Consumer Research: Efficient Deregulated Marketing - Dispelling the Myths. Source: Dr. Philip E. Lewis, Director, VaasaEmg (www.vaasaemg.com)
It is not necessary to have the cheapest prices in order to win new customers in deregulated household electricity markets. Furthermore, the most expensive companies can keep most if not nearly all of their customers in the medium-long term. Nor is it necessary to offer great satisfaction in order to either acquire or retain customers. What’s more, most additional products and services are irrelevant to the building of relationship value with customers. 5 years ago, as a marketing research manager in the deregulating UK energy market, it became obvious to me that deregulated energy customers, whilst predictable, often appear irrational. All the hype about exceeding expectations, brand building, early adopters and young innovators suddenly seemed to appear so ridiculous and theoretical in this market. Considering the focus of my recently completed PhD. in marketing had been consumer psychology and behaviour, I was intrigued to understand these strange findings. Five years later, a lot has been learned about deregulated energy customers and in particular electricity customers, their psychology, behaviour and the marketing methods most apt at influencing them. By looking at various markets including the UK, USA, Finland, Sweden, Norway and Germany, a common understanding is now possible, and it appears that whilst market situations differ, customers are remarkably similar. Through this understanding it is possible to guide deregulated energy marketers towards far greater efficiency. Firstly there is the issue of satisfaction. Based on various evidence, as well as on various VaasaEmg researches into a total of over 25,000 customers, it appears that satisfaction has only a small impact on customer loyalty. Of course, customers who are very dissatisfied are more likely to leave and those with excellent experiences are likely to remain, but such extremes are very rare in all markets and even then many customers behave in a contradictory way. In fact it appears that dissatisfied customers tend to remain loyal to their electricity supplier if they perceive that the cost of remaining loyal is less than the cost of changing. Conversely, satisfied customers tend to become disloyal only if they perceive that the benefit from changing supplier is clearly greater than the cost of changing. These costs and benefits are of course many and complex, but they are now known and so we can understand the paradox whereby dissatisfied customers often remain loyal and more satisfied customers often change. Secondly there is the issue of prices. Many electricity companies have made the mistake of offering unnecessarily low prices. It appears that customers’ response to price discounts is not greatly determined by their income level or indeed other demographics. Wealthy people may be careful with their money and poorer people may be loose with theirs, flat owners may be yuppies and large house owners may have big mortgages and so on. Consequently, as a whole 100 pounds is 100 pounds is 100 pounds. Also concerning prices, the amount of saving is what matters, not the percentage, and unless the savings are clearly greater than the costs (effort and risks of changing) then customers will mostly stay
where they are. They seem to care little about whether their company is the cheapest, but more about whether it is sufficiently competitive as a whole. Thirdly, concerning additional offerings, customers are usually reasonably aware shoppers. They do not need to buy for example insurance or even electrical items from an electricity company, nor do they put much emphasis on web sites or overly friendly customer services. Duel fuel has often been a success, but what they want most is a good value, safe, reliable, environmental energy supply with clear bills, flexible service and no service problems. Additional offerings only work if they are competitive in their own right. Good relationships between company and customer will make the selling of additional offerings easier, but only if the offerings are strongly needed or wanted. Offerings which research has shown as being of good potential include a wide variety of green products (ranging from simple green energy to home-based wind turbines to solar panels) as well as billing related services via the internet and 3G and even intelligent home devices and services. However, in all these cases the estimated success of the offerings depends greatly on a clear researchbased understanding of what customers really want from the offering and under which conditions and packaging they will purchase them. This brings us to the last issue, namely the importance of direct marketing. Most customers’ reasons for not changing electricity company relate in some way to effort. Most customers are interested in changing company (though may not feel likely to), they are interested in comparing prices and they have no clear objections. However, they are sufficiently busy, stressed, satisfied and even lazy to prevent them from acting further. The same customers generally would prefer to be approached by electricity marketing than to take any initiative themselves (of course they do not want to be pestered). Under such circumstances, clear and intensive direct marketing is a key to success as has been shown in the UK. Conversely, in Finland, the lack of direct marketing is arguably a key reason for low switching rates. In summary of this very brief and simplistic outline of a large quantity of research, a few things can be stated: Advertising and branding are important mainly only as a prerequisite to trust and awareness and in support of other marketing activities. Satisfaction must be sufficient, consistent and differentiated, but no more. If companies want new customers then marketing must be very intense and direct and relatively large and equal savings must be offered, but it is not necessary to be the cheapest by any means. If companies just want to keep customers, then quite high prices are possible and only a small amount of intelligent marketing is needed if they have the ability swiftly respond to competitors’ marketing (there are many ways) and prices. Additional offerings must be fewer, extremely well researched and strongly needed / wanted. Most offerings are pointless: if you wouldn’t take it why should they. In these and many other ways, electricity companies can use their budgets more wisely and effectively.