As the pressure of competition escalates, energy suppliers across Europe are racing to transform themselves from single-fuel utilities to service-orientated retailers. According to Datamonitor, a utility that limits itself to one product could see reductions of over ten per cent in turnover and up to 40 per cent in profitability. Therefore, utilities must extend their product portfolio if they wish to grow their business and generate increased profits.
Datamonitor believes that by 2005 over 50 per cent of all European utility customers will take at least one product from their energy supplier
Utilities are faced with a wide variety of choice when it comes to choosing the additional products with which they can supplement their existing service with. However, Datamonitor believes that the best strategy is to take one step at a time; this will build both customer confidence and brand familiarity.
Dual-fuel is the first step
Datamonitor recommends that utilities should initially branch into a dual-fuel offering, providing gas and electricity as one package. This approach helps to stabilize the customer base by tying in volatile switchers through a combination of decreased price transparency and increased convenience. Customers will be reluctant to switch if they have to find a new gas and electricity supplier.
Dual-fuel offerings are proving popular among customers. Datamonitor believes that by 2005 over 50 per cent of all European utility customers will take at least one product from their energy supplier, with an average annual spend per customer of $635.
When the supplier has secured its position as a multi-utility and customers are familiar with taking an additional service from their energy supplier, utility companies should add an additional utility related product such as telecoms to their portfolio. This step will further enhance customer confidence and provide suppliers with an extra foothold in the bid to own the home.
Brand names and partnerships
Only as a final stage should suppliers seek to include non-utility related products and services. At this stage it is imperative that suppliers re-evaluate how far their brand name can feasibly stretch and perhaps consider forming a partnership in order to strengthen the product.
To provide the best services, companies will have three main choices – to go it alone, form a partnership, or outsource. There are, however, both advantages and disadvantages attached to each of these routes. For example, when suppliers opt to go it alone, they are faced with the dilemma of taking all the risk, but at the same time reaping all the success.
Utilities which stay within their home markets should opt to go it alone. Datamonitor advises that suppliers with a strong brand name who are branching into related industries where internal expertise and consumer trust are already in place should go it alone. Otherwise, this approach can be very exhaustive both in terms of finances and resources.
In contrast, partnerships allow companies to share both the risk and the financial outlay involved in a new venture. More importantly, they bring with them immediate access to the skills and operations needed to build a successful service offering.
Forming a successful partnership will make it far easier for utilities to break into non-utility markets, generate increased revenue per customer and differentiate the utility and its brand from its competitors.
Partnerships do, however, carry with them an element of risk. Bad PR, or a poor service reputation for a product, reflects badly on the product or service in question, and on the individual brands that make up the partnership and on any products that may be launched within the partnership in the future. In much the same way, there is a risk that if one half of a partnership receives negative attention, even if it is completely unrelated to the products offered under their partnership, the reputation of the remaining partner may be dented by association.
One of the key strengths that utilities have to their advantage is the fact that they are experienced in marketing and in serving a very large customer base. Utilities, therefore, need a partner that will complement these strengths with the necessary back office functions and where applicable, product delivery mechanisms.
Suppliers must have a thorough strategy in place in terms of product portfolio, target audience and delivery channels, before they introduce a new product to the market
A strong partnership can add credibility to the brand name. Utilities in the main are thought of by their customers as being competent, reliable and trustworthy. However, they do not normally carry with them a very strong brand presence. Therefore, an alliance with a partner which already has an established brand name within the target market can add much needed credibility to a new product offering and in turn aid the ongoing success of the utility’s portfolio. However, brand equity alone is not enough and it is vital that the partner can also provide outstanding service in order to fulfil customer expectations and protect brand reputation.
Despite the problems of brand management when selling and servicing a number of products at the same time, utilities must also avoid a fractured approach to rolling out their advanced service proposition. A disjointed approach prolongs the time needed to introduce a rounded portfolio of products and in turn gives competitors the chance to gain a head start in the race to own the home.
The key to success
An integrated customer management system is critical to the success of a bundled service offering. An effective CRM system enables the utility to first segment the customer base and identify the most appropriate customers to target, and then link to the front office and systems for contacting customers and promoting further products and services as part of a concerted offering.
Of course, the quality of a utility’s customer service will determine their success. However, key areas that utilities need to focus on when compiling their CRM strategies are:
- Customer service has to be seamless across all divisions for customers to see the benefit of bundled services
- Significant up-sell opportunities exist if utilities are able to assess their current resources and use them better
- Cost savings are available to utilities through reduced billing costs, with the potential to pass on extra costs to customers who sign up for a greater range of services.
A single bill is the manifestation for the customer of the ability of the supplier to deliver a complete bundled service, and may help with customer retention. Disadvantages include bill shock since the impact for the customer of their utility costs are no longer spread among a number of smaller bills.
It is crucial that utility companies constantly re-evaluate their portfolio and partnerships, even after a complete package is in place. Even those suppliers who decide to stay in their own home markets will find that undertaking frequent re-evaluations will help to ensure that they can both maintain and expand their position. In addition, it acts as a critical tool for companies that are striving to understand their own competitive position and the drivers and pressures affecting it.
Re-evaluation will provide suppliers with the information they need to determine their position within the markets they occupy, while identifying opportunities to enter new markets.
First mover advantage is more important than product differentiation. Utilities often have to enter markets which are predominantly driven by price rather than the value or quality of goods. As a result, cover, insurance, financial services, white goods and other utility offerings are all areas where it is unrealistic to rest on your laurels as a substantial competitive advantage can easily be replicated.
Suppliers should first decipher whether there is a customer demand for a product. A utility cannot offer a product simply because it is easy to provide. In order to meet customer demand, suppliers must first research what products their customers would be willing to buy from an energy supplier, rather than forcing unwanted products to their consumer base.
In summary, to know their customer a supplier has to:
- Know the strengths and weaknesses of its own brand
- Learn to redefine the areas that it traditionally thinks of as a utility
- Research intended market entries
- Develop a clear and compelling customer proposition
- Educate its employees to see the benefits of change.
Bundling services with a view to owning the home represents a huge opportunity for utilities to increase revenues and spend per customer in a fiercely competitive marketplace. However, suppliers must ensure that they have a thorough strategy in place in terms of product portfolio, target audience and delivery channels, before they introduce a new product to the market.