Over the past several years, many industries have found that pleasing the regulators has given way to pleasing customers. Choice, for example, is now being introduced into the energy market, requiring producers to change their entire way of thinking.
Deregulation introduces price differentiation and at the same time creates product "bundles." Deregulation in the energy industry is expected to bring lower prices, increased customer choice, new products and services, and greater attention to customer satisfaction.
In the U.S. and Europe, deregulation has provided and will provide greater challenges to marketers. As Steven Smith of Hoosier Energy REC of Bloomington, Indiana, states, "Being average may be workable in a regulated industry, but it's a highly risky position in a fully competitive market."
Initially, deregulation confuses customers. They don't know how a new supplier will read their meters or to whom they will turn for advice on energy consumption. As consumers overcome these types of fears, they will become increasingly confident in buying energy services and products; and churning patterns will develop.
In a newly deregulated marketplace, what will drive customer choice? Which offerings and marketing messages will appeal to the largest and most profitable segments? The answer to these questions and the marketing programs that result will determine which utilities survive and which do not.
Successful utilities must learn to utilize their customer data in new ways. Deregulation and technology will enable utilities to build marketing data marts for mining and segmentation. These analytic tools will target directions for new business tactics and provide benchmarks to measure financial returns resulting from such initiatives.
Is the cost of implementing such systems worthwhile? As Jack Noonan of SPSS says, "For utility executives, the question they must look at is the tradeoff between customer lifetime value and infrastructure cost whether they invest in more transmission capability or additional power versus a higher return from an existing customer base. So the challenge is segmentation of the customer base and the prediction of returns."
Attributes Affecting Segments
Variables such as price, receptivity to environment and community appeals, size and composition of households, and service aspects can define segments. In a study of behaviors and attitudes toward energy and the environment, the Institute of Local Government Studies in Denmark found that the factors affecting households' electric consumption are the number of people in the household, the amount of kitchen hardware and electric appliances in the home, and the size and type of dwelling. These factors were related to the household's income, education and age.
Jim Burke, vice president of residential services for Reliant Energy of Houston, a former marketer for Coca-Cola Minute Maid Orange Juice, believes that, "For most people, service, not price, is the big issue. We have to educate customers about electricity. There are too many people who are worried about what will happen to their service."
Aside from rational choices such as price and product benefits, energy suppliers must consider the appeal of emotion. Research I conducted in the U.S. Midwest showed that a significant number of people would remain with their local utility out of loyalty to their community. They believed their long-term supplier contributed greatly to local charities, provided jobs for their area and performed as a good corporate citizen.
For the environmentally conscious, customers can buy power from suppliers such as Green Mountain Energy which buys its power from West-Texas wind farms. According to Sonny Popowsky, consumer advocate for Pennsylvania's Public Utility Commission, "Green Mountain has done very well .... There is just a segment of the population that wants renewable energy and is willing to pay for it."
For companies that have never had to compete, competition will be a tremendous challenge. Energy marketers in the U.S. are spending vast amounts of money advertising in measured media, direct marketing, face-to-face encounters at shopping malls and community events, and even door-to-door canvassing.
While all of these marketing efforts are very costly, the possibility exists that targeting the wrong segment or not appealing to any segment will produce a huge loss of opportunity. Improper positioning, the introduction of products and services with low appeal, and bombarding consumers with unrelenting irrelevant messages will produce more harm than good.
Energy utilities should develop relationships with their customers. Marketing programs will have to be built around knowledge of the primary motivating factors in their trading areas.
Use of CRM data marts, knowledge of customer segments, efficient use of direct marketing, as well as mass marketing, will be required in the new deregulated energy marketplace.
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