An Industry in Transformation–How Utilities Can Stay Ahead of the Game

By Marie Bahl McKenna, VP of Strategy, Tendril

This year has gotten off to an interesting start if you are in the utility industry.

Google kicked things off with its acquisition of Nest for $3.2 billion. As we wait to see how this marriage will unfold, we recently got some clarification on another partnership.

In January, Comcast announced its intent to sell electricity to customers in Pennsylvania as part of a quadruple play (as a baseball fan, I thought the triple play was as good as it could get). We now come to find out that Comcast and NRG Energy will offer 580,000 Duquesne Light customers incentives such as free HBO and discounts on movie tickets to receive electricity from Comcast.

As if that weren’t enough, the residential solar market is primed for explosive growth in 2014. Can it get any worse for traditional energy providers? Not if you are following what some media have to say. These developments have led some to proclaim that we are at the precipice of a “utility death spiral.” Really? Let’s not overreact here. Utilities aren’t going anywhere. But if they are to thrive in this new world era, some changes need to happen.

The Google-Nest and Comcast-NRG partnerships are prime examples of the types of syndicates that will change how electricity is delivered and consumed.

I recognize the delivery of electrons is no simple task and the networks of wires that serve as the foundation of the utility business are here to stay. Utilities that focus on transmission and distribution can run successful businesses. But these recent developments tell me that a services mentality is finally becoming a central part of the utility consciousness. In particular, we are shifting to a bundled services model that contributes to the utility bottom line and meets the individual needs of more savvy energy consumers. Those that don’t adapt will struggle to grow and perhaps even grapple with disintermediation. But all hope is not lost. Here is what utilities can do to capitalize on this evolution:

First, don’t deny that change is coming. Instead, lean in to the transformation that is happening. Be confident that change is only going to accelerate. Be part of the solution. This can manifest itself in a couple of ways. The primary one is to rethink what you provide to your customers. Solar is a great example. Those who have installed rooftop photovoltaic (PV) are pretty close to taking themselves off the grid, and here comes energy storage to make consumers even less dependent on utilities. Yet utilities are required to provide the infrastructure just in case they need it, without being able to reap the financial benefit. Rather than treat these customers as a sunk cost, why can’t utilities provide these products and services? The only reason I can think of is because it isn’t something they have done before. But just because something has remained largely unchanged for more than 100 years doesn’t mean it isn’t ripe for innovation. Just ask the telecommunications companies that didn’t see mobile as a threat. Better yet, ask those that saw it as an opportunity.

Once you start offering services and products like solar, storage and electric vehicle infrastructure, the next step is to make it personalized. Utilities need to take a page from advertising companies and use cutting-edge tools–based on big data and predictive analytics–to deliver a personalized experience. Take the case of Comcast and NRG Energy as an example. It’s a missed opportunity to offer free movie tickets to the home entertainment buff who hasn’t been to the cinema in three years. Likewise, the customer who has 11 tall redwood trees in his backyard isn’t likely to benefit from solar panels on his roof. Knowing these things before approaching a customer with an offer is vital to increasing opt-in rates.

I encourage anyone serious about providing energy-related services to consumers to avoid the status quo and get serious about segmentation and micro targeting. Determine previous buying behaviors and market to the proverbial “customer of one” because the days of spray and pray marketing practices are coming to an end. In a services-oriented world, consumers want targeted offers based on individual preferences. And when they receive them, they are more likely to buy.

We must accept that times are changing and tap into customers’ desires for value-added services. In doing so, we can all say with confidence that the rumors of utility demise have been exaggerated.

Author
Marie Bahl McKenna is vice president of strategy at Tendril.

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