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Green Pricing: Removing the Guesswork

Fortnightly Magazine - August 1995

not contribute will also enjoy the environmental benefits. They tend to favor market solutions over government programs, and some express a distrust of government involvement. These customers understand the profit motive and support reasonable profits for participating utilities.

Demographically, green pricing program supporters are surprisingly diverse, including both urban professionals and rural families. The green pricing participant is not necessarily from the best-educated or wealthiest customer groups. Membership or prior contributions to environmental groups offers the most accurate demographic predictor of green pricing program participants.

Targeting Niche Markets

Marketing electric services in a competitive environment means learning how to creatively "unbundle" the values of the services for which consumers will pay. Improvements in environmental externalities illustrate only one of a number of unbundled electric service offerings that can be created for targeted customer niches. Developing differentiated products for niche markets involves three steps:

Match programs with customer needs. The first step in developing specialized products is to identify customer needs. Ask whether these needs match with company programs, services or opportunities to increase product satisfaction or brand loyalty. Without accurate projections of customer needs, expensive products and services may be developed that do little to improve the value customers perceive.

Identify willingness to pay. Identifying customer needs is of limited value if customers are unable or unwilling to pay for those services. Willingness to pay (WTP) studies involve presenting detailed product or service scenarios to customers and econometrically estimating WTP.

Size up the market niche. Use an accurate method of measuring the proportions of the customer group that would participate in green-pricing programs. Survey research (em including telephone polling, attitude surveys, and joint studies (em generally overestimates the size of this group. Market simulation or test market methods where customers actually commit to pay specific amounts for service can better separate those who report being willing to pay from those who actually will.

Electric utilities need marketing tools. Environmentally friendly electric resource options can help differentiate companies and their products from other electricity suppliers. Like the customers of telephone companies, electric utility customers who never think about who supplies their basic service will one day make decisions about their primary electric provider based on image, reliability, business philosophy, and perceived value.

Green-pricing programs offer dynamic, positive, low-risk opportunities that utilities can use to test their competitive marketing skills, before those skills become indispensable for company survival. For the few utilities that have employed them, green-pricing programs have provided proxies for a competitive market (em forcing utilities to listen to customers about needs, pricing, and program introductions. These programs have taught utilities to map business strategies and tactics to appeal to market niches, while there's still time for learning. t

Keith A. Baugh is executive director of research for The Eagle Group. Brian Byrnes works for Insight Research, Inc., Clive Jones for Economic Data Resources, and Maribeth Rahimzadeh for Wisconsin Public Service Corp.

Green Utility ProgramsSacramento Municipal Utility District (SMUD). Participants in the photovoltaic (PV) Pioneers Program pay a 15-percent premium (about $6 per month) over a 10-year period to have a 4