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Energy Marketing: Is There Added Value in Value Added?

Fortnightly Magazine - September 15 1997

and who look after them. In such cases, the buyers will overlook a slightly higher price to avoid the bother of changing retailers. PowerGen has put considerable effort into this approach, and claims to retain about 85 percent of its customers.

Caring for customers. Particularly for large customers and smaller, profitable customers, care is fundamental to success. Customers expect to be treated with consideration. If they are not, then they will walk away. The hotel that first put a mint on a pillow must have gained customers; polite airlines are preferred to discourteous ones; contracts that are in plain English and bills that are comprehensible must add a little value, and so on.

Developing complementary services. There is some scope to get beyond the meter, most notably in: wiring up factories and office buildings; taking over distribution networks; offering shared energy savings schemes and cogeneration systems for industrial and commercial customers; and power protection equipment. But apart from taking over large distribution networks (e.g., major airports), buildings and large cogenerators, the money is small compared with electricity to an integrated utility. The sums are, however, significant to a power retailer.

Value added is supplier-related not product-related. Customers know there is no difference in the product, but they may see a difference in the supplier. The value added lies in the service. If a company is trying to "brand," it is the service, not the product that should be branded. Consequently, the marketing lessons for industrial and commercial customers lie not in product marketing, but in services marketing where new products can be rapidly copied and products have a short shelf life; the name of the game is devising new ones.

Electric companies should view value added more in terms of winning market share and volume for a commodity, rather than in gaining a significant price advantage. To gain 1 percent is quite an achievement in competitive power retailing. These conclusions may not be exciting, but they are realistic and focus on the fact that for medium to large commercial and industrial customers, electricity is a commodity. The ball game for residential customers, however, will play out on another pitch. The question will be: Who has the competitive advantage (em electric companies, credit card companies, supermarkets or others? t

This article is based on a report prepared for EPRI titled, "Is There Value in Value-Added Services? Evidence from Competitive Markets in England and Wales and Norway," TR-106195 Research Project 2343-19, Final Report, February 1996. Alex Henney is principal of Competitive Electric Strategies Inc., which is a joint venture between EEE Limited of London and Resource Dynamics Corp. of Vienna, Va. Jeff Percival was marketing director of Midlands Electricity and Ken Simmonds is professor of marketing at the London Business School.

The Meanings of Value Added

To a marketer, value added comprises the nonprice attributes that a customer takes into account in choosing to buy a product or service from one supplier rather than another. With common products, the marketer aims to find ways of pricing above a commodity price; or at the very