work. For instance, the company's YouTube channel is full of extensive overviews of how its products work and their capabilities. Moreover, it contains interviews from homeowners who have purchased Nest's products along with their recommendations. This is crucial for Nest, since social media has become one of the most powerful pull marketing channels, due to the fact that is enables a two-way communication between the brand and the consumers (Karaoulchtchikova, 2015). Along these lines, the company has an active Facebook presence, with currently 445,108 likes on its page (Facebook, 2017). This is also important, since according to a report by GroupM “74% of consumers use Facebook brand pages as the desired format for following a brand for future engagement” (GroupM Search, 2009). Another big move for Nest was its recent expansion to four countries in Europe: Germany, Austria, Italy and Spain (Nest Press, 2017). The company targeted a new market, which falls under “Market Development” in Ansoff's Matrix (Appendix). However, except from Market Development, Nest has also used the Product Development strategy of Ansoff's Matric, with the introduction of the Nest Indoor and Outdoor Cams, which are voice-controlled security cameras, into its previously established market. Last but not least, Nest has put an effort on its social and environment responsibility. The company has stated that it wants to provide a positive impact on the community and that is strives to be a good citizen when it comes to health, pay, education and labor practices (Nest, 2015). Such efforts are deeply appreciated by consumers, who according to a study are more willing to pay more for products and services provided by companies that are committed to positive social and environmental impact (Nielsen Global Survey, 2014)
“Marketing as strategy is the emphasis on the strategic business unit level on market segmentation, targeting and positioning in defining how the firm is to compete in its chosen business” (Webster, 1992). Market segmentation includes dividing a market into smaller groups of buyers with different needs in order to deliver products and services more effectively (Armstrong, Kotler, Harker, Brennan, 2009). Nest has segmented its market demographically through age, life-cycle and income, and psychographically through lifestyle and social class. Target marketing is the process of looking at the market segments and selecting which it can serve effectively and profitably (Armstrong, Kotler, Harker, Brennan, 2009). Even though price point plays a big role in the income base of customers, Nest does not market towards a specific social class. As mentioned by Paul Salmon “Home automation is no longer limited to the wealthiest demographic segments” (Salmon, 2012). Nest's marketing strategies are mainly aimed towards homeowners in the 30s-50s age range, who are gadget interested and energy conscious. It is apparent that the company would target environmentally aware and eco-friendly people, since one of its main marketing strategies is saving energy. Market positioning is the arrangement of a product to occupy a desirable place relative to competing products in the minds of target customers (Armstrong, Kotler, Harker, Brennan, 2009). Nest's overall positioning strategy is “more for the same”. For the most part the company offers about the same prices with its competitors but its products are more technologically advanced and more attractive.
The connected home market is estimated to be worth almost US$150 billion globally by 2020 (PWC, 2015). Due to the growth of the aforementioned market, a lot of companies have developed smart home devices, similar to the ones Nest produces. GreenWave Systems, iControl, Honeywell are some of Nest's strongest competitors. In order for Nest to stay competitive, the company must consider the SWOT analysis (Appendix F). Firstly, it would be beneficial for them to expand their target market into Apartment Complexes, hotels and office buildings. By doing that, the company's sales are going to be boosted and it will help their prospected costumers reduce energy costs. Moreoevevr,
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