Near-term payback on residential e-commerce unlikely, Primen reports

Madison, Wis.
According to a study by Primen, a Madison, Wis.-based energy market intelligence company, energy utilities that invest in consumer e-commerce to achieve near-term operational efficiencies likely will be disappointed, especially if their customer base is relatively small.

In the study, titled “What is the Business Case for Serving Residential Customers Via the Internet?” Primen found that the percentage of residential utility consumers that have done anything on the Web related to energy providers is virtually zero. Over the next three years, online transactions or product purchases are expected to grow less than 1 percent-even though more than 60 percent of residential energy customers have online access.

The proposition that transaction costs for both buyers and sellers could be reduced via e-commerce has led many utilities to invest in the Internet. But energy utilities shouldn’t expect near-term cost savings to cover the expenses related to serving or acquiring residential customers, said David Lineweber, senior vice president and managing director of Primen’s Knowledge Development Group. “Utilities will be disappointed if they expect that the Web site will pay for itself by reducing customer-service costs, attracting new customers and generating product sales. It’s not happening and not likely to happen in the near-term,” Lineweber said.

Primen’s findings were based on interviews with nearly 7,000 natural gas and electricity consumers about their online habits. The resulting profiles, along with other customer data, enabled analysts to calculate the return on utility investments in residentially targeted Web sites. The study showed that utilities should be prepared to support Web-based service and marketing efforts for several years before realizing a return on investment.

“We found that significant Web-based investments directed at residential consumers can only be justified on the basis of faith-not rational financial analysis,” Lineweber said.

“Only when the customer pools involved are very large can a significant investment in Web-based customer service or acquisition be justified,” he said. “That pool is not large enough for most energy providers today, and it will be some time before enough households are free to choose a competitive provider, which might then increase the soundness of Web investments.”

Primen found that only one Internet-based transaction for the residential market is likely to yield returns in the near future: electronic bill presentment and payment. Although few customers currently use online billing for their energy services, this number could grow to 25 percent in a few years. That could save utilities $300,000 per year per 100,000 customers. However, use of third-party consolidators or bill distribution through customer-focused portals will be essential for gaining a significant share of customers.

The study may be ordered from Primen by phone at 877-976-4681, or by e-mail at ebusiness@primen.com.

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