Alex Patient
Datamonitor, UK

Building brand loyalty is one of the greatest challenges faced by utilities today. New research suggests that low prices alone are no longer enough, and that utilities must start showing their sensitive side if they are to enhance customer loyalty.

New research from independent market analysts, Datamonitor, finds that low prices are no longer enough to convince residential customers to switch to a new gas or electricity supplier. Utilities must tap into customer emotion if they are to secure custom and increase brand loyalty. With consumers becoming increasingly cynical about companies ‘greenwashing’ their brands, utilities must now seek to form partnerships with trusted brands if they are to win their customers’ loyalty and prolonged business. Datamonitor finds that customers are increasingly willing to pay a premium for their energy if the brand openly supports a charity or environmental group. If this marketing initiative is successful, brand could become a more important factor than price by 2007. However, utilities cannot afford to be half-hearted about their branding – commitment to a good cause must permeate all areas of the company from advertising to the call centre.

The UK, Swedish and German markets have all deregulated, and since last year Dutch customers have been able to change supplier to choose green energy. The large differences between pre- and post-regulation prices allowed substantial discounts to be offered to encourage switching while remaining profitable, and this was the common-sense approach taken by the vast majority of utilities. However, continued focus upon price since 1998 has led to diminishing returns and customer churn in the UK. Despite this, utilities have continued to push the price message in their sales and marketing strategies, with the utility brand embodying the functional elements of price and service with few exceptions. The long-term unsustainability of price-based marketing is clear, and the industry can expect a fundamental re-appraisal of the role of the residential retail brand to follow.

Love thy utility

The very idea of loving your utility may seem as far-fetched as waiting expectantly for the utility bill to drop through your letterbox, but this is what utility brand managers will be working on in future. With price differences between suppliers becoming slimmer, trying to attract and retain customers on the promise of cheaper bills is no longer enough. Similarly, the shift towards promoting premium customer service has lost its attraction – today’s customers see good customer service as a given, rather than a luxury. With these two marketing methods nearing their sell-by date, utilities will eventually reach the point where utility supply is no longer profitable unless customers can be made more brand loyal. While this is no easy task, it is by no means impossible. New research from Datamonitor highlights the need for utilities to tap into customers’ emotions and establish themselves as compassionate companies who sympathise with their customer’s interests and passionate causes. In much the same way as in the 1980s, The Bodyshop positioned itself as the cosmetics company with a conscience, Datamonitor believes that in the not-too-distant future we will see utility companies falling over each other to show their sensitive side.

Consumer needs can be broken down into three levels that must be mapped onto the utility’s brand image
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Brand in the utility industry can be defined as the cognitive and emotional understanding of a service, family of services, or organization in the minds of customers and would-be customers. In this sense, brand identity is a state of mind that the marketeer attempts to create within the customer base as a means of improving customer retention and encouraging customer acquisition.

In this context, how many utilities have truly made an effort to gain the “cognitive” or even the “emotional” attachment with the customer? A recent Datamonitor survey of 18 European power companies’ brand values revealed that 17 had a customer service value such as convenience, while several had values of “excellence”. Two-thirds of utilities also had an environmental brand value. This ranges from the passive aware to the more impressive sounding “environmentally involved”. An equal number of utilities claim to be “innovative”.

Price driven

When a majority of utilities occupy the same brand space, what effect does that have upon a utility’s ability to differentiate? As a brand value, service has become homogenous, while excellent customer service is now viewed as a requirement rather than an added-value element of the overall supply contract. Similarly, the inability of utilities to date in proving that they are innovative has led to brand congestion. One wonders whether Seeboard Energy’s campaign portraying itself as brimming with ideas can reinvigorate a previously staid brand beyond the short-term.

Can we therefore be surprised that customers have remained price-driven and apathetic about utility supply? In many ways, utilities should have the advantage over other industries in building their brands. The long history of utility service being a daily and crucial part of the customer’s life should enable the development of a social identity. Thus far, social identity is limited to those utilities that have kept to a local or regional focus. The Stadtwerke in Germany and the independent municipal players in Sweden have had success in retaining their customers in spite of the marketing muscle of the utility behemoths because of the social role that they play. These smaller utilities have through years of local activity been able to involve the customer in their brands, creating the emotional and cognitive connection that affects customers’ decisions to stay or leave.

Utilities must move from the generic and functional brand to the emotional and inspirational to gain customer loyalty and increased spending
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Those utilities without the luxury of such brand attachment, or regional players looking to extend their offerings beyond the home territory, must learn to develop brand emotion in a far shorter time frame. Certain brand names such as E.ON have been brought to life in recognition that the brands of the two utilities involved in the merger lacked customer empathy. Only now is the industry beginning to wake up to the realization that customers are changing and that price may not be enough to keep and acquire business.

Earning customers

Indeed, looking at other industries, we are seeing trends of greater involvement between the customer and the company. Some people demand make-up that has not been tested on animals, others ask questions about global companies’ trade practices, they want to know who stitched their Nike trainers, or look for guarantees that their tomatoes were organically grown. Perhaps the greatest element of mass involvement now is with the environment. As the greatest contributors to global warming, the power industry can either sit back and wait for customers to demand traceability in the generation of their supply, or they can take the lead and earn customers’ respect for doing so. This is just one area in which utilities can differentiate themselves and overcome the cynicism that more and more customers feel about large companies’ advertising.

The present attitude, however, has largely been to mouth the words that customers want to hear without putting them into action. E.ON’s brand creation was one of the most expensive in utility history, and yet it is uninspiring when it comes to “walking-the-walk” with its brand values of inspiration, concentration, and courage. As praiseworthy as London Electricity’s “excellent service” brand would be if put into action, the first link in the customer experience belies the claim as it has historically had one of the poorer complaint records for direct selling in the industry.

Brand comfort encompasses a range of potential brand positions that have yet to be utilized
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In a manner of speaking, however, London Electricity, TXU Energi, Sydkraft and other pushers of the service brand are on the right track. The ability to develop an emotional connection with the customer starts with getting the fundamentals of customer service and accurate billing in place to a consistently high level. Those that aim too high too soon on the emotional ladder will find their credibility undermined as customers have experience of difficulties. In this respect, Yellostrom – a subsidiary supplier of EnBW – has been clever to brand itself as an exciting colour, rather than anything that requires proof through action. Seeboard, on the other hand, will need to demonstrate its innovative brand values if it is to remain credible.

British Gas may be one of the first utilities to put in place a brand strategy that is backed by its actions. It has successfully aligned the basics of its brand – its product and service features – with those that the customer needs to provoke a rational and cognitive response to the brand. Now it is looking to develop this further by creating a social image to align with customers’ perceptions of their social identities. The recent children’s TV advertisements promote the idea that “there’s no place like a British Gas home”. Ideas of belonging, security, and safety are all those that many customers can relate and aspire to, and now they can share these with British Gas.

Emotional involvement

Utility brands in future, therefore, will look to move beyond provoking a logical and rational response towards one that is more emotive. Several utility partnerships to date have been successful in creating emotional involvement, usually those relating to green issues about which passions are more easily aroused. Questions of brand value credibility have been hurdled through co-operation with well-known partners such as Npower’s work with Greenpeace or Nuon’s with Natuurmonumenten (the Netherlands largest conservation organization). Indeed, by picking emotive issues such as conservation, green energy, wildlife protection, the elderly, family and so on, utilities can hope to involve large numbers of customers at a deeper level.

The full impact of emotional branding has clearly yet to be seen. However, the long-term attachment between customer and utility at the small Stadtwerke Konstanz has limited churn to two per cent of the original customer base since deregulation four years ago. Similarly, Scottish and Southern Energy’s RSPB Energy tariff to support conservation efforts for birds has already had significant effects upon churn reduction. This is not to say that utilities should simply pick areas with emotional potential and then ally themselves with the cause. Customers will not be accepting of those utilities that aim to greenwash their brands without deeper and more fundamental changes throughout the organization.

These changes involve truly living the brand values, demonstrating them at each customer touch-point. Amazon’s customer service agents are hired first and foremost on the basis of their personality, deliberately choosing those people who are non-mainstream, and then training them to present a unique blend of personalized service. A short spot-check of UK utility call centre agents found that the vast majority were unable to state their company’s brand values, suggesting that some distance has yet to be travelled along the path to brand depth.

Continual bombardment of green advertising has rendered customers cynical of companies greenwashing their brands or suddenly supporting good causes. For that reason, utilities have looked to partner with trusted brands to overcome this scepticism, a crucial factor in the customer’s decision making process.

At present, customers are switching utilities based largely on price and, possibly, in the hope of receiving better customer service. This, however, is predicted to change by 2007 as customers become more involved with utility brands that have emotional resonance. Although the majority of customers will remain largely apathetic towards their utility, utility consensus places between 10-40 per cent of customers as developing a positive association with the social image of their supplier, or have a stronger and more passionate attachment to the causes that it supports.

Nevertheless, utilities cannot hope to improve customer retention and acquisition if they fail to live up to their brand promise, or if their commitment to the passionate cause runs only skin deep. Current brand values of innovation and environmental responsibility lack credibility due to the failure to demonstrate them through day-to-day contact with customers. Ensuring visual conformity with brand values is only one small step, and utilities continue to fall down when it comes to walking-the-talk in the call centre. Indeed, until utilities place as much emphasis upon internal communications as they do externally, customer scepticism of the brand will inhibit development. By truly walking-the-talk, however, affection for the utility may not seem so ridiculous and could help banish the fat cat persona forever.

In an industry whose core products are identical, and where product bundles are easily duplicated, it is the demonstration of company culture and beliefs that will differentiate from the competition without the danger of emulation. In this respect, utilities must learn to place as much focus upon branding internally as they do externally, even if the budget balance remains heavily weighted towards the outside audience. Until they do so, brand credibility will remain a barrier, emotive response will be shallow, and customers will continue to look towards price as the measure of value.