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Letters from the U.K.: Early Experiences in Mass Market Utility Retailing

Fortnightly Magazine - January 15 2000

customer benefits), (4) trading and risk management, (5) product and service development, (6) alliance, partnership and outsourcing management, and (7) billing and revenue-cycle management.

In the U.K., electric suppliers appear to have initially chosen four basic strategies to differentiate themselves from the competition in the mass market:

* Broaden product and service offerings;

* Compete on price;

* Tie service offers to special incentives; and

* Improve service and convenience.

Centrica is among U.K. utility retailers that have broadened their product and service offerings as a way of enhancing customer propositions. This retailer has evolved from a gas supplier to a provider of a range of consumer products and services, including energy, credit cards, home insurance, central heating and plumbing. Centrica is expanding its prospects further through its recent acquisition of the Automobile Association, which provides roadside breakdown services.

As a result of competition, the best prices available to residential electric customers are as much as 6 percent to 12 percent below those offered by the incumbent suppliers, depending on usage and payment method. That compares with the best prices available to residential gas customers following the introduction of competition in that sector. Competitive suppliers offered rates of up to 7 percent to 21 percent below those offered by British Gas, depending on the payment method. Furthermore, of the 15 U.K. suppliers offering dual fuel propositions, five offer customer discounts of about £10 to £15 ($16 to $24) annually for taking both products bundled.

As another strategy, utility retailers provide specific incentives tied to the core energy product as a way to enhance overall customer propositions. Some examples follow.

* Eastern Electricity joined forces with Barclaycard to offer customers a discount when they pay for their combined gas and electricity bills with their credit card.

* Through an arrangement between Norweb and TESCO, the U.K. supermarket chain, every £1 a Norweb customer spends on gas and electricity is worth one TESCO Clubcard point. Customers can redeem the points for groceries or gasoline.

* Goldfish credit card customers get a point for every £1 spent using the card. Customers can use these points to get annual discounts of up to £75, or about $122, off their Centrica bills.

In the last of the four strategies, U.K. utilities have increased customer service, convenience and functionality of their products and services. For instance, PowerGen encourages new customers to sign up at their leisure via the Internet by offering them £30 (about $49). Another example is United Utilities, which significantly upgraded its call center by making it more interactive.

John L. Domagalski is a principal consultant in PricewaterhouseCoopers' Business Strategy & Policy Centre of Excellence, based in London, England. He has over six years of experience in developing and implementing competitive strategies for clients in network industries. Domagalski received his B.S. in commerce with a concentration in finance magna cum laude from De Paul University.

1 "Electric Lead: Dynamism and change in an openly competitive electricity market," PricewaterhouseCoopers, 1998.

2 "Open Sky Retailing The Future of the U.K. Utility Retail Market," PricewaterhouseCoopers, 1999, p. 11.