Better Place Inc. founder and former chairman Shai Agassi has recounted advice that former US President Bill Clinton gave him about pricing electric cars.
In a LinkedIn post, Agassi said that he pitched to Clinton an early version of what would later become Better Place where the car and battery combined would cost around $32,000. He thought that drivers would be willing to pay that if they realized that they would make up the extra cost over time through savings on gas.
Agassi writes, "President Clinton listened and absorbed my idea quickly, then said, 'By the time you will convince the rich folks in Israel to try it, then get the average folks in Israel to try it, then bring it to the US for our rich folks... the world will run out of time.' Then came the best business guidance I have ever gotten:
"You need to price your car so that an average Joe would prefer it over the kind of cars they buy today - an eight-year-old used gasoline car, selling for less than $3,000. As a matter of fact, if you can give away your car for free, that's a sure way to succeed."
Agassi asked Clinton, "How do you give away a car for free and still make money?" Clinton replied, "I don't know...you're the smart man around here."
Agassi added, "I know it sounds funny now, but trust me it was frustrating back then."
"Business Insider" observes that Clinton was absolutely right, because he intuitively understood a fundamental business truth that Agassi's initial product would have appealed to a few people. But his goal was to fundamentally change and disrupt transportation, and help save the world by reducing dependence on fossil fuels, which required a different strategy.
Agassi summarizes Clinton's advice, "Pricing for market disruption is very different than pricing for a few early adopters. You have to plan your pricing from the target customer's perspective, within the boundaries of your costs. Early adopters, in the case of electric vehicles - environmental buyers, were willing to give up on convenience and still pay more than gasoline cars. But in order to serve the majority of buyers we need to beat the market's offering in terms of better product at a lower cost. We needed to make sense to Average Joe." p>"Business Insider" concludes that you don't change the world or disrupt two massive businesses (automakers and oil companies) by appealing to a niche market. "That insight led Agassi to a completely different business model: rather than attempting to sell an expensive car/battery combo, Better Place builds stations where the batteries can be switched out. That makes it easier for automakers to build a variety of models, and helps drivers hampered by the limited range of electric vehicles. As batteries become cheaper and such networks grow more widespread, electric vehicles might some day approach the cost of used gasoline cars, which is what it will take to convince the average user."
Published by Globes [online], Israel business news - www.globes-online.com - on February 28, 2013
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