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Energy Marketing: Is There Added Value in Value Added?

Fortnightly Magazine - September 15 1997

has emerged among power retailers in England and Wales that little hope remains for selling value-added services to industrial customers. Some typical quotes are:

• "Among the medium size and larger customers there is no loyalty. Sales are purely on price; a customer will change supplier for $50."

• "What a corporate customer wants is a long-term relationship with a supplier with whom he feels comfortable that he is not being taken to the cleaners. ... Value added is only realized if the service offering has a quantifiable value."

• "Customers are not looking for such services, and will not pay for them. One does not buy insurance from an insurance company because it offers additional services. Larger customers are only interested in price. McDonalds, [which] for example, operates to the last half-cent, treats electricity as a commodity."

• "The only service customers notice is bad service; good service is expected and taken for granted." Although price will determine most negotiating situations, past good service will "get the last shout."

What Will Work?

Looking now at the various meanings of value added, what is the reality behind the hype?

Offering customers tangible economic advantages. Two types of value added could prove relevant in power retailing:

• Risk management may be useful for large, energy-intensive customers who want to hedge the risks of their electricity purchases against prices in their sales market. The net-back contract for an aluminum smelter is the classic example.

• Leasing and flexible payment terms are of value to some customers.

Guiding customer decision making. There is scope for guiding some customers towards innovative pricing structures. For example, in 1991 and 1992, Midlands Electricity successfully persuaded many customers with consumption in excess of 1 MW to buy at pool prices, plus an adder.

Selling profit enhancement and problem solutions. Some companies are trying to link sales of electricity into a package such as shared-savings energy schemes or undertaking electricity works in a new factory or building. Opportunities to gain a percentage point or two on price have emerged.

Providing psychological benefits to customers. The following three examples may help to a limited degree in selling electricity and are definitely helpful in selling complementary services for additional income:

• Brand image. Electricity companies normally have a reputation (em some good, some not so good (em in their traditional service territories. Those with a name that is an asset (em perhaps they are regarded as established, reliable and competent (em can capitalize on their reputations and, with care and patience, extend it outside their territory. For example, Midlands Electricity established Powerline as a brand name for its tele-selling operation in England and Wales. In the U.S., UtiliCorp United was doing the same with its branded EnergyOne electricity, before it spun off the brand as an independent business with AT&T and PECO Energy as franchisees.

• Bundling prices. Often the purpose of bundling prices is to obscure the cost base and to make it more difficult to compare prices. Bundling is frequently linked with innovative and changing products.

• Relationship marketing. Buyers often prefer to do business with people they like