Marketing through the Internet: Bricks and Mortar vs. Dot.com

By Teresa Hansen, Managing Editor

Utilities entering the world of retail competition are quickly learning that their old marketing techniques are far from adequate. A combination of customer choice and the Internet, or more precisely “e-business,” are causing havoc in many utility marketing departments. Even for those utilities that refocused their marketing strategies early on after recognizing that customers would one day be able to choose their energy suppliers, Web-based marketing techniques are still elusive.

Nevertheless, one thing is clear-utilities must establish an effective Internet presence and begin marketing to customers via their Web sites if they are going to succeed in the years ahead. A recently released Deloitte Research report titled Utilities and e-Business, included some e-business predictions from Forrester Research. According to Forrester, online commerce could account for $3.2 trillion in worldwide corporate revenue by 2003, and online energy sales are projected to reach $266 billion in 2004.

In a survey conducted across the United Kingdom, Benelux, Italy and Spain by Convergent Group, an end-to-end business transformation provider for utilities and local government, consumers indicated a willingness to extend online relationships with their utility providers. Results from the survey, which was aimed at establishing what customers expect from their utility provider, indicate that home consumers desire online processing and billing, with two-thirds of respondents likely to process their utility bills online within the next five years. “Utility customers used to be powerless when it came to defining who would supply their energy. Industry deregulation has demolished these monopolies and has empowered the customer, enabling them to choose a supplier and define what they want from that company,” said David Pitt, Convergent Europe’s president.

IT Changes Marketing Techniques

Information technology (IT) advances allow customers to play a bigger role in designing the products and services they receive, contrary to the old pattern in which customers buy whatever companies offer, the Deloitte Research report concluded. this may prove a difficult adjustment for utilities, given their mission has previously been to bring a standard service to every home and business.

In many industries, marketing programs have focused on individual customers, but it was not until the Internet’s inception that companies were able to provide unique, one-to-one marketing. The Internet allows utilities to remember customers’ names, addresses, energy usage patterns, preferences and other personal information. With the correct IT tools, utilities can use this information to match their products and services with individual customer’s needs.

“The research results show that this most traditional of industries now has the very real option of choosing to go wholeheartedly down the retailing route, which means aggressive brand building and online product diversification.” Pitt said. “This could mean a huge leap of faith for the utilities sector, but with its massive installed customer base and established infrastructure, the return on investment could be far greater and faster than any other industry currently stumbling online.”

Some utilities have already been using the Internet for many purposes, some of the more common being online bill presentment and payment and energy usage information. Most of the services to date have been focused on reducing costs associated with customer-facing processes. While this is a good start, much of the research conducted indicates that utilities need to do more.

“It is apparent that a majority of Web-wise customers want to process bills online and the utility companies need to respond to that,” Pitt said. “Unable to receive the service they demand, these customers now have the ability to switch to a supplier who can meet their needs with an online offering.”

Virtual Utilities

Many of the suppliers to which Pitt alludes are the new dot.com, or virtual, utilities. Typically, these new market entrants have been able to enter the energy provider arena at costs much lower than those encountered by traditional utilities. In addition, they have been able to enter the market with the latest Web-enabled technology and marketing techniques. In some states, these dot.com utilities are forcing traditional utilities to adopt new marketing strategies or withdraw from retailing completely.

According to the Energy Information Association, 24 states and the District of Columbia have already passed legislation or issued regulatory orders that permit customers to choose the company that supplies their electricity. In addition, almost every other state is considering some sort of customer choice legislation. While virtual utilities are not vying for customers in all states with customer choice, such utilities are active in many of them. States that have seen the most activity from dot.com utilities include Pennsylvania, Massachusetts, Connecticut, New York and California.

SmartEnergy Appeals to ConEd’s Customers

In New York, for example, SmartEnergy, a retail electricity supplier, partnered with Essential.com, a Web-based energy and communications company that offers one-stop shopping for “all services needed to run a business or household.” Together, under the SmartEnergy name, the companies are offering Consolidated Edison’s (ConEd’s) residential and small-business customers electricity and other services at a reduced rate. SmartEnergy is offering New York residents the opportunity to purchase and manage their local phone service, long distance, Internet access, natural gas and electricity from one vendor, with online bill presentment and payment.

This past November, SmartEnergy began a marketing campaign that guaranteed savings of up to 40 percent on energy through the winter months for natural gas customers in the boroughs of New York City and Westchester County. Under its “Smart Fixed Rate” plan, SmartEnergy is using the threat of low oil and natural gas supplies to lure customers away from the traditional utility by locking in natural gas rates for a 12 month period. In addition, SmartEnergy has offered 500 United Airlines Mileage Plus Reward Miles as an enticement to secure customers. At the time of this writing, the company was only offering its services in New York, but had plans to expand to six states, including Pennsylvania and New Jersey, by the end of 2000. Additionally, it has been rumored that SmartEnergy expects to be serving all 25 deregulated markets identified in the map above by the end of 2001.

This example illustrates how an online energy company can gain the upper hand over the traditional utility through agility and creative marketing.

Investing in Dot.com Utilities

Another advantage that dot.com utilities have over traditional utilities is the ability to attract financing. In mid-November, SmartEnergy announced that it had secured $15 million from an investor group that included utilities, venture capitalists and global banks.

Wisconsin-based Alliant Energy is one of the utilities that invested in SmartEnergy. This type of alliance is becoming more common. Such partnerships are one of the ways some traditional utilities are grabbing a piece of the dot.com world and expanding outside their service territories. Since companies such as SmartEnergy operate completely online, they are able to provide their service worldwide, giving traditional utilities exposure in other markets.

Alliant Energy is not the only traditional utility that has aligned itself with a dot.com company. In late August, Essential.com announced it had entered into a reseller agreement with Niagara Mohawk Energy Marketing Inc., an unregulated affiliate of Niagara Mohawk Holdings. Essential.com plans to eventually provide electricity through Niagara Mohawk in Connecticut, Maine, Massachusetts, New York, New Jersey, Delaware, Ohio, Maryland and Pennsylvania. Customers in these states and throughout the nation already have the opportunity to shop for long distance telephone service and Internet access from Essential.com, with online billing and payment.

When the reseller agreement was announced, Philip Van Horne, Niagara Mohawk Energy Marketing’s president and chief operating officer, said the company was excited to become a part of Essential.com’s offerings. “Our partnership will allow Web savvy customers to receive competitively priced electricity from Niagara Mohawk, with the convenience of managing their energy needs online through Essential.com,” Van Horne said. “Additionally, Essential.com gains a well-established energy provider in the nation’s leading markets while they help expand our reach to online customers.”

Essential.com announced a similar arrangement with Exelon Energy, a division of PECO Energy Co., a month earlier.

Other online energy companies are making similar arrangements with utilities. Utility.com has announced that it will now be an application service provider (ASP) to traditional utilities and other dot.com utilities. Through its Web-based platform, Utility.com will assist utilities with selling service over the Internet, and provide online bill payment and customer service. The company will profit from the arrangement by charging a transaction fee for the services. The dot.com company also plans to develop co-branded Web sites with its utility partners to sell additional services, including Internet access and long distance. According to Chris King, Utility.com’s CEO, his company will benefit by attracting customers familiar with the utilities’ names, while the utility partners will gain the expertise of an established dot.com utility.

Utility.com is already offering electricity directly to customers in California, Massachusetts and Pennsylvania and will continue to do so, King said. However, the company won’t compete directly with utilities in those states in which it has utility partners. FirstEnergy Services, a subsidiary of FirstEnergy and Kansas City Power & Light, was the first utility to sign up as a Utility.com partner.

Customers are Loyal to Utilities

Customers’ interest in buying energy-related products and services from their electricity suppliers is perhaps one reason some dot.com companies are including utility partnerships in their business strategies. According to a national survey conducted in late 1999 by RKS Research and Consulting, a nationwide market research and public opinion polling firm, substantial majorities of U.S. businesses are interested in buying energy-related products and services from their current energy suppliers, which in most cases is the traditional utility. In a follow-up study conducted in June 2000, RKS found that one in five American businesses can now choose their electricity supplier. Within that 20 percent, seven in 10 companies have elected to stick with their present provider. In an important sign of loyalty, three out of four key accounts said they will give their current electric supplier an opportunity to meet or beat competitive bids.

RKS also conducted a similar survey with small businesses. The results show that small-business owners register a high degree of loyalty to their present electricity supplier, with seven out of 10 indicating they would stay with their present provider if it counters or matches an offer from a competitor. The survey also shows that these customers are interested in bundled services that combine energy, local and long distance telephone service and Internet access on a single bill. “From all the information we obtained, it’s clear that small-business owners represent a distinctive and potentially rewarding set of business opportunities,” said Charleen Heidt, RKS vice president in charge of the survey.

The results of these two RKS surveys indicate that utilities’ customers, at least their commercial customers, are loyal. Utilities have a good opportunity to capitalize on this loyalty by developing and effectively marketing various products and services.

Residential Customers are at Risk

RKS survey results for residential customers, however, give a different picture. In a similar survey of residential customers, conducted in late 1999, respondents indicated that utilities are not keeping up with their expectations when it comes to Internet use. Survey results found that only half of the customers who deal with energy companies over the Internet are satisfied with the results. These high-tech households were also more critical of their utilities than other consumers, according to the survey. Among the surveyed customers who contacted their utility online, only 54 percent felt the transaction was handled to their satisfaction. “These low scores add up to lost opportunity for electric utilities, as well as encouragement for competitors,” Heidt said. “Since the Internet shifts control to the consumer, enabling the customization of product, service and billing options, energy suppliers need to re-think their current one-dimensional ‘push’ business model.”

In a follow-up residential study conducted in mid 2000, RKS found a sharp drop in consumer trust of electric utilities. Less than three in 10 residential customers-29 percent-say they trust their electric supplier, a statistically significant decline from the 35 percent recorded in the earlier survey. The same survey also indicates a growing residential interest in using the Internet for communication with energy suppliers. In particular, residential customers register higher levels of interest in specifying their bill due date, obtaining energy usage information, and paying electricity bills online.

“Given the rapid run-up in these scores in just six months, energy companies need to build on their established brand identity or risk being left behind as competition increases,” said David Reichman, RKS president.

Utilities Fare Well in Choice States

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At the same time, deregulation and choice are having a positive influence on customer perceptions of electric suppliers, the RKS data indicates. Residential customers in choice states view the performance of their utilities more favorably, and say their electric service is a good value. The results indicate however, that customers’ expectations are rising and customers will select their future energy provider based on overall value, not just price.

With these results in mind, traditional utilities must get serious about their online presence and marketing campaign. It is obvious that traditional utilities have the upper hand when it comes to brand recognition and customer loyalty. Therefore, these utilities must now move forward and establish themselves in the dot.com world. Internet services and marketing could very well differentiate the winners from the losers in the years ahead.

The New Power Co. Truly is a New Kind of Power Company

In May 2000, a strategic alliance with Enron, IBM and America Online resulted in the formation of an online energy retailing venture-The New Power Co. The New Power Co. aims to become a premier player in the energy market. The virtual utility plans to sell electricity and natural gas to residential and small-business customers across the nation, moving into eight to 10 states this year and planning for a customer base in the millions within five years.

The company expects to acquire customers through its link with America Online at one-fourth the cost retail energy marketers typically pay. The virtual utility is also counting on billing, metering and customer service platforms supplied by IBM to keep its per customer costs down. In addition, a dozen wholesale energy traders supplied by Enron are helping New Power get the best possible price for the wholesale energy it will resell to customers.

Some of New Power’s marketing programs aimed at enticing customers to leave their current energy provider and try them out include awarding frequent flier miles and gift certificates to customers who pay their energy bills online. The company also plans to eventually sell appliances and perform energy audits for its customers.

The $120 million initial investment is already paying off, as New Power was selected by PECO Energy Co. in October 2000 to supply “competitive default service” for up to 299,000 of PECO’s electricity customers who did not select a competitive energy service provider.

Reliant Energy’s Investment in Community Creates Name Recognition

Like many other major companies, Reliant Energy sees great marketing value in attaching its name to the local sports arena.

Houston-based Reliant Energy has joined the ranks of other major U.S. companies, such as American Airlines, 3COM and ALLTEL, by attaching its name to a sports complex and convention center. The energy service and delivery company recently announced that it has acquired the naming rights for Houston’s new state-of-the-art football stadium and the sports, entertainment and convention complex currently known as the Astrodomain Complex.

Reliant Energy’s 32-year agreement to acquire the naming rights for five different buildings and the complex is the most comprehensive naming rights agreement in history. The agreement provides Reliant Energy with significant sponsorship rights and benefits with RodeoHouston, the Harris County Sports & Convention Corp. and the National Football League’s newest franchise, the Houston Texans. The announcement was made at a press conference on the grounds of the newly named Reliant Park. “The naming of Reliant Park is a natural extension of Reliant Energy’s commitment to this community, which spans more than 100 years,” said Steve Ledbetter, Reliant Energy’s chairman, president and CEO. “We’re pleased to be involved in such a unique partnership that will provide entertainment and activities for a large part of the population of Harris County. The facilities here, including the stadium and new exposition center, are world class, and we are excited to have our name associated with them.”

The facilities at Reliant Park will include Reliant Stadium, Reliant Astrodome, Reliant Arena, Reliant Hall and Reliant Center, the new exposition center.

Reliant Stadium is set to open in August 2002, when the Houston Texans will host the Miami Dolphins in their first home preseason contest. Reliant Stadium will seat 69,500 and is favored to host Super Bowl XXXVIII in January 2004.

Reliant Center, currently under construction, is situated on the north side of the 260-acre Reliant Park and is scheduled to open in spring 2002. It will have a total of 1.4 million square feet with more than 700,000 square feet of single-level contiguous exposition space and 72 meeting rooms.

Reliant Arena, currently known as the Astroarena, is a self-sufficient, multi-functional facility. In addition to nearly 250,000 square feet of exhibit space, Reliant Arena features an 8,000-seat arena and 2,000-seat pavilion. Reliant Hall, currently known as the Astrohall, has more than 640,000 square feet of space and is Houston’s largest single-level exposition and conference center. Reliant Astrodome is known as the “Eighth Wonder of the World” because it was the first dome stadium when it was built in 1965. It has served as a symbol of the unique spirit of achievement for Houston ever since.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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