The Right Time for
E-85
19 Sep 05
This is “Corn Cob Bob.” He’s the
mascot of the North American ethanol industry.
Corn Cob Bob
With gas prices above
$3.00 a gallon, a product called E-85, which is 85 percent ethanol and
15 percent gasoline, has become more attractive as an alternative to
conventional fossil fuels. E-85 is now about 20 percent cheaper than
regular gas.
According to The New
York Times, about four million cars and trucks manufactured in the
US are capable of burning E-85, thanks to government fuel economy
regulations which encouraged auto manufacturers to produce “flex-fuel”
vehicles. To find out if you have a flex-fuel vehicle, look for a
small sticker near the gas flap that tells you whether the vehicle can
burn E-85.
Most people driving these
vehicles don’t know that they have a cheaper alternative to high-priced
gasoline. When they find out, however, many want to switch.
Switching is difficult,
however. Not many gas stations carry E-85. The major oil companies
don’t want to carry it at their stations, as it competes with their core
product. According to The New York Times, of the more than
180,000 gas stations in the US, only 460 sell E-85. But this number is
double what it was at the beginning of 2005.
The stations that do sell
E-85 seem to be selling a lot of it. Gregory Cobb, a gas station owner
in Indiana, stopped selling premium gas at two of the five stations he
owns and converted the premium gas pump to one that sells E-85. He had
sold 1700 gallons of premium gas a month; now he sells 24,000 gallons of
E-85.
The New York Times
E 85 – Ethanol-fueled vehicles
Here’s what E-85 fuel looks like compared to
gasoline on a 4 factor diagram:
E-85 – High Motivators, High Barriers
For those drivers with
cars that can use ethanol, it’s easy to see the attraction. Drivers
don’t have to change their behavior; instead of pumping gasoline, they
pump E-85. They save money and reduce their use of imported oil. As one
midwestern customer told The New York Times:
“I'm putting my
dad's corn in the car. I'd rather do that than pay OPEC.”
Greg Cobb, E-85 user, The New York
Times
E-85 has been available in
the US since 1992. Its production since 2000 has doubled, to about 3
billion gallons annually. Now it appears to be gaining sales because of
the high price of gasoline.
Disruptions frequently
push pragmatic customers to adopt innovations. Sometimes it’s because
they have no choice, as with the supply disruptions discussed last
week. At other times it’s because the disruption makes alternatives to
the status quo much more attractive.
The challenges for
businesses hoping to profit from these kinds of disruptions are quite
different from innovators working on better mousetraps. For companies
contemplating innovations that succeed because of disruptions, issues
relate to timing and forecasting.
Forecasting:
where are disruptions going to occur?
Timing: when
are they going to happen?
In these emerging markets,
speed is not always a virtue – if the innovation comes before the need,
it will have no customers. Thus, managing the progress of these
innovations depends heavily on the progress of the disruption itself.
If gas prices decline, the relative attractiveness of E-85 declines as
well.
As long as gas prices
remain high, however, customers will continue to increase their
purchases of this alternative fuel, and we can expect more gas stations
to install E-85 pumps. After more than twelve years, perhaps E-85’s
time has come.
More information:
-
The New York Times story on ethanol,
10 September 05.
- For more on the
Four Factor model of innovation success, see this reprint of an
article I wrote for Harvard’s Strategy & Innovation Newsletter
from Harvard’s Working Knowledge.
-
Here’s the
wikipedia entry on
E-85.
