For the first time in the industry`s history, utilities must worry about competition. Newcomers must break the utilities` strong hold on the marketplace, and there`s no predicting what happens next.
Every state going through deregulation takes a different approach, but one notion always seems to hold true: the most aggressive marketers are the ones that not only survive, but thrive.
To date, 17 states-encompassing about 40 percent of the country`s population-have adopted plans to let consumers choose their electricity providers. Most of the remaining states are either considering the option or on the verge of initiating their own plans.
Utilities within these markets need a crash course in recruiting and retaining customers. They must build brand recognition and establish themselves as an option for service. After decades of owning the market, they must learn how to capture it and keep it.
Some states start out with pilot programs, offering choice only to a pre-selected group of end users. Others open up the entire market. Whether there`s a pilot program or not, utilities waiting for deregulation are already behind schedule. This is a race, and those who plan ahead and get aggressive have the best view of the finish line.
To set the pace, utilities, marketers and energy service companies (ESCOs) need to establish their brands in the market before they can accomplish anything else.
For most consumers, deregulation remains a foreign concept, with little or no understanding of how it affects them or what benefits choice can bring. Many people think if they do nothing, the lights will still go on. Truth is, they`re right.
To make an impact, utilities must educate consumers so they can make informed decisions about who supplies their electricity. In most cases, the incumbent utility still bills the customer no matter who provides the energy, and the electrons travel to the residence or business via the same poles and wires. The presence of several players in this process makes brand recognition even more important.
When Pennsylvania launched its electricity choice program, Conectiv managed to create significant brand recognition in a market that previously only knew the PECO name.
According to an RKS Research & Consulting survey of 100 Philadelphia businesses, with average revenues of $11.2 million, 54 percent of those participating in Pennsylvania`s choice program (one-fourth or 24 percent of those surveyed) selected Exelon, a PECO subsidiary, as their alternative supplier. However, Conectiv followed with 13 percent. For three months prior to the market`s opening, Conectiv spent significant dollars on television, radio, and print advertising, and it put hundreds of vans on the road touting its arrival.
When the pilot started, incumbent PECO Energy, tested two different brands: PECO Energy/Energy One and Horizon Energy. As Pennsylvania moved from the pilot program to full implementation, PECO consolidated its program by marketing under the PECO Energy name as a strong incumbent, with an 8 percent rate cut, and created its own competition with the newly branded company Exelon Energy.
Those battling for market share soon realize that customers gained during a pilot program aren`t necessarily long term.
Early adapters usually jump on the band wagon and switch because of price or disillusionment with incumbent suppliers. Consequently, churn rates remain high as these customers continue their search for better prices or better service.
People who take more time to decide are more likely to stay with their selection. To keep churn rates to a minimum, companies must implement retention-focused offers that reward long-term commitments.
As deregulation continues, the industry must avoid the type of price wars that plagued telecommunications after it opened to choice. Once price wars ensue, the churn rate escalates and marketing becomes a game of buying back customers.
Long distance service became a commodity. Consumers became yo yos-going back and forth between whichever carrier offered the lowest price at the time. Now carriers strive for long-term commitments through product variations, creative billing, new services and value-added plans such as airline mileage programs.
The electricity industry, also faced with selling a commodity and shrinking profit margins, must follow suit. With price no longer an issue, the energy industry must be creative and tailor its efforts to attract the most profitable market segments.
Or, utilities, marketers and ESCOs must make their services different. Green Mountain Energy features renewable resources in the deregulated markets of Pennsylvania and California and uses this “green” approach to appeal to a select customer group.
There are other ways to go for the long-term commitment. Letting customers buy usage blocks, offering different rate plans or bundling with other services (telecommunications, energy management, cable services, etc.) could help set a company apart.
Conectiv continues expanding its list of services. For example, it provides electricity and natural gas and offers telecommunications, HVAC and plumbing services.
As energy providers master marketing, customer service looms as the next hurdle. Prior to deregulation (and even now) utilities usually identified customers by meter numbers, with some customers assigned multiple numbers. This results in separate accounts, numerous bills, and the perception of inefficiency.
To develop customer relationships, there needs to be a unique identifier. A customer should be identified as an individual-not a location so when that customer does move, the provider follows. An old but effective concept-service with a smile-remains yet another piece of the puzzle. With choice in place, a dissatisfied customer becomes someone else`s new customer.
Good, on-going communication is one of the ways to keep a customer happy, and good communication doesn`t mean receiving a monthly bill. Even though Pennsylvania`s PUC allows providers to do their own billing, most opt not to because it is often an aggravating and expensive process.
However, losing control of the billing process has been described as similar to trying to navigate the sea without a compass. As it stands now, customers signed up with Green Mountain could still be receiving bills from PSE&G. Billing may be a nightmarish undertaking, but it`s necessary.
What a company communicates remains as important as having the opportunity to communicate. With sophisticated databases, companies target customers with personalized newsletters. Instead of sending the same message to all customers, companies can send multiple messages to match individual customers and their interests. Energy providers need to cultivate data-rich environments that can be mined to deliver targeted variable information to each customer.
So after all is said and done, brand recognition remains key to capturing customers, and the size of the marketing campaign does make a difference.
However when the honeymoon ends, only those energy providers with the ability to set themselves apart can count on healthy, long-term relationships with their customers.
Thomas Pitcherella is executive vice president of client services for DMW Worldwide/ Philadelphia, a direct response advertising agency. Phone: 619-407-0407