When the Salt River Project (SRP) held a series of focus groups in 1994, one participant said he related to our products and services, and felt he received good value for his monthly payments. Unfortunately, a few questions later, we discovered that he did not live in our service area, his bill was higher than he thought, and he wasn't particularly pleased after all.
We were more than a little taken aback. After all, we certainly had no trouble distinguishing our products and services from those offered by Arizona's other electric and gas utilities. Wasn't this customer paying attention to our paid advertising or to the local news stories about SRP that appeared with some regularity? Didn't he appreciate what we had been doing in the community all these years?
This type of customer confusion was of little consequence as long as electric utilities operated within well-defined service territories. But as we look toward a deregulated future, when customers will be able to vote with a telephone call and service territories are likely to become out-of-print maps, utilities and customers should be asking probing questions of each other.
Utilities should be asking: Why did you choose our product or service over those offered by the competitors? Or, alternatively, why did you choose a competitor's product or service over ours? Customers, on the other hand, should be asking their utilities: How do your products and services compare to those of your competitors?
Some sobering research has already been done. Each year RKS Research & Consulting conducts national surveys of residential, commercial, and industrial electric customers. Last fall, approximately 50 percent of those surveyed said they would switch electricity providers for a 5-percent decrease in rates. Between 61 and 67 percent would switch for a 10-percent reduction. A 20-percent rate reduction would convince approximately 75 percent of those queried to switch. These figures should have most utility executives anxiously looking over their shoulders at low-cost providers.
But the future may not be as bleak as it sounds: In a separate survey earlier this year of quick-service restaurants, hotels, hospitals, and department stores, RKS found that nearly 50 percent of these customers said they would be willing to pay higher rates to a utility with a favorable brand image. These customers include some of the nation's most sophisticated energy buyers, each responsible for the energy choices (em and, hence, the profitability (em of several thousands of stores.
The RKS survey also revealed a profound preference among all customer classes for doing business with a local utility. Among those customers who said they would switch to a lower-cost provider, clear majorities said they would reconsider their choice if the new entrant was not active in the community or lacked local offices.
What's in a Name?
SRP has, for several years, regularly used focus groups and other survey methods to assess public opinion about our rates, service, and standing. The focus group mentioned above was asked questions about Climate Crafted Homes, a certification SRP provides in our service territory to homes that meet certain energy-efficiency standards. SRP doesn't build the homes; rather, we certify that the home will use up to 25 percent less energy than comparably sized homes that do not meet the standards.
One participant living in a home certified as
energy-efficient by a competing utility said she loved the way her Climate Crafted Home kept her SRP electric bills low. She did not, in fact, live in a Climate Crafted Home. This participant, like others in her group, gave us information that was quite instructive. She was not the only one to recognize SRP's Climate Crafted Home program: Introduced in 1989, the program has enjoyed a high level of brand
recognition among Phoenix-area home buyers. Over 26,000 homes carry the Climate Crafted Home endorsement, far more than the number of homes certified as energy-efficient by Arizona's other utilities. But only one-third of our focus group participants were able to recognize Climate Crafted Homes as an SRP product distinct from similar-sounding energy-efficiency products offered by Arizona's other electric or gas utilities. SRP was promoting a product that failed to add equity to our company's brand. (We recently addressed that issue by renaming the program "SRP-Certified Homes.")
Arizona currently has five major electric utilities: locally owned SRP, Arizona Public Service Co. (APS), Tucson Electric Power Co. (TEP), Citizens Utilities (CU), and Arizona Electric Power Cooperative (AEPCO). Add to this lineup Las Vegas, NV-based Southwest Gas Corp., which provides natural gas service throughout the state. No wonder customers have trouble remembering the different energy companies and their programs!
To overcome our lack of identity, SRP began developing a corporate branding campaign in late 1994. First, we asked existing and potential customers what they wanted from their electricity provider. We analyzed ways that SRP is different from other electricity providers. Using focus groups of present and potential customers and our employees, we created broad themes that were tested and refined using various techniques, including telephone surveys and mall-intercept interviews.
In late August, we rolled out a new series of print, television, and radio ads. These ads seek to distinguish SRP from other electricity providers, educate our customers to the distinct value of SRP products and services, and build brand loyalty. SRP's new positioning statement, "Delivering More than Power," will appear in all applications where a corporate logo is appropriate. The positioning statement capitalizes on our water operations, which predate the founding of the State of Arizona, and helps to set SRP apart from other utilities in the state. Our positioning statement also tells the customer that SRP will be delivering a variety of services over and above electricity.
Surviving the Identity Crisis
We are convinced that communication (em in particular, advertising (em must build corporate identity, brand awareness, and loyalty among customers that never used to think twice about their energy needs. Electric utility advertising is a big business: In 1994, electric utilities spent more than $150 million on advertising.1
In the past, electric utility advertising functioned principally to warn people about the dangers of coming into contact with downed electric wires, or to burnish a corporate image with touching testimonials. For all practical purposes, communication was a one-way process, with utilities telling the customers what it thought they should know about the company. All that is changing with deregulation.
But building corporate identity is not simply a communications challenge. Executives overseeing the marketing, strategic planning, and customer service functions will be challenged as never before to develop products and services (em even new lines of business (em that offer customers added value, make the company stand out from competitors, and build equity in the corporate brand. Failure to successfully brand a company could lead to a marginalization or elimination of any or all of these functions.
Some utilities have already begun their branding efforts. Columbus, OH-based American Electric Power has seven operating subsidiaries in as many states. CEO E. Linn Draper has reviewed a series of management changes "designed to give our seven operating subsidiaries a new, single-company identity under the AEP brand."2 Corporate branding
efforts are also under way at San Diego Gas & Electric Co. and Baltimore Gas & Electric Co.3 And most observers are familiar with UtiliCorp United's aggressive national branding effort, EnergyOne.
Is corporate branding just another emerging elixir for communicators? Absolutely not. In fact, corporate identity branding is a long-term enterprise. A 1993 Advertising Age study concluded that customers only begin to "hear" a message after 18 to 36 months of reasonable and consistent exposure. Following that, it can take up to an additional 24 months for customers to "believe" in the brand. After five years, assuming a good, memorable positioning statement has been chosen and the company maintains its advertising profile, a brand is "owned," meaning it has become synonymous with its product (e.g., KFC for fried chicken and Jell-O for desert gelatin).
Survey research has shown that the first brand to gain customer recognition, on average, wins twice the long-term market share of the next brand. During a branding campaign's multiyear incubation period, executives must resist the temptation to change the new positioning statement. Staying the course is a necessity: Modifying the positioning statement would be akin to digging up and replanting a crop before the harvest. The corporate positioning statement must be given time to grow.
One company that struggled with the transition to competition was AT&T. Despite years of litigation aimed at ending Ma Bell's monopoly over long-distance service, AT&T spent more time fighting potential new entrants than it did developing new programs, rates, or services (em much less positioning AT&T as the provider of choice.
Consequently, in the four years after U.S. District Court Judge Harold Greene broke up the long-distance monopoly in the early 1980s, AT&T lost an estimated 30 percent of its market share to hungry new entrants such as MCI, Sprint, and others.
To stanch its rapidly eroding market share, AT&T spent more than $400 million a year on advertising. By contrast, the new entrants each spent less than $50 million. The lesson: Stopping the loss of market share (em to say nothing of regaining lost market share (em is very expensive. Far better to invest funds prior to the advent of competition to preserve market share and acquire new customers. Recent reengineering to the contrary, the AT&T experience should signal caution to any company facing deregulation.
There is yet another compelling reason for utilities to develop a brand identity: crises. Though variously defined, crises are a staple of life in the utility industry. From power outages to customer outrage, electric utilities face a wide range of potential crises every day. According to a Yankelovich survey, companies with strong corporate brand and positive image were more likely to weather and recover from a crisis. About 57 percent of companies with "above average" corporate image ratings were not seriously affected by a crisis; only 5 percent of firms with a "below average" rating survived. The remaining firms struggled to regain lost market share following the crisis.4
I will leave the precise picture of the future of the utility industry to the professional prognosticators. Despite all their sophisticated simulations, it's likely no one will get it quite right. But one thing that seems clear enough to SRP is that a more competitive world will require the retooling of electric utility communications. Customers need to know what a company stands for, what it delivers, and why it provides the best energy value. t
D. Michael Rappoport is SRP's associate general manager for Public & Communications Services, which includes the advertising function. With annual revenues of approximately $1.5 billion and more than 600,000 customers, SRP is one of the nation's largest locally owned electric utilities.
Who Needs Corporate Identity?"It is the comprehensive presentation of what a corporation is, where it is going, and how it is different. Corporate identity seeks to project what makes a company special in order to influence the perceptions and actions of a diverse set of audiences."*
Failing to establish a corporate identity and build distinct brands as the industry approaches deregulation means that electricity could become a commodity, with customers gravitating toward the absolute low-cost provider.
For a glimpse of the future in a commoditized electricity industry, watch traders at a mercantile exchange furiously buying and selling commodities. Just as one bushed of corn is indistinguishable from another, so too will kilowatt-hours be indistinguishable. Price may well be all that matters. *"Corporate Identity: Beyond Name and Logo," Anspach, Grossman & Portugal, Inside PR, November 1992.
1 Estimate from Bob Janke, executive director of Utility Communicators International.
2 Richmond Times-Dispatch, Aug. 14, 1995.
3 Forbes, Aug. 28, 1995, pp. 108-109.
4 "Study of the Past 15 Years' Activities of 489 Companies," Marketing Intelligence, 1992.
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