CONSUMER RESEARCH FOR THE ELECTRIC AND NATURAL GAS UTILITY INDUSTRY

Kathrine Brown
Marketing Manager, Customer Development Corporation

(originally published by PMA OnLine Magazine: 08/98)

• You can get consumers excited about deregulation if you educate them about how it will benefit them: more choices, better prices, better customer service, and additional integrated services.
  
• Most consumers feel OK or good about you, so leverage that good feeling to begin to build a brand image with them as an energy company who provides a good value, information, reliable service, and value-added services.
  
• Make sure your prices are competitive, your service is exemplary, and that your bills are right—otherwise you are vulnerable to attrition.
  
• To acquire new customers, go after the younger, more educated, and wealthier segment with innovative services. They are the "early adopters," they buy immediately, and they spread the news through word of mouth. Conversely, they are also the same customers that will be the targets of your competition, so you will need to work to retain them.
  
• To keep the customers you already have, remind them that you are the big, safe, reliable company upon which they have grown to depend. But don’t take them for granted, because they will have other suitors, and price pressures will inevitably escalate.
  
• Remember that branding is more about relationships and less about products, so communicate with customers.
  
• Send customers informational mailings—they say it makes them feel better about you.
  
• Send customers coupons for your old and new services—they say they will respond to them.
  
• Consider bundling your traditional services with newer energy-related products and services, such as indoor air quality products, home security systems, home safety products, and home warranty products. Consumers are interested in them.

How Consumers Feel About Deregulation of the Energy Industry

Survey respondents said they were still unclear on several issues regarding deregulation within the energy industry and are not yet excited about it. Only 15% of respondents thought that deregulation existed in their area.

Overall, respondents felt that deregulation meant that they would have a choice of providers, that there would be more competition, and that there might be price changes (but weren’t sure in which direction.) However, based on what they knew about deregulation, most respondents were indifferent about it and nearly half (47%) felt that it was the providers—not the consumer—who would benefit most from it.

These findings are consistent with the "wait and see" attitude noted in other recent research. Many consumers want to wait to see how the market shakes out before making any decisions about switching providers. It appears that consumers may be both overwhelmed and under-whelmed by deregulation at the same time.

How Consumers Feel About Their Energy Providers

Of the respondents, 18% said they had the same company for both electric and natural gas, 50% had different companies, and 32% did not have natural gas service at all. They reported their average monthly bills to be $67 (gas) and $95 (electricity).

Whereas other recent research suggests that consumers feel better about their natural gas provider than their electricity provider and would rather buy electricity from their gas provider versus the other way around, CDC’s survey showed only a slight difference. When asked how consumers felt about their electric and natural gas providers, between 88%-90% felt good or better. Moreover, they felt they were getting a fair or better value for their money. Those who dealt with the same company for both tended to respond more favorably to both questions.

Will Consumers Stay With You When They Have Options?

Not surprisingly, the most frustrating things for consumers were price increases, service interruptions, poor customer service, and billing problems. And these were precisely the same things that respondents said might cause them to consider switching to another provider if one became available.

Between 85% (gas) and 88% (electric) of respondents said they were at least somewhat likely to seek information about alternate providers, and most were looking for at least a 6-10% savings to switch. However, respondents who felt positive about their energy companies—both overall and based on perceived value for the money--were less likely than those with negative ratings to consider another provider. Demographic statistics such as home ownership, length at residence, single family or multi-family dwelling, marital status, and presence of children did not appear to affect their likelihood to consider an alternate provider.

However, those who are employed full-time and who are higher educated tended to be slightly more likely to seek information about an alternate provider. Moreover, the younger respondents and those with higher incomes also tended to be more likely to seek alternatives. These last four demographic strata may be the innovators or "early adopters," those that buy immediately and spread information by word of mouth; they may represent a lucrative target segment for newer utility start-ups or for traditional providers who want to introduce a new service.

The things consumers said would make them hesitate to switch to another provider were: fear of poor service, unknown company, eventual same or higher prices, and simply the inconvenience of switching. This evidence suggests that there is a brand image that the bigger, more well-known utilities have achieved and that newer start-ups would have to earn.

How Consumers Want Their Energy Providers to Reach Out to Them

Respondents said they would prefer to be contacted about new products or services from their utility company through the mail (75%), through TV/radio ads (10%), by telephone (7%), and 4% specifically stated with their billing statements.

How Should Utility Companies Tell You about New Products/Services?

Based On 171 Responding – Multiple Responses Allowed

In terms of response channels, consumers indicated they were either "likely" or "very likely" to return a coupon mailed to them (66%), return a coupon bundled with their bill (56%), or call a telephone number from a TV commercial (43%). They were least likely to respond over the internet (28%) due to the limited number that have access. Among those who currently have an internet connection, however, the percentage rose to 45%.

22% of the respondents indicated that they currently receive mail from utility companies besides monthly billing statements. They receive newsletters (27%), fliers (18%), information about switching companies (13%), information about deregulation (10%), brochures (8%), and price increase notices (8%). Most consumers (64%) said the mail they receive from their energy providers doesn’t affect the way they feel about them. However, 19% reported that it made them feel somewhat more positive and 8% said much more positive.

Respondents also indicated that they would be either "interested" or "very interested" in having their electric and natural gas service bundled with other energy or home-related products and services, such as:

• Home security systems 24%
• Indoor air quality products 34%
• Home safety products 24%
• Home warranty products 21%

Bundling of different products and services may turn out to be one of the real differentiators for utility providers who find themselves competing for the same consumers and struggle to offer substantial savings over other providers. It may also present an opportunity to for energy companies of all sizes to become "energy consultants," not just providers, who help consumers become smarter, get more for their money by conserving energy, and understand the impact on the environment (marketing green power). If they offered these energy-related products and services through a catalog, it would also help create the perception of a retail infrastructure, which is helpful in building a brand image to the customer.

Survey Methodology

In April 1998, Customer Development Corporation, a full-service database marketing company based in Peoria, IL, conducted a telephone survey of consumers in the top 50 MSAs (metropolitan statistical areas). In total, 15 minute interviews were completed with 171 respondents. About half of the interview focused on questions relating to electric and gas utilities, and the other half was dedicated to cable. The purpose of the consumer research was to assess consumers’ knowledge of deregulation, to determine their attitudes toward their local providers, to explore the issues of price, cost, and value, and to understand their buying preferences.

Demographically, 69% of those surveyed had children at home, 84% were married, half were between the ages of 35-44, incomes were dispersed between practically none (students) and over $70,000, most had at least some college education, 67% were employed full-time, 90% owned their own home, and 64% were male.

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Katherine Brown is the Marketing Manager for Customer Development Corporation, a fully integrated database marketing company based in Peoria, Ill. Prior to joining CDC, she spent six years at Unisys Corporation as the Client Relationship Manager for Bank of America account sales. In addition to 11 years experience in marketing and new business management, Kathy holds an M.B.A. in finance from Pepperdine University and teaches business statistics at Bradley University.