The Nest Learning Thermostat Hits a Sweet Spot in a Newly Emerging Market

Posted on 08. Feb, 2012 by Brian Baecker in Durables, Energy Products

In case you haven’t noticed, the housing market isn’t doing so well. If you’re one of the ~28% of US homeowners who owe more on your mortgage than what your house is worth, chances are you have little to no plans to move anytime soon. This dynamic has drastically increased the population of homeowners looking to improve their current homes. For most who decide to renovate or update parts of their home to make them either more livable or more attractive to sell; changing the thermostat is not typically high on the priority list.

To matter as a new brand in a broad category, a company must be relevant in two spaces.

1. The category in which they compete must provide a cost savings to the customer that justifies consideration of the upgrade
2. The company’s actual product must deliver on this claim better than competitors, to convince those who flock to staple brands to consider a new one.

In the heating and cooling space, thousands of dollars are often spent on improving HVAC systems, but hardly anyone thinks about the thermostat which acts like a conductor in a symphony. According to Nest, a thermostat controls roughly 50% of an average homeowner’s energy. However, it is often under-utilized due to user instructions that have more pages than a Boeing 737 operating manual. While many are Energy Star qualified, in order to really utilize these units’ energy savings people must spend hours programming temperatures that are often overridden by others in the household, who are on different schedules.

Tony Fadell and the Nest team set out to change all of that with the Nest Learning Thermostat. Nest is a simple, easy to use thermostat that learns your home’s heating and cooling behaviors through an array of intermediaries. This includes interacting with the unit itself, to motion sensors that detect whether someone is in the home or not. The main selling point of Nest is everything that most expensive, “energy saving” thermostats are not ─ its simple design. Its shape and interactive dial looks like a modern take on traditional thermostats that were once known for their simplicity. Before digital thermostats, one would simply move a dial on a wall to raise or lower the temperature. Nest is designed for consumers who are familiar with this old method of temperature control, while communicating ease of use without having to explain it.

Nest’s design should come as no surprise for those who know Tony Fadell, Nest’s CEO. Fadell worked for a design team at Apple and was responsible for creating the first 18 generations of the iPod and the first three generations of iPhone. If there is anyone who understands how ease of use coupled with simplicity and elegant design can demand a price premium, Mr. Fadell is that man.

So far results have shown that the company is on the right track. In December of 2011, Ipsos Vantis tested Nest’s marketing copy using our Vantis Concepts screening system. Respondents viewed key statements about the Nest Learning Thermostat and answered questions regarding their interest and intent to purchase. There results were:

Ipsos Vantis has identified Nest as a strong offering in the HVAC market, with the ability to show mass potential if its marketing plan is executed properly. Even at $250, a price point much higher than competing thermostats, a clear identification of need and strong liking easily compensates for its price.

Furthermore, market results are confirming our analysis from December. As of February, both Best Buy and Nest.com are sold out due to unexpected high demand.

As mentioned earlier, there are several key components when it comes to hitting a home run in a new product space. The innovators at Nest have created a new need state through effectively educating consumers on why the thermostat matters. They have also followed through by executing on a simple and easy to use product approach that will drive strong organic word-of-mouth awareness generation. This will help grow the Nest name as predicted by our buzz score metric.

Moving forward, if Nest can ramp production to meet customer demand and diversify its distribution strategy to reach more potential buyers, there is no question that the Learning Thermostat will be top of mind in the home improvement market. Furthermore, this will undoubtedly pave the way for this startup to create additional home improvement offerings in a growing market of homeowners looking for sleek, easy to use, and effective ways to improve their home.

- Brian Baecker

Research Analyst

Brian.baecker@ipsos.com

@IpsosVantis

973-658-1694

Tags: Apple, Fadell, featured, HVAC, Nest, thermostat