Nest Labs NAICS: 54171126

Jonathan Andrews, Kelechi Basil, Lena Miller, Megan Morrow, Michelle Pargament, Jordan Peykar,

Yejee Whitney Kim

Principles of Marketing EN.660.250(01)

Spring 2015

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Table of Contents

Executive Summary……………………………………………………………………………….2

Introduction………………………………………………………………………………………..4

Marketing Plan…………………………………………………………………………………….8

Recommendations………………………………………………………………………………..15

Conclusion……………………………………………………………………………………….18

Appendices

● Appendix A……………………………………………………………………....19

● Appendix B………………………………………………………………………23

● Appendix C……………………………………………………………………....24

● Appendix D……………………………………………………………………....24

● Appendix E……………………………………………………………………....25

Bibliography……………………………………………………………………………………. 28

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Executive Summary

Introduction

Nest Labs was founded in 2010 by two former Apple Engineers. It was bought out by Google

in 2014 and now offers three products: the Nest thermostat, Nest Protect, and Dropcam. Industry

trends reflect the increasing popularity of programmable communicating thermostats like Nest,

which may be attributable to an increased interest in sustainability.

Marketing Plan

Nest is at an advantage in relation to external social factors, given the general population’s

increased interest in sustainability, while its current strengths relate to the company’s marketing

tactics, such as its use of social media and competitive pricing. However, external economic

factors, such as the initial cost of the product, as well as the product’s expense in comparison to

HVAC automation thermostats, may put the product at a disadvantage. Nest’s target market is

energy conscious, middle income, homeowners and parents. It segments its market

demographically by targeting a specific age-range and income as well as psychographically by

targeting energy-conscious individuals. Nest products are in the growth stage, with a

competitive-oriented pricing and are distributed fairly directly. The product is promoted through

a TV advertising campaign with a strong public relations presence on Twitter, Facebook, and

special events.

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Recommendations

It is recommended that Nest branch into a new product line with Nest Shield, a new security

product aimed to prevent home invasions. With Nest Shield, Nest Labs will be able to solidify its

hold on the safety and security sector home automation market. Nest has successfully broken

into the home automation market with its current products- Nest Thermostat, Nest Product, and

Dropcam- and should extend this product line with Nest Shield to solidify its hold in this

industry.

Conclusion

Nest is an up-and-coming household name. Nest has designed an optimum product and

targeted it towards the right market. Nest also continues to deliver stellar customer service

ensuring that its customers remain happy with the company. Nest should extend its brand to

create a security device.

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Introduction

History

In 2010, Nest was founded by Tony Fadell and Matt Rogers, two former Apple

engineers. Prototype development began in Palo Alto, California and the first Nest Thermostat

was launched in October 2011. Since then, it has increased its distribution channels to include

Lowe’s, Apple, and Amazon and has expanded to the Canadian and British market. It now holds

offices in Palo Alto, Austin, Boulder, Dublin, London, Paris, and Taipei. Nest Protect, a smoke

and carbon monoxide detector, was launched in late 2013. Along with this product line

expansion, Nest began a Fire Truck advertising campaign that fall and began selling its products

at Target and Home Depot. In January 2014, Nest was acquired by Google for 3.2 billion dollars.

Since then it has grown from 130 to 460 employees. In June 2014, Nest acquired Dropcam, a

motion-detecting camera for the home. It currently stands as a frontrunner in automated home

energy systems.1

Description of the Product

Nest is an AI thermostat that learns air condition patterns and programs itself to

automatically adjust the home’s temperature. At first, the Nest is manually set. After a few days,

the thermostat begins to teach itself the home’s indoor weather patterns. Even during the summer

months, the humidity sensor within the device cuts AC runtime. The auto-off function uses a

built-in sensor that automatically turns itself off after a certain number of minutes if it doesn’t

detect movements. The Nest also features multi-device connectivity that allows users to adjust

their home’s temperature from anywhere as long as they have an internet connection. These

1 Nest. 2015. Web. 24 Mar. 2015. https://nest.com/

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features aim to help reduce energy bills. The device itself is sleek and simple, mirroring the

traditions of its founders’ previous company, Apple. The one-button device boasts a beautiful

shiny full color screen enclosed within a sleek stainless steel outer surface that is reflective to the

surrounding walls.

Other Products

Aside from Nest Thermostat, Nest also offers a highly advanced smoke alarm and carbon

monoxide detector called Nest Protect. Nest Protect will inform the owner casually, with an

automated voice, where and what the danger is, from every Nest Protect owned. If the owner

fails to take action then it will sound a louder alarm. Secondly, not only does Nest Protect alert

the homeowner to the level of smoke but also to level of carbon monoxide. Additionally, if the

Nest Protect is connected to Wi-Fi and Nest Thermostat, the system will shut off the gas furnace.

These are the two main functions of Nest protect, but this product is full of useful features.

The company also offers a motion detecting security camera called Dropcam which

streams directly to a phone or computer.

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Recent Sales & Profit History

Before its acquisition by Google, Nest Labs was a private company not obligated to

release its financial information to the public. In January 2013 Nest closed a round of funding

infusing $80 million at a valuation of $800 million.2 Just one year later Google purchased Nest

Labs for $3.2 billion, a 4 fold increase, just after a round of funding that saw Nest’s valuation

rise to $2 billion.3 Estimates had Nest Labs selling 40,000 units a month at $119 million in

revenue for the year 2013. Those estimates have since more than doubled to 100,000 units per

month for $300 million in revenues.4 Another metric that can be used to quantify Nest’s worth is

the change in market capitalization Google saw the day of the transaction. At the time of the

purchase Google’s outstanding shares were 680 million and with a $27.38 rise in the stock,

Google’s market capitalization grew by nearly $19 billion.5

Industry Overview & Trends

There are two similar types of programmable thermostats within the industry: HVAC

automation thermostats and programmable communicating thermostats. Nest is the latter.

Programmable communicating thermostats use “dynamic pricing information and other signals

transmitted from the utility in combination with settings programmed by the user to adjust

thermostat settings,” while HVAC automation thermostats “lack the capability to receive and act

on such dynamic information received from outside the home.”6 HVAC automation thermostats

2 Carr, Austin. "Tony Fadell's Nest Thermostat Company Hits $800 Million Valuation." Fast Company. 30 Jan. 2013. Web. 24 Mar. 2015. 3 "Google Inc. Announces First Quarter 2014 Results – Investor Relations – Google." Google Inc. Announces First Quarter 2014 Results – Investor Relations – Google. 16 Apr. 2014. Web. 23 Mar. 2015. 4 Yarow, Jay. "Nest, Google's New Thermostat Company, Is Generating A Stunning $300 Million In Annual Revenue." Business Insider. Business Insider, Inc, 14 Jan. 2014. Web. 22 Mar. 2015. 5 "Google Inc. Announces First Quarter 2014 Results – Investor Relations – Google." Google Inc. Announces First Quarter 2014 Results – Investor Relations – Google. 16 Apr. 2014. Web. 23 Mar. 2015. 6 McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 52. BCC Research, 1 Feb. 2015. Web. 23 Mar. 2015.

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were estimated to have a U.S. market of $147.1 million in 2013 and are estimated to grow to

$269.1 million by 2019.7 In contrast, programmable communicating thermostats had an

estimated U.S. market at $50.4 million in 2013, and are expected to rise to $66.2 million by

2019.8 Because it has become commonplace to center marketing strategies on “products’ ‘green’

or environmentally friendly attributes,” the energy saving qualities of programmable

communicating thermostats may become especially appealing to the “growing market of

environmentally conscious consumers.”9

Key Competitors

A number of companies have developed similar products; these include: GreenWave

Systems, iControl, Alarm.com, Ecobee, Honeywell and many more. GreenWave Systems is a

startup based in Irvine, California that empowers leading brands to use Internet of Things (IoT)

managed services and already has partnerships with major cable and telecommunication

companies such as Verizon and DirecTV.10 iControl is also already partnered with leading home

security companies and service providers such as ADT Security Services, Comcast Xfinity, Time

Warner Cable and more.11 Alarm.com offers automated, integrated services all in the control of

an app. One of its biggest re-sellers is Vivint, one of our country’s larger home alarm

companies. All three of these companies, as well as Nest, have exceeded use in one million

homes.12

7 McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 60. BCC Research, 1 Feb. 2015. Web. 23 Mar. 2015. 8 McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 77. BCC Research, 1 Feb. 2015. Web. 23 Mar. 2015. 9 Campbell, Benjamin, Hayk Khachatryan, Bridget Behe, Jennifer Dennis, and Charles Hall. "Consumer Perceptions of Eco-friendly and Sustainable Terms." EBSCO Host. EBSCO, 1 Apr. 2015. Web. 18 Apr. 2015. 10 "GreenWave Systems." RSS. Web. 24 Mar. 2015. 11 iControl. 2015. Web. 20 Mar. 2015. 12 John, Jeff St. "Google and Nest: The Big Picture for Home Automation Competitors." GreenTechMedia. 17 Jan. 2014. Web. 24 Mar. 2015.

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Marketing Plan

SWOT Analysis

Many of Nest’s future market opportunities relate to external social factors, while its

current strengths lie in the company’s marketing tactics. With regards to external social factors,

Nest is well positioned because of the social potential for an increased interest in sustainability.

This interest may be fulfilled by Nest’s focus on saving energy and money on energy bills. In

terms of current strengths, the company’s streamlined, visually appealing website, as well as its

active social media accounts, make it easy for customers to learn about Nest’s products.

Furthermore, the product is competitively priced with other brands with similar holdings.13

Despite Nest’s many future market opportunities, the company may be threatened by

external economic factors. The initial cost of the Nest Thermostat may dissuade consumers from

seeing the long-term cost saving benefits of using the product. The company’s primary current

weakness falls in line with this issue—at $249 the product is $169 more than a typical HVAC

automation thermostat, such as Honeywell’s 7 Day Programmable version.14

Target Markets

“Everyone loves their Nest Thermostat. Except Grandpa.” 15

Nest’s Youtube channel provides commercials that outline the product’s target market

explicitly. Each commercial lists someone that doesn’t love the Nest Thermostat, such as the

elderly, kids, teens, and pets. Nest directs their targeting efforts toward middle class, energy

conscious homeowners. Testimonials from those who love and use the product are gadget

13 "Ecobee3." Ecobee. Ecobee. Web. 14 Apr. 2015. 14 "Honeywell RTH7600D Touchscreen 7-Day Programmable Thermostat." Amazon. Amazon. Web. 14 Apr. 2015. 15 “Everyone Loves Their Nest Thermostat. Except Grandpa." YouTube. Nest, 16 Nov. 2014. Web. 15 Apr. 2015.

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interested, energy conscious, parents, and heads of homes. The company’s second series of

commercials, “Learn about the Nest Learning Thermostat,” features a main character, usually a

male or female in their 30s-40s, controlling the product in their home. Other animated

commercials depict an average looking home with a tree outside, akin to a suburban setting. The

results of the company’s market research, outlined in an initial press release, show that the

company looked into single-family homes16. When the company announced that it would be

partnering with Lowe’s, a leading home improvement store, Nest further specified its target

market stating,

“There’s a natural affinity between Lowe’s and Nest…Both companies are committed to

supporting DIY-minded customers seeking quality products… so it makes sense for them

to buy from Lowe’s, a great retailer that supports its customers' ingenuity and pride in

their homes.” 17

Segmentation Bases

Segmentation bases can be used to define which market segments Nest is targeting as part of its

marketing strategy. Based on the target market identified in the section above, those

segmentation bases can be specified as,

Demographic-

Income: Nest primarily targets middle to upper class individuals with their ads. The imagined

Nest user lives in a multi-bedroom home. Additionally, at approximately $250, the product is not

an inexpensive gadget. Income is a significant factor in a consumer’s buying power.

16 "Nest Labs Introduces World's First Learning Thermostat." Nest. 25 Oct. 2011. Web. 20 Apr. 2015. https://nest.com/press/nest-labs-introduces-worlds-first-learning-thermostat/ 17 "Nest Learning Thermostat Now Available at More Than 500 Lowe's Stores, Lowes.com." Nest. 8 May 2012. Web. 14 Apr. 2015.

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Age: Age is one of the most common variables used in marketing strategies. Nest’s marketing

strategies are geared towards homeowners and parents in the 30s-50s age range.

Psychographic-

Lifestyle: Energy-consciousness is considered a lifestyle. Lifestyle segmentation is based on the

way in which the consumer lives and spends their time and money.18

Marketing Mix

Product

Nest is currently in the growth stage of the product lifecycle. In 2013, Nest was selling

40,000 - 50,000 thermostats per month. Currently, Nest is estimated to sell 100,000 thermostats

every month.19 Nest’s revenue from this year alone is estimated to be $300 million, and its

revenue is expected to ramp up significantly over time. Given Google’s $3.2 billion acquisition

of the company, it is expected that Nest will grow exponentially for the next ten years and more.

Nest is already in talks with various strategic partnerships such as one with ADT, the world’s

largest home security firm, to partner for future products.20 With the potential partnership, the

Nest thermostat and smoke alarm will be integrated into ADT’s security platform and gain

access to ADT’s seven million worldwide customers.

Product positioning is high in design and performance. Cnet rated the Nest thermostat

design and performance a 10, while Ecobee’s Ecobee3 is an 8 in design and performance and the

Honeywell Wi-Fi Smart thermostat is a 7 in design and a 9 in performance. A perceptual map

can be found in Appendix C.

18 Kerin, Roger A., Steven William. Hartley, and William Rudelius. Marketing. Print. 19 Yarow, Jay. "Nest, Google's New Thermostat Company, Is Generating A Stunning $300 Million In Annual Revenue." Business Insider. Business Insider, Inc, 14 Jan. 2014. Web. 15 Apr. 2015. 20 Kim, Eugene. "A Potential Partnership Could Finally Take Nest Sales To The Next Level." Business Insider. Business Insider, Inc, 29 Dec. 2014. Web. 15 Apr. 2015.

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Nest products are well designed and packaged. Nest’s product design is so successful in

part due to Fred Bould, an award winning product designer who has also worked with designing

the Hero3 GoPro and Roku’s web video streaming box.21 Nest’s innovative, revolutionary, and

beautiful design has won multiple design awards, including the prestigious Red Dot Award for

two consecutive years as well as the Gold International Design Excellence Award.

Price

The Nest Thermostat is currently priced at $249. Competitive products are similarly

priced, with Ecobee’s Ecobee3 Smart Thermostat priced at $249 and Honeywell’s Wi-Fi Smart

Thermostat also priced at $249.22 Nest employs a competition-oriented pricing approach. Pricing

of the Nest Thermostat is exactly the same as similar smart thermostats in the market.

Distribution

The Nest thermostat is distributed in a selective manner. The product can be bought

online from the Nest website, as well as a small number of other online retailers like Amazon

and Google Store. It can also be bought in store at a small number of locations, including Home

Depot, Best Buy, and the Apple Store. Nest has also partnered with energy companies like Direct

Energy, the largest energy and home retailer in North America. After signing a 2 year contract

with the energy provider, the consumer will receive a Nest Thermostat for free.23

As indicated above, Nest uses three channels of distribution. The most direct channel

involves the consumer ordering the thermostat from the Nest website. (Appendix D) The second

21 Yarow, Jay. "Meet The Unknown Genius Who Helped Design The $3.2 Billion Nest Thermostat And Smoke Detector." Business Insider. Business Insider, Inc, 17 Jan. 2014. Web. 16 Apr. 2015. 22 Wollerton, Megan. "These Smart Thermostats Steal the Heating and Cooling Spotlight - CNET." CNET. 1 Oct. 2014. Web. 17 Apr. 2015. 23 Knox, Tom. "AEP Customers Get Free Nest Thermostat with Two-year Contract with Direct Energy - Columbus - Columbus Business First."Widgets RSS. 14 July 2014. Web. 20 Apr. 2015.

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channel of distribution involves an online retailer, such as Amazon, or a physical retailer like an

Apple Store. These two channels have no intermediary bodies between the producer and the

retailer. (Appendix E) Finally, Nest distributes thermostats through energy companies, the least

direct method utilized. Overall, the distribution channels are exceptionally streamlined.

Promotion

Nest uses a number of advertising techniques to gain widespread exposure. In November,

Nest launched a pioneering advertising campaign on TV using the tagline, “Welcome to a more

thoughtful home.” The humorous appeal advertisement consists of various individuals explaining

the reasons they dislike the Nest Thermostat, which center around the fact that the Nest

Thermostat learns its owners’ habits. The use of TV indicates that Nest is aiming to reach a

widespread audience. The TV spot was located in the middle of football games and primetime

programming across channels like ESPN and Discovery. This suggests that the company is

targeting men.24

The company also entered into an agreement with “Reliant an NRG company,” which

provides energy electricity to homes and businesses across America. Reliant funded a number of

advertisements featuring the Nest Thermostat’s green credentials. This promoted Nest’s brand

and advocated for Reliant’s stance on home energy efficiency. Reliant has also raised awareness

in Texas through the use of outside advertising on billboards.25

Nest also utilizes behavioral targeting on social media sites, like Facebook, to present

advertisements to individuals that have visited the Nest website. The company's YouTube

channel is not only full of their commercials, but also full of useful information as to how to set

24 "Nest Isn't Just Smart and Sleek, But Funny Too, in First TV Ads." AdWeek. Web. 15 Apr. 2015. 25 Charlton, Erik. "New Reliant Nest Ads and Billboards." Nest. Nest.com, 13 July 2012. Web. 10 Apr. 2015.

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up the system. It also contains interviews with and recommendations from owners of Nest

Systems.

Personal Selling

Though the online distribution pathways are not a form of direct selling, Nest’s use of physical

retailers like Lowe’s consist of in-store contact between customers and salespeople. Because

customers typically enter the store seeking more information on the Nest Thermostat, there are

no Prospecting, Pre-approach, or Approach stages of personal selling. (Appendix E) The

salespeople go through the Presentation and Closing stages and adopt a consultative selling

strategy, becoming experts in the product. There are no specific Nest sales representatives.

Sales Promotion

Nest has employed a sales promotion of offering products at discounted prices. Some of

Nest’s domestic and international partners include Direct Energy and Electric Ireland,26 both of

which have employed a sales promotion strategy of offering a free Nest Thermostat for signing a

two-year contract with one of the prospective electricity providing companies.27

Public Relations

Nest has a considerable social media presence and employs special events as a tool to

engage current and potential customers. The company already has approximately 320,000

Facebook likes and 135,000 followers on Twitter.28 Nest has recently held a joint fire truck and

26 Knox, Tom. "AEP Customers Get Free Nest Thermostat with Two-year Contract with Direct Energy - Columbus - Columbus Business First."Widgets RSS. 14 July 2014. Web. 20 Apr. 2015. 27 Shankland, Stephen. "Nest's New Sales Tack: Free Thermostats - CNET."CNET. 5 Nov. 2014. Web. 20 Apr. 2015. 28 Web. 20 Apr. 2015. <https://twitter.com/nest>.

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Blue Bottle Coffee event, in which the company gave free coffee and gift wrapping to NYC

holiday shoppers while simultaneously showcasing the Nest products.

Nest concentrates on its social and environmental responsibility. The Nest Thermostat

and Smoke + CO Alarm products are inherently eco-friendly and cost-conscious. The Nest

website writes, “We want to be a positive impact on our community. Nest strives to be a good

citizen when it comes to health, pay, education, and labor practices.”29 Its products are already in

line with many national and international environmental laws. The products contain no

hazardous substances and are fully compliant with Restriction of Hazardous Substances

Directive. It is also REACH compliant in accordance with the EU’s corporate chemical

management requirements. Nest sets high standards for all of the organizations and companies it

collaborates with as well, requiring all suppliers to be ISO 14001 Environmental Management

Standard certified. Additionally, it only works with other corporations that are similarly

committed to improving social and environmental practices.

29 Nest. 2015. Web. 24 Mar. 2015.

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Recommendations

The goal of the current Nest device is to maximize the comfort and efficiency that people

experience in their homes. As of right now, the Nest thermostat functions as an atmosphere

control device for the household. Nest Labs has furthered attempted to diversify its market

options by creating a new product that is within the same market; Nest Labs developed the Nest

Protect to be a home carbon monoxide and fire alarm device and integrated the device into the

existing Nest App. With its two current devices, Nest Labs has a standing in two sectors of the

home automation market. It is recommended that the company establish and develop its hold on

the home automation market, which would be economically advantageous for Nest to hold a

majority of the market share and revenue. To do this, it would be best for Nest to develop a

product to strengthen its placement in the safety and security sector of the home automation

industry.

The new product being recommended is a home security suite that would include home

and window alarms. This new product will need to be introduced strategically to ensure that Nest

Labs’ entrance into the safety and security sector does not result in a revenue loss. It is advised

that Nest Labs wins contracts with one of the top home security market players such as Slomins

or ADT to run the framework behind the Nest hardware such as calls to the house after the alarm

has gone off. Nest Labs does not have the physical or financial resources to completely setup a

security company. This method would allow Nest to fully compete with existing market

competitors such as Honeywell, GE, and Emerson30. This strategy would also benefit Nest Labs

by distinguishing it within this market. It would be easy to create a brand equity that follows the

tradition of innovation within the home automation industry.

30 Home Depot. Alarm Systems - Safety & Security - The Home Depot. 2015. 13 April 2015.

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The new product would be a brand extension called the Nest Shield. This moniker creates

strong brand equity by reinforcing the existing idea of creating a cozy, safe environment and

adds to it by giving users the idea of protection from their Nest. Also, this name perfectly

describes the intent of the new product and continues Nest Labs’ branding tradition without

infringing on the existing Nest Protect; rather than protect the home, the new product would aim

to shield the nest from outside invaders. In addition to the appeal the name and product creates, it

would be efficient for marketing managers to create advertising campaigns for the product. This

is a part of the new product that should be stressed.

Nest Labs will need to allocate a larger portion of its financial resources to raising

awareness of the product via television and social media. Nest should also create a partnership

with well-known companies. For example, Nest Shield could partner with the NFL whose

emblem is also a shield; this relationship would allow for public advertising during games,

increased brand awareness, and an opportunity for other Nest brands to become more integrated

with the NFL name. The Nest logo could be placed next to the NFL logo and Nest would have an

opportunity to become the “official automation system of the NFL.” Nest could even be used to

control stadium temperatures, VIP box temperatures and security within the VIP rooms. This

would be the practical application of Nest Labs using their new product, Nest Shield as the

beginning of a partnership with the NFL. This is just one detailed example; there are many other

companies that Nest Shield has the possibility of partnering with. In addition to the public

relations campaign, Nest Labs should also simultaneously run a social media campaign to

introduce the new product.

The target market for the new Nest Shield would remain the same: energy conscious

homeowners. The target market does not specify whether the customer has security already. Nest

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does not aim to solely get the attention of people with security but instead aims to recruit

customers to buy a home security plan as a value proposition to security companies. The main

goal of Nest Shield is to lock current customers into the Nest ecosystem and by doing so, prevent

current customers from leaving. With the trifecta of heating/A/C, fire, and home protection, Nest

Labs would leave little space for other companies to use home automation to enter the

consumer’s home.

Nest Shield would be in the introduction stage of its lifecycle as a brand new product.

Nest Shield will come with the full suite of security features offered by competitors along with

integration into their mobile app for on-the-go availability. Nest Shield, along with other Nest

products, will be positioned towards the higher end market. The packaging of Nest Shield will

remain consistent with the rest of the Nest products. Similar products in the smart home industry

are priced competitively between 100 and 350 US dollars31. It is recommended that Nest Labs

position the Nest Shield at or near the top of the market at around 350 USD to reaffirm the top

quality image they currently have. This of course will be backed up by more advanced features

than the competition as described above.

Distribution strategy will remain the same as with previous Nest Labs products. Similar

to Nest’s existing products, Nest Shield will be available through the Apple store and hardware

stores such as Home Depot and Lowe’s; it will also be available online through the Google Play

Store and other outlets.

Promotion for the Nest Shield will likely be similar to other security companies’

promotional activities. Targeted advertisements using fear as a main basis for the sale has shown

to be extremely effective at bringing in customers.

31 "Alarm Panels & Systems | Smarthome Home Automation Superstore." Alarm Panels & Systems | Smarthome Home Automation Superstore.. Web. 13 Apr. 2015.

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Conclusion

Nest thermostat is an innovative tool designed to help energy-conscious individuals

manage their home. Since the company’s founding in 2010, it has grown to include two new

products, all of which contribute to smart home automation. Within the past year, Nest has

continued to grow within the industry. This growth has been fueled by its market advantages

such as product design, product utility, societal movements etc. Nest utilizes social media and

competitive pricing to gain a leg-up on its learning thermostat competition. The company

maintains all of its social media outlets and updates them regularly. As the company continues to

grow, we recommend a new addition to their product line: the Nest Shield. Nest Shield is the

next step in home automation. Nest Shield would be created by partnering with existing

securities companies and established organizations. Developing this new product will allow Nest

to consolidate its hold on the safety and security sector and become a leader in the home

automation industry.

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Appendices

Appendix A- SWOT Analysis

SWOT Analysis—External

EXTERNAL FACTORS FUTURE OPPORTUNITIES FUTURE THREATS

Social -Increased value on being eco-friendly and sustainability will create greater appeal for the product -Generation Y/Millennials will become homeowners (greater interest in sustainability and knowledge of technology)32 -Increased desire for customizable products -Increased value on efficiency

-Continuous denial of climate change -Continuous wasteful behavior -Fear of products with artificial intelligence

Competitive -Strategic partnerships with other home automation service companies -Partnerships with new mobile device companies (not pre-existing Android and iPhone partnerships) -Additional advertisements from partnered car companies -Additional partnerships from home goods companies (i.e., GE for washing machines)

-Other home automation companies with potentially greater market share, i.e., Greenwave Systems, iControl, and Alarm.com -Other home automation companies that choose to also partner with Android and iPhone -Car companies/home goods companies that exclusively partner with other home automation companies

32 Kerin, Roger A., Steven William. Hartley, and William Rudelius. Marketing. Print.

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Technological -Adapted for additional mobile devices, such as Apple Watch -Potential development for use with more than 10 thermostats -Potential development for use with more than 2 locations -Easier to purchase as an individual—companies such as GreenWave and iControl require use of intermediary33 34

-More effective and innovative developments from other brands -Other brands may be able to faster develop additional zoning and location abilities for their thermostats

Economic -Positive economy will encourage purchase of new products

-Economic downturn—may discourage people from buying what they deem to be an unnecessary product despite its ability to save money on energy bills -People’s inability to see long term benefits in regards to initial expense

Political/Legal -Laws requiring the use of energy-saving home automation products -Tax breaks for lower energy bills

-Lawsuits if technology is deemed ineffective or somehow harmful -Patent infringement lawsuits, as brought by Honeywell in 201235

Natural -Use of sustainable materials for thermostat and packaging

-Reduced availability of parts for thermostat

33 GreenWave Systems. Web. 24 Mar. 2015. 34 "Icontrol One Interactive Security and Home Automation Solutions." Icontrol Networks. IControl Networks. Web. 14 Apr. 2015. 35 Wesoff, Eric. "Honeywell Seeking to Halt Sales of Nest Labs’ Thermostat." Greentechmedia. Greentechmedia. Web. 14 Apr. 2015.

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SWOT Analysis--Internal

INTERNAL FACTORS CURRENT STRENGTHS CURRENT WEAKNESSES

Management -Owned by Google, a company with strong brand awareness

-Lack of cohesion amongst Google branches -Awareness of Google but not connection with Nest

Offerings -Simple, streamlined technology -company also offers Nest Protect and Dropcam -Energy saving rewards (Rush Hour Rewards)

-No customizable exterior -Very widely spread in terms of product offerings -May be a radical change from the conventional thermostat

Marketing -Costs $249, competitive pricing with other brands, such as ecobee36 -Simple, visually appealing website -Easy to purchase through nest.com, Apple store, Home Depot, Google store, Lowe’s, and Amazon -Nest and Nestsupport Twitter pages regularly updated, -Youtube, Facebook, and Instagram pages regularly updated

-Expensive in comparison to HVAC automation thermostats, such as Honeywell’s $80 7-day Programmable Thermostat37

Personnel -Positions across the globe -24/7 support telephone number and email address

-No brick and mortar Nest stores, so no tangible example of Nest culture and employees

36 "Ecobee3." Ecobee. Ecobee. Web. 14 Apr. 2015. 37 "Honeywell RTH7600D Touchscreen 7-Day Programmable Thermostat." Amazon. Amazon. Web. 14 Apr. 2015.

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-Connection with installation professionals -Nest Pro may help set up device, gives face to brand

-May be self-installed, which requires even less communication with personnel

Finance -Programmable communicating thermostats such as Nest expected to have a US market of $66.2 million by 2019, up from $50.4 million in 201338 -In 2013, the company sold an estimated 40,000 units per month with $119 million in revenue, more than doubled to 100,000 units per month with $300 million in revenue since then39

-HVAC automation thermostats remain relevant and have greater market; US market was $147.1 million in 2013 and is supposed to grow to $269.1 million by 201940

Research & Development -Nest Developer program allows for external programming and development of new integrated apps41

38 McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 77. BCC Research, 1 Feb. 2015. Web. 23 Mar. 2015. 39 Yarow, Jay. "Nest, Google's New Thermostat Company, Is Generating A Stunning $300 Million In Annual Revenue." Business Insider. Business Insider, Inc, 14 Jan. 2014. Web. 22 Mar. 2015. 40 McWilliams, Andrew. "The U.S. Market for Home Automation and Security Technologies." - IAS031C. 77. BCC Research, 1 Feb. 2015. Web. 23 Mar. 2015. 41 "Home." Nest: Developers. Nest. Web. 14 Apr. 2015.

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Appendix B- Packaging

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Appendix C- Perceptual Map

Appendix D- Channel Diagram

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Appendix E- Transcript of Interviews

On April 13th, at 10:00 AM, Megan Morrow and Lena Miller interviewed an “essentials” employee at the Apple Store in Towson, MD. The following is a summary of the interview: Can you tell us a little bit about the product? Nest is a smart thermostat. It’s a product focused on convenience and consciousness. The user is sent monthly reports that detail energy savings and peak times of energy use. The product can be controlled by an app. Is it something that people usually come in and ask for specifically or do you somehow direct them to it? People usually have heard about it and come in to learn more and ask questions. It’s placed in one of our most popular sections, called ‘Appcessories,’ which means any of these tools [gesturing to the wall] can be controlled by an app. I assume most customers have heard of the product from the internet. What kind of demographic usually asks for the product? Homeowners in their 30s-early 50s and landlords, looking for the Nest Protect. Many are early adopters or gadget nerds. What market is this product advertised towards? Homeowners and people interested in technology. Have you seen any advertisements for the Nest? What kind? Yes, I’ve seen sidebar ads on some websites. Has there been a need for post-purchase customer follow-up? No, not at all. We have never had any returns or needed to repair any products. I haven’t heard of any complaints. Nest did a great job of explaining the installation so that basically anyone can do it themselves. Do you purchase the product directly from Google? How does the product reach your store? Who are the intermediaries? We have an automated system that sends inventory data to our regional Apple shipment hub which notifies them of what needs to be restocked. How has the product developed over time? There are two different generations of the thermostat. We also sell Nest Protect and the Dropcam. Of the three, Nest Protect has sold most. Many customers have sticker shock when

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they see the price of the thermostat. Even though it can save you money on your energy bill, it’s too long term for them to process. Are there separate apps for each of their products? The thermostat and protect can be used under the same app, however the Dropcam is separate at this point. The first app can be used as a part of the Apple Home Kit, a program that consolidates all apps relating to the home. On April 13th, at 10:30 AM, Megan Morrow and Lena Miller interviewed an apple store customer who they met while waiting in line to enter the store. He overheard their conversation with the Apple employee and told them he has owned Nest products for two years. They were able to interview him concerning his experience buying and using the products. The following is a summary of the interview: How did you learn about the product? I work in technology and I’m an early adopter. I have my twitter feed set up with accounts like Google News and C-net and I read a lot of technology news. I was one of the first people to buy the thermostat when it came out. How did you purchase the thermostat? I purchased it online directly from Nest. They shipped it to me and I installed it easily. There are only three wires. There actually ended up being a battery flaw in the first generation, but they sent me a replacement second generation thermostat right away. They have great customer service. Soon after that, I purchased three Nest protect alarms for my home. Have you noticed any significant energy savings? Not really. However, I have a very old home that is not well-insulated or energy efficient. I didn’t really buy it for the savings. I bought it more for the control, convenience, and the gadget factor. What do you think about the relationship between this product and other smart home products? I see the thermostat and the Protect as less of a risk than other smart home products. I worry about information security and the opportunity for hackers to compromise smart home systems. The Protect is simply a safety product and, and the thermostat is a low-risk product in terms of security. Have you recommended this product to anyone? Yes, and many have purchased Nest products themselves. Do you think this product is still emerging or established by now?

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I think the thermostat and protect are right on the cusp in between emerging and established. It’s still growing. What are your thoughts on the monthly reports? It’s nice to see trends in my energy use. I find that I conserve more in the summer than in the Winter. There is a leaf program where you can earn “leaves” if you conserve more energy and right now they have an Earth Day campaign that encourages you to earn one leaf everyday leading up to Earth Day. The reports are also a constant reminder that I should really be renovating my house to improve its efficiency. Have you seen any advertisements for Nest products? What are your thoughts? I’ve seen many ads, on the television, in print, on the web. They definitely have some Apple hints to them which gives them credibility and attracts that kind of consumer.

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