The opening up of the UK retail gas and electricity market has seen utilities linking up with the likes of supermarkets and insurance companies to offer customers new services and savings across multiple retail sectors.
Now, what is perhaps the highest profile alliance has been announced between Virgin and London Electricity. Known as Virgin Energy, the Internet-based venture will be 75 per cent owned by Virgin and 25 per cent by London Electricity (LE).
Certainly anything Virgin does is high-profile and the company, run by self-styled entrepreneur, Sir Richard Branson, plans to make its mark in the energy market.
According to Branson, Virgin plans to become the consumers’ champion on the Internet. He also said that the deal completes a major part of its offerings.
Virgin Energy brings to the UK utility sector a level of marketing to which it is unaccustomed. The venture represents a à‚£15m ($22m) share capital investment for Virgin which rides on the back of a à‚£170m/year advertising spend by Virgin – much of which goes into Virgin.com
LE expects to benefit from the Virgin marketing machine by gaining visibility on what is one of the country’s leading websites. It also gives LE the opportunity to reach customers outside London which it may have had difficulty reaching before. And while the deal may see LE lose customers to Virgin Energy, Branson noted: “The stake it gets in Virgin may be worth a lot more than the customers it may lose to Virgin.”
A spokesperson for LE said: “Virgin has a very strong brand. When we heard Virgin was coming into the market, we approached them. They were coming to the market anyway and we thought it would be better to join forces as opposed to sitting back.”
Improving customer service
Jon Kinsey, Virgin Energy’s managing director explained that the company first began thinking about entering the market about nine months ago, believing it could provide a better service than is currently available from existing utilities.
“This industry is not known for great service. We will set new industry standards for customer care,” said Kinsey.
As such, a key part of Virgin’s decision to tie-up with London Electricity was to take advantage of its sophisticated IT system and infrastructure and the reputation of its call centre in Exeter. The call centre will be enhanced with the addition of an extra 70 people to handle the Virgin account.
LE will also provide the core expertise which Virgin does not have. Since Virgin does not have a license to supply energy, LE will take care of the energy purchasing on behalf of Virgin. It will also provide some of the core billing engines needed to run a utility business.
But even for a company with a brand as strong as Virgin, challenges lie ahead. Since opening of the retail market, the rate of customer switching has been slow. “There are still 15 million customers who have not moved. There is a real apathy in the market,” noted Kinsey.
Kinsey puts the unwillingness to switch down to the complexity of tariffs and customers not knowing if they are really getting the best deal possible. He therefore sees a real opportunity for a company which can make it simple for the consumer. Virgin Energy said it will be happy if it gets 200 000-300 000 customers in the first year.
A key part of its plans to promote customer switching is to make it as easy as possible. It claims that registering online will be hassle-free. Once a customer has signed up, Virgin Energy will begin the cancellation of all processes involved with previous energy suppliers, including existing contracts and direct debits.
Customers can apply now using an online application form which takes about ten minutes to complete. The applications will be processed when the services goes live next month (August). Once an application has been accepted the transfer from an existing supplier to Virgin Energy will take 26 days. The first customers will be able to receive gas and electricity from September.
Customers will have the ability to provide meter readings, view statements and household energy consumption and make direct debit payments online.
The success of any online venture depends on the uptake of the Internet. Virgin says that some 14 million homes are connected and this is growing at a rate of one million per month. While Virgin is starting with Internet-based products it also plans to provide for those who are not Internet-enabled by setting up shops known as V-stores to allow bills to be paid on the high street. It is also planning to allow bills to be paid at its Mega Stores and Our Price record stores.
Virgin Energy recognises that customer service is not everything and that price will be equally as important. In an industry where profit margins are already slim and gas prices are increasing, beating its competitors will not be easy. “Gas prices are high at the moment but we recognise that there will be times when we will have to reduce profit margins in order to maintain faith with the public,” said Branson.
Significantly, Virgin Energy is offering a price guarantee which is being claimed as an industry first. Virgin Energy guarantees that if after the first year customers have not saved money, it will refund the difference plus 20 per cent of that difference.
Consumers will be able to establish how much they can save compared to their current supplier using an online calculator. Virgin Energy predicts that the average four bedroom house in the UK will save about à‚£85 per year, a three-bedroom house more than à‚£60 and a one-bedroom apartment about à‚£48.
Virgin Energy is also claiming to be the first in the UK market to reward households for being energy efficient. If customers reduce their consumption year on year, they can claim à‚£1 for every one per cent saved. To make the claim, customers will need to give Virgin Energy a correct meter reading when they join and correct meter reading at the end of years one and two. Once Virgin Energy compares the second year with the first, customers can claim the difference using an online form. If they have saved money in the second year, they will receive a refund up to a maximum of à‚£20.
Although Virgin may have the best known branding as result of its other endeavours, it is by no means the only player in town. Servista.com also entered the market claiming to be the first new entrant to the market to offer a single bill for electricity, gas and telecomms.
Of the bigger players, PowerGen, ScottishPower, United Utilities and Centrica have all launched bundled household services over the Internet. Indeed, ScottishPower has long been at the forefront of utilizing the Internet to bring a new dimension to customer care while reducing costs.
In early 1998 it announced that it planned to become the first in the UK energy sector to offer customers the facility to pay their utility bills through the internet (see PEi April 1998, page 48).
At present, customers can sign up for ScottishPower services over the Internet but the aim is to make this online facility a fully end-to-end electronic service. Like Virgin Energy, this involves giving users the opportunity to enter their meter readings, view energy consumption and pay their bills online whenever they choose. The site enhancements are scheduled to go live by the end of the year. ScottishPower’s director for e-business says the enhancement will increase company efficiency while offering customers more choice and the ability to buy additional products and services.
The company has also just announced that its joint venture with The Royal Bank of Scotland has introduced Work24, a portal targetted at the UK’s 3.6 million small and medium sized businesses.
It will be interesting to see how moves by utilities and new entrants into the retail electricity market develop. Much will depend on the uptake of the Internet, and how comfortable people feel with using it to submit secure information. It may be that things will not really get into full swing until the digital TV revolution takes hold.