Automated Climate Control Systems in Germany

German Marketing Environment

Key Marketing Environment Takeaways The German people are very environmentally

conscious consumers, paying a higher price 59% of the time for a product that proves to be environmentally sustainable

The German family structure limits the target demographic in a very meaningful way, with the majority of households occupied by adults with no children

Germany is a high-income country, and Germans have a high disposable income

The German aesthetic is very functional and minimalist, with emphasis on personalization and customization

Defining Historical Events in Germany

Luther’s theology WWII 1939-1945 Division into East and

West Germany in 1949 Democratic West Communist East

Fall of Berlin Wall on November 9, 1989

Holidays include Unity Day, Oktoberfest, Christmas and Easter

German Cultural Overview– 2012

German fashion icon, Karl Lagerfeld’s 2012 designs

A friendly game between No. 2-ranked Germany and the No. 7-ranked Netherlands ended in a draw on Nov. 14

“Diamond” by Rhianna is #1 on the German Billboard Charts, but German jazz house song, “Sonnentanz,” is #4

Part 2 of the Pope’s trilogy on the life of Christ– #1

The #1 movie at the German Box office was the French film, Intouchables, a comedy about a quadriplegic aristocrat who hires a man from the projects to be his caretaker

Germ

an S

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Art

German Cultural Overview– Classical German humor

Jokes about other nationalities– “The United Nations initiated a poll with the request, "Please tell us your honest opinion about the lack of food in the rest of the world." The poll was a total failure. The Russians did not understand "Please". The Italians did not know the word "honest". The Chinese did not know what an "opinion" was. The Europeans did not know "lack", while the Africans did not know "food". Finally, the Americans didn't know anything about the "rest of the world"

Classical literature The Song of the Nibelunas, Luther’s Bible, The Sorrows of Young

Werther, Children’s and Household Tales Classical music National heroes Religious Traditional dress

German Demographics Population of 81,305,856– 92% ethnically German

Under 14 years: 13.2% 15 – 64 years: 66.1% 65 years and over: 20.7%

74% of Germans live in an urban setting Major metropolitan areas include Berlin, Germany’s capital,

Hamburg, Munich and Cologne Educational spending accounts for nearly 10% of all

government expenditures 13 years of compulsory education 23% graduate college

Germans vacation, on average, 4 weeks out of each year

The German Household 43% of Germans own their homes, while 54% rent

Mortgage rates are low Average household size is 2.4 persons Median household income is €16,279 Two-thirds of all German households are one-generation

24% of households consist of married couples without children Average age of first marriage is 33 years for men, 30 for women

20% of households are maintained by single women 15% of households are maintained by single men

On average, children move out of their parents’ homes at 22.5

50% of households have made energy efficient improvements to their homes, or plan to

The German Consumer German consumers want user-friendly and affordable

products4

34.1 million German consumers buy merchandise or services on the Internet1

half of Germans between the age of 50 and 69 buy merchandise on the Internet

Top online vendors are eBay and Amazon Market for consumer electronics in Germany grew 6%

during its recent recession2

82% of Germans attach importance to individuality and self-expression3

60% of survey respondents said using products and services designed for consumer needs is important3

The German Consumer

They grocery-shop at Edeka– a supermarket that holds 26% of the German market share

Metro Cash-and-Carry, the “German Costco,” is a food products wholesaler

OBI, the “German Home Depot,” is the country’s largest DIY retailer

Media Markt is Germany’s go-to retailer for consumer electronics, and it’s second-largest in the world after Best Buy

Geo-demographics

Diverse Terrain Flatlands in the north Mountainous south Low-lying islands Beaches

Average Daily Temperature January: 31 degrees July: 66 degrees

22.5” of precipitation per year

German Environmental Considerations The regulation and protection of the

environment in Germany is under the jurisdiction of its Ministry for Environment and Federal Agency for Nature Protection

Germany honored its commitment to the Kyoto Protocol as of 2008

Current environmental concerns include Air pollution from coal-burning utilities and

industry, as well as from vehicle exhaust Heavy pollution in the Baltic Sea from raw sewage

and industrial waste1

German Environmental Considerations Energy used for heating homes in Germany

accounts for 33% of the carbon emitted by the country

Germany has reduced its energy consumption in every capacity since 2006 Petroleum consumption down 7.5% Natural gas consumption down .3% Coal consumption by 7.3%

27 of the 500 global companies with the lowest environmental impact are headquartered in Germany, surpassed only by Japan, China and the United States

German Political Environment Germany has a

democratic, federal republic form of government with a civil law legal system Unity Day– October 3,

1990 75% of the public votes

during elections 6 major political parties,

with the Green Party garnering nearly 6% of votes in 1983 parliamentary elections

German president, Joaquim Guack, hosted an Environment Week in Germany this year to demonstrate synergies between social, economic and ecological issues

Legal Environment for Business in Germany The German market is open for investment in practically all

industry sectors Business activities are free from regulations restricting day-to-day

business German law makes no distinction between Germans and foreign

nationals regarding investments or the establishment of companies The legal framework for Foreign Direct Investment in Germany

favors the principle of freedom of foreign trade and payment. There are no restrictions or barriers to capital transactions or

currency transfers, real estate purchases, repatriation of profits, or access to foreign exchanges

On average, corporate companies face an overall tax burden of less than 30%– a very competitive tax rate

The 2 products certification and normalization bodies for companies exporting to Germany TÜV and Deutsches Institut fur Normung (DIN)

German Financial Environment Germany is on the euro (€)

100 euro cents (€0.01) in 1 euro (€1)

Coins come in 1, 2, 5, 10, 20 and 50-cent denominations

Banknotes come in 5, 10, 20, 50, 100, 200 and 500-euro denominations

€1 = $1.2998 As part of the European Union,

financial stability of Germany’s currency is largely dependent upon its member nations’ economic actions Greece

Inflation rate: 2.5% Commercial bank interest rate:

3.94%

The value of $1 in euros over the past year, according to Bloomberg Businessweek: 12/1/12

German Economic Environment Europe’s strongest

economy and the world’s fifth Exports

World’s sixth highest GDP at $3.114 trillion

26th highest GDP per capita at $38,1001

The German state of North Rhine-Westphalia– the economic center of Germany, according to the German Trade Office

German Economic Environment—Industry Industry, or manufacturing, accounts for 28.6% of

German GDP Industrial production grew 8% in 2011 24.6% of the labor force works in manufacturing1

Technologically advanced producers of Steel Cement Chemicals Machinery Vehicles Electronics

Top industrial brands headquartered in Germany include Volkswagen– automobiles, Siemens– technology, ThyssenKrupp– steel, Bayer– pharmaceuticals

German Economic Environment Social Market Economy1

High wages to induce high productivity High public investments in

Education Health Social Security Environmental Protection

Homogeneity and standardization of contracts Monetary stability characterized by low inflation

and high international demand for their domestic industry

German Economic Environment

Economic Strengths Economic Weaknesses

Central geographic location makes it a center for international business

World’s leading exporter of machinery, vehicles, chemicals and household equipment1

Social Market Economy, guaranteeing free play of entrepreneurial forces while ensuring social stability2

Germany prepares to lose 5 million workers over 65 from its labor force of 41 million in the next 15 years3

High debt-to-GDP ratio as a result of costly reunification measures4

Weakened domestic economic growth due to cyclical slowing of world economy5

German Economic Environment Germany is a wealthy country

with a sophisticated socio-economic infrastructure and a high quality of life Ranked 10th in the world for its

Human Development Index, which takes into account longevity, knowledge and education, as well as economic standard of living1

Average household wealth is €32,078, including real assets such as land and dwellings Average household disposable

income is €21,2052

6% unemployment rate

The Business to Consumer Market in Germany A large number of small, independent shops Lower levels of concentration than other parts

of Europe Predominance of distribution in urban areas Predominance of discount stores and distance

selling Mail order E-commerce

German Imports Imports total $1.333

Main imports include machinery, data processing equipment, vehicles, chemical, oil and gas, metals, electric equipment, pharmaceuticals, food and agricultural products

Germany’s top importing partners are China (9.7%), The Netherlands (8.4%), France (7.6%), U.S. (5.7%) and Italy (5.2%)

Measuring, testing and control instruments account for 3% of German imports from the United States

Apple, Inc. has a sophisticated distribution channel for exporting to Germany, including wholesale network, the retail outlets, the logistics partners

German Trade Infrastructure The German road network covers more than

238,000 km of roads More than 11,000 km are toll-free highways

22% of inland freight is transported by Germany’s 44,500 km railroad system

Main German sea ports are Hamburg, Rostock, Bremen and Duisburg

The airport of Frankfurt, the most important, ensures 70% of the air freight

German Marketing Environment Overview Television advertising

By law, advertising within an hour must not exceed 20%

Product placement is not allowed on television

Radio advertising By law, radio advertising is not to

exceed 90 minutes per day There are no regulations

regarding advertising on the internet or mobile devices

Product placement is allowed in German cinema

Germany has very sophisticated advertising, promotions and communications channels

Key Marketing Environment Takeaways The German people are very environmentally

conscious consumers, paying a higher price 59% of the time for a product that proves to be environmentally sustainable

The German family structure limits the target demographic in a very meaningful way, with the majority of households occupied by adults with no children

Germany is a high-income country, and Germans have a high disposable income

The German aesthetic is very functional and minimalist, with emphasis on personalization and customization

Overview of and the Learning Thermostat

The Learning Thermostat

History of Nest Labs Founded by Tony Fadell and

Matt Rogers in 2010 Former Apple directors

Headquartered in Palo Alto, California

Nest thermostat currently only available in US and Canada

“A startup with a lot of attention, Nest has leaned into quality to justify the price; everything about the Learning Thermostat screams classy and thoughtful. If you love the look and feel of high-end design, you won't regret the investment” –CNET review

Core Business Competencies The world’s first learning

thermostat iPhone and Android

compatibility Stylish design Energy-efficient product,

saving as much as $300 per year, per household

Nest Labs’ experts in artificial intelligence– machine learning

Venture investors Available for purchase online,

at Best Buy, Lowe’s and Apple

Nest Labs’ Mission and Vision Mission

“We take what’s familiar and look at it in a new light. Our team focuses on making technology that’s simple, fresh and helpful.”

Vision “We make things that work for people. Technology

should be more than the newest, loudest and prettiest. It should make a difference.”

Product Positioning and Strategy The Nest Learning Thermostat

remembers what temperatures you like, creates a custom schedule for your home, and turns itself down when you’re away.

Once it’s learned your schedule, Nest can save 20% on your heating and cooling bills.

Remote climate control from your phone, computer or tablet

With Energy History and Energy Report, you also can see how much energy you’ve used and get tips to help you save more.

Nest Learning Thermostat Key Features Auto-Schedule creates a personalized schedule based on the temperature

changes you select and continually adapts to your changing life. 99% of users find that it matches their life schedule

Nest Sense™ personalizes Nest's features for you, creating the right balance of comfort and energy savings for your home Auto-Away™ sensors detect when no one is home, automatically adjusting to a more

conservative temperature Airwave™ automatically turns the air conditioner off a few minutes early, then uses

the fan to spread that cold air through your home, reducing A/C runtime by up to 30% Nest Leaf™ appears when you turn Nest to a temperature that’s energy efficient,

guiding you to energy savings. Energy History and Energy Report shows how your temperature adjustments, the

weather, or Auto-Away affected your energy use in a customized monthly report Over 90% of connected Nest owners use the remote control feature Nest can blend in with any environment, reflecting the color or pattern of your

wall and blending in with any environment Most Nest owners install Nest themselves, in 30 minutes or less Nest and Nest Web and Mobile apps are available temperatures in Fahrenheit

or Celsius

Market Description– Prospective Buyers

Homeowners and home renters Men and women 23– 69 years

old College-educated Income €25,850 and above Sustainable buying habits

Size of potential market estimated at 12.5 million Germans

Online purchases through German Nest and Apple websites Germans familiar with Apple brand Direct export

Retail sale through discount consumer electronics outlets Media Markt Indirect export– Apple’s

distribution channel

Market Description– Demand Demand for this product is expected to grow as

early adopters demonstrate its cost efficiency in terms of conserving energy and saving money on utilities

Sales in the United States totaled $3.5 million in June of 2012, and comparable products are already being sold in Germany at sales of $29 million annually

41% of Germans respondents to a 2008 environmental protection survey said that they feel it is important to live an ethical and sustainable lifestyle

Competition: Tado◦

Tado is a smart phone climate control system which aims to increase the operating efficiency of home and apartment climate control systems

Launched November 2012 Estimated sales of

$29,855,000 (€22,863,376) according to Hoover’s

Competition: Tado◦

Strengths Weaknesses

Headquartered in Munich, combining technical development, design, sales and customer service under one roof

Automatic energy consumption optimization, responsibility messaging and mobile climate control system already on sale in Germany today

Control of Tado takes place almost exclusively through its internet app

With only a few buttons, it is less programmable than the Nest thermostat

Annual subscription fee of €99, as opposed to a one-time startup fee

Market Potential for Nest The global market for all heating, ventilating

and air conditioning systems grows 6% annually1

With projected sales for a comparable German product valued at $29 million in its first year Year one– $29 million Year three– $32 million Year five– $36 million

Operational Plan– Product Changes

As a globalized product, to successfully penetrate this new market Nest needs only German-language Thermostat interfaces Web and mobile phone

applications Product labels

Position it as a more expensive, more efficient alternative to its German competitor through strategic communication

Operational Plan– Promotion Total promotional budget of $2.9 million Total promotional time period of one year Trade Missions– 20%

Using earned media inclusion, or public relations, garner positive coverage in 50% of top technological print publications (Computer Bild) and 75% of top consumer electronics review websites (Chip Online) by allowing trade journalists and bloggers to test the Nest product

Print Media– 30% Paid advertising in top German consumer magazines (Cover, Das Haus), tailoring the

“Nest in Real Homes” depictions to various age demographics, but maintaining Nest’s clean, simplistic brand messaging

TV– 20% Demonstrate Nest’s efficiency, effectiveness and aesthetic appeal through daily paid

TV commercials airing every third week during prime time (between 8:15 and 10:30 PM) on news, home improvement, science and documentary channels

Outdoor Ads– 20% Utilize the German minimalist art aesthetic to create “street art” of Nest’s

thermostat technology, erecting eye-catching billboards in metropolitan centers whose simplistic designs contrasted by powerful copy will drive traffic to the site

Operational Plan– Pricing One-time, up-front price of €190

59% of Germans are willing to pay a higher price for a product that proves to be environmentally sustainable

Nest’s German competitor charges a yearly subscription fee of €99 Nest’s price represents more than €200 in yearly energy

savings, not to mention a savings of about €5,000 over a lifetime, compared to its competitor

Electronic import duties (14%), transportation and insurance costs as well as markup built into manufacturer’s suggested German retail price

Promotional fees will total 10% of net sales of Nest thermostats

Operational Plan– Calendar for Marketing Activities Product changes

German-language thermostat interface by June 2013 German-language web and mobile applications by July 2013 German-language packaging by July 2013

Promotional goals Trade missions completed between February 2013–

February 2014 Print media advertisements to run between July–December

2013 TV advertisements to run between July–December 2013 Outdoor advertisements to run between July–December

2013 Export to Germany by October 2013

Operational Plan– Budget

Budget: $17,171,095

ManufacturingPromotionDuties and Tar-iffsTransportation

Advertising Samples

Key Takeaways Potential to reach 12.5 million Germans Largely untapped market with room for more

than 6% growth annually Already-establish distribution channels make

this product logistically feasible Nest’s physical aesthetic is in line with

German preferences Germany is a huge market for environmentally

sustainable technologies

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