Consumer choice on ecologically efficient water heaters: Marketing strategy and policy implications in Japan

a r t i c l e i n f o JEL classification: M31 M37 M38 Keywords: Ecologically efficient water heater Heat pump Marketing Logit model This study examines how consumers select ecologically efficient water heaters in Japan. Energy conservation in household water heating is increasingly important for reducing an amount of CO 2 emission, because the share of water heating in household energy consumption is approximately 30%. Recently, Japanese households have widely used ecologically efficient electric heat pump water heaters (Eco Cute) or gas-fired water heaters (Eco Jozu). The total number of such efficient water heaters sold in Japan was more than 2.5 million at the end of 2008. This study investigates various factors and impacts of marketing strategy for promoting the appliances in Japan. We apply mixed and nested logit models to a disaggregated choice data on water heaters from 2004 to 2008. This study considers retail energy prices, a government financial support and marketing activities as important factors for appliance selection. In addition, we consider consumers' housing attributes such as floor space and age of building. This empirical study finds two business implications. One of the two implications is that an increase in an energy price may enhance a choice probability of Eco Cute and Eco Jozu because a price increase invites consumer's consciousness on energy conservation so that a cost reduction on energy consumption becomes essential in a use of the efficient appliances. The other implication is that marketing activities, especially by recommendations from sales representatives and/or housing suppliers, are important for consumer behaviors. The other important findings are discussed in this study. This business experience in Japan is useful to the other countries where ecologically efficient water heaters are not popular at the current moment. As a worldwide concern, policy makers, researchers and individuals who are interested in the global warming and climate change, have been discussing about a reduction on green house gases such as CO 2. The G8 (Group of 8) conference at L'Aquila (Italy), opened in July 2009, has supported an international pledge in which all industrial nations reduce more than 80% of green house gases by 2050, compared to the levels of 2005. In particular, they have discussed on the gas reduction in residential and commercial sectors as well as a transportation sector. For example, their discussion includes space and water heaters in residential houses and business offices. They have also …