IN THE EARLY 1970s, WHEN THE "ENERGY CRISIS" DAWNED, New York told electric utilities to stop advertising to promote electric use. State judges deemed such promotion as lacking in "any beneficial content," or even "detrimental to society." It took an appeal to the U.S. Supreme Court for utilities to win the right to tout their product.
Today's questions target the bottom line: Can advertising boost sales for energy suppliers? If so, what does it take?
"This has been the challenge of the advertising industry from day one," says Eileen Arbues, the new senior vice president of marketing for PG&E Energy Services. "Does it really have an impact and can I directly correlate an ad I have run, or a direct mail piece I have sent, to actual overall sales awareness and stick rate of a customer or a product?"
California, in her words, is a "flagship market." For her company, that means a goal "to be the number one player in California by the year 2000 and in the top three, nationally, in that same time frame." It also means a "very healthy budget" for advertising and marketing. The unregulated energy services subsidiary of Pacific Gas & Electric is currently running a print campaign in business journals and trade publications, and it has a radio spot in multiple markets. Since the company isn't targeting residential customers, it's not using television ads.
Enron Corp. is also establishing a presence in the state. Gary Foster, head of public relations for Enron's retail group, says the company is spending more than $10 million on its California ad campaign, and that it, too, has ambitious goals out West and throughout the country. "When the entire market is open," he says, "Enron wants to have from 10 to 20 percent of the $300 billion market, nationally."
Enron expected to have close to $1 billion worth of contracts in hand by Jan. 1, Chairman Kenneth Lay told attendees at an energy conference in Houston last month.
Foster admits that branding won't happen overnight. It's "a huge undertaking for the entire country to get to know this company with the funny name [that] they've never heard of before."
Arbues, representing a utility affiliate, worries about more than introducing a new company name. The problem, she notes, is to figure out how to make an intangible product - electrons and services - interesting and real, and what to emphasize: "The best price isn't always the best product or service or the best value."
To some, however, price is everything.
Image Building: The Traditional Refuge
Many early ad campaigns in New Hampshire featured small-scale product giveaways, such as bird feeders. The more interesting promotions involve corporate image-building on a large scale, building a national or even international presence. Sports teams and stadiums mark the vehicles of choice.
In 1996 Cinergy signed a five-year deal with Cincinnati to rename Riverfront Stadium as "Cinergy Field." Merchandise sold at the stadium carries the Cinergy name. The company has a "big ad at right center field, too," says Cinergy spokesman Steve Brash. It may be difficult to measure the effectiveness of such advertising, he notes, but "it allows us to get into major markets across the country at a much lower cost" than to run advertising campaigns everywhere.
Edison International followed suit last September, lending its name to the renovated Anaheim Stadium, in time for the Angels to open their 1998 season. With the new name, the Edison International Field of Anaheim, the stadium will lie in "the heart of our service territory, where the bulk of our customer base" falls, according to Tom Higgins, Edison International's vice president for public relations. He won't reveal the price tag for the 20-year sponsorship, but acknowledges that it's a "terrific marketing opportunity¼ worldwide, to extend the reach of our brand. We want to build the brand so we get a competitive advantage" as the company restructures.
In November came an announcement to rename the Pittsburgh Civic Arena, home to the Penguins hockey team, the Allegheny Energy Dome. The six-year, $5-million deal marked the culmination of a long naming-rights search, a Penguins spokesman says. Last fall the arena's management company, SMG, also chose Allegheny Energy as the facility's electricity supplier as part of the state's pilot program.
Enron targeted a sports audience, but tied its image-building 1997 Superbowl ad campaign to its experience in Peterborough, N.H., in the nation's first customer choice program. Print ads in publications such as Forbes and The Wall Street Journal began that same week. For the total campaign - six months of TV ads and print ads throughout 1997 - Enron spent $25 million, Foster says.
A Costly Distraction
With the unexpected challenge from Enron to become the default supplier in PECO Energy's home territory, the two companies last fall became locked in a publicity war. The battle was as much to gain favor from government policymakers as to win sales from customers, and so in one sense marks a step backward - to a time when regulators functioned as the utility's true client.
The battle has left PECO on the defensive, explaining the rate-making process - and whether it is stockholders or ratepayers who fund corporate advertising. Customers have become casualties in the process, overlooked and undervalued, despite claims that it's all just marketing.
Last fall, according to spokesman Michael Wood, PECO Energy had three overlapping campaigns: (1) introducing President and CEO Corbin A. McNeill Jr. as the new chairman and positioning the utility "as more aggressive, more customer-focused and ready for competition"; (2) a two-pronged "blitz surrounding the competitive marketplace" - from a consumer education/utility perspective regarding the company's pilot program, and from their affiliates' perspective (both PECO Energy Horizon Group and PECO Energy EnergyOne), to develop brand equity; and (3) ads centering on the company's restructuring plan, the Pennsylvania Plan.
David Hackney, PECO Energy's manager of public relations, says, "Some of the feedback we're getting is that the consumers are confused. We're seeing a media blitz that the consumer was not prepared for, the tried-and-true techniques of consumer product advertising, and people are confused." As Hackney acknowledges, "It's a bit of a shock [to] executives who have worked in a regulated environment where the only advertising you had to do was a little bit of member services, and some good will advertising, to suddenly realize you have to do a lot of marketing advertising. We've had to go back and redo our budgets a couple of times during the year as events unfolded."
But the fight with Enron continued to take center stage.
One PECO ad featured actor David Leisure, who made his mark in the mid-1980s as "Joe Isuzu," a salesman willing to say anything. There's no direct mention of Enron, but the message was clear: "I think we'll see a lot more of this type of advertising - we have to use the same marketing techniques that consumer marketing companies use," says Hackney. Feel-good ads will continue, he adds, but others will be the "hard-knuckle, competitive marketing."
Last fall the members of the Pennsylvania Electric Competition Coalition - Conectiv Energy, New Energy Ventures and Enron - distributed a marketing piece entitled, "Restructuring PECO Energy for Customer Choice & Competition: A Briefing for Greater Philadelphia," to public officials, business leaders and media organizations. According to Enron's Gary Foster, that particular campaign "was geared to five people that are on the PUC," and the primary goal was "to win political support and overall support for our Choice Plan versus the PECO plan."
The booklet, which discussed PECO's above-average energy rates and the "flaws" of PECO's restructuring plan, introduces the coalition this way: "As PECO's would-be competitors, we have no vast pool of monopoly resources with which to match PECO's media campaign. The most we can look forward to is to compete fairly for your business."
Hackney, who says it would be "problematic" to talk about specific advertising and marketing costs, does say that "the numbers have probably gone up in the range of 400 to 500 percent. We're in a little bit of a different situation than some other companies, but I don't think we're that different from what other companies are going to face."
Also, Hackney says, although a utility company's increased cost of advertising "does absolutely nothing to the rates, this is one of the most confusing and potentially controversial parts of this whole transition."
When asked if the coalition's ads were misleading - that it faced a financial disadvantage - Foster responded, "No, it is not misleading, because when we advertise and we spend money on advertising, that is coming out of our shareholders' pockets. We have no trapped monopoly customer base like the utilities do. [Our] shareholders can exercise their rights by not agreeing with Enron's strategy by selling their stock and going someplace else. A customer in a monopoly service territory has no other choice."
Foster adds, "While Enron is large and we do have resources, we're fighting this battle on multiple fronts all across the country while at the same time advertising to become well known. Whereas the PECOs of the world, or Pacific Gas & Electric, they've been around for almost a hundred years, and through their ratepayers' money have built up this name ID. And not through shareholders' money, like we're having to. So there are a lot of advantages that the monopolies are currently holding on to."
PECO Energy's Hackney, however, sees it differently. "The money for advertising," he stresses, "with the exception of the [consumer education] program [that's mandated by the PUC], which is in no way connected to any of this, is being paid for by the shareholders, by the investors. So that first point is wrong. The other thing, what is Enron, a $16-billion company? We're a $4-billion company. Who has resources, if you're looking at revenue?"
Frontrunners: Offering Price and Service
The battle of words between PECO and Enron obscures a major point: Do customers want attentive service or just the lowest price?
"I thought a lot of them were kind of dumb, some more so than others," Fred Mallalue admits, talking about the ad blitz in Pennsylvania. So Mallalue, production control manager for a mushroom cannery in Knottingham, Penn., that spends on average $9,000 a month on energy, chose to focus on his bottom line.
As one of the participants in the Pennsylvania pilot, he chose Conectiv Energy, the new Delmarva Power & Light/Atlantic Energy merged entity. "They had all the information gathered from the beginning," Mallalue says. "Right up front they could tell us that we'd save 10 percent off our total bill. All the other companies that contacted us couldn't give us that right away - not even PECO, our current supplier. No one else had a definite figure; they said it depended on our rate tariff, usage, etcetera. But Delmarva was right up front."
In California, however, PG&E Energy Services relied on value-added services to beat out a dozen competitors to win a four-year mega-deal with McDonald's Corp. PG&E Energy Services will serve as the energy supplier of choice to 800-plus restaurants, regional offices and future restaurants statewide. Walt Riker, spokesman for the fast food giant, agrees that advertising wasn't really part of the attraction. For one thing, the deal was in the works before PG&E ES started running their big ads. Instead, Riker says, they chose the company that offered the "best case, the best deal and the best long-range package," including consulting services for maximizing energy efficiency.
On the Fence: Awaiting a Mature Industry
Advertising companies in Pennsylvania and elsewhere in the East may be "having a blast" entering the energy field, according to an article in The Philadelphia Inquirer, but Eileen Arbues, of PG&E Energy Services, says she's seen a different view in the West. "Many of the ad agencies feel that it's premature to be using some of these vehicles to acquire customers and that until the industry matures more and until there's a more interested or differentiated message, they're turning some of this business away. I think that there will be a couple of key agencies that will be licking their chops as we become more mature at the process of acquiring and targeting customers. But I think out of the gate¼ I don't think it would be those that are out there with these mass television campaigns unless their target market is the residential customer."
Don Schultz, a professor of integrated marketing communications at Northwestern University, also doesn't think the energy industry is playing the game correctly. His advice: Stop making the same mistakes that the telecommunications and health care industries made. Stop hiring consumer marketers and trying immediately to create a brand through promotional discounts, give-aways and coupons. Instead, think about how to build a brand through relationships.
"Branding is about relationships. It's not about colors, icons or logos," he admonishes. Utilities already have a relationship; they just don't understand it. Referring to customers as 'billing units' or 'ratepayers' is proof of that, he adds.
Utilities need to use their existing databases and analyze their customers' needs and requirements, Schultz says. Find out how the customer feels about the supplier. Identify the company's most - and least - valuable customers and allocate resources accordingly. Utilities should cater to current customers, says Schultz, before looking outside their traditional region.
Potomac Electric Power Co. is concentrating on a local, rather than national, presence. While Pepco waits for its merger with the neighboring Baltimore Gas & Electric Co. to overcome some hurdles, it's continuing to do standalone advertising. "It wouldn't be wise not to pursue all options," says Pepco spokeswoman Susan Moyer.
Though Pepco serves much of the Washington, D.C., metropolitan area, it won't attempt to sway Congress one way or the other on electric competition. Nor is it advertising outside the region, or even in Baltimore. Instead, says Tom Welle, head of advertising for Pepco, the company is just "reintroducing our self to our customers at this point." After all, he notes, "It costs four or five times more to get back a customer than to keep one."
But holding on to customers could prove problematic.
Ware Adams, vice president of the strategic consulting firm Dean & Co., in Vienna, Va., building on his previous work with banking, airline and telecommunications industries, advises utility executives to plan to spend three to five times as much on marketing as they do now.
Marketshare and the length of customer relationships will change, Ware says. Today a utility has, on average, a 10-year relationship with a customer, with a turn-over, or "churn," rate of 10 percent. MCI, on the other hand, has a churn rate of 110 percent every 11 months.
Incumbent companies should also prepare to lose perhaps 50 percent of current marketshare as competition arrives, says Ware. In airlines, he notes, mergers, takeovers and bankruptcies shrunk a 13-company industry to five major players, whose share of market value rose from 55 percent to 91 percent. F
Lori M. Rodgers is associate editor with Public Utilities Fortnightly
The 10 Deadly Sins of Advertising.
1. IGNORING THE CUSTOMER.
Forget corporate citizenship.
Forget environmental stewardship.
Focus on the customer base.
2. MESSAGE OVERLOAD.
Avoid too many ideas in one ad.
3. SKIPPING THE RESEARCH.
Always test ads.
Try using customer focus groups.
4. DOING IT IN HOUSE.
Go outside to assure objectivity.
5. SKIMPING ON BUDGET.
If too small, join forces with other suppliers.
6. GIVING UP TOO SOON.
Advertising needs time to sink in.
Don't revamp the campaign each year.
7. WAITING TOO LONG.
Tap customer loyalty while it's still there.
8. BREAKING PROMISES.
Ensure back-office support for what you're trying to do.
9. REACTING TO CRITICISM.
Don't be too easily derailed.
10. FAILING TO EXCITE.
Good advertising evokes an emotional response.
Source: A. Christine Fillip, senior vice president, The Kamber Group, Washington, D.C.
A Role for Regulators?
STATE utility commissions can be seen working to preserve juris-
diction in two areas of utility marketing: (1) uniform standards for disclosure of information to customers (sometimes referred to as "consumer education"), (2) codes of conduct for marketers that operate as affiliates of regulated distribution utilities.
INFORMATION DISCLOSURE. In July, the Pennsylvania Public Utility Commission issued interim rules for disclosure of prices, charges, terms of service and information about energy use and efficiency. Bills must state separate amounts for generation, transmission, distribution and transition surcharges. Docket M-00960890, F. 0008, July 10, 1997, 180 PUR4th 61 (Pa.P.U.C.).
Can the PUC regulate ad campaigns? The July rules appear unclear. On one hand, they force suppliers to "make available" their materials and marketing plans for review upon request by the PUC. Yet in 1996, the PUC had repealed all of its prior restrictions on sales promotion practices for gas and electric utilities, saying they were "excessive and obsolete." See, Docket No. L-00950108, Oct. 3, 1996, 1996 WL 677538 (Pa.P.U.C.).
CODES OF CONDUCT. On Dec. 16, the California Public Utilities Commission issued rules barring Kirkwood Gas & Electric, Pacific Gas & Electric, PacifiCorp, San Diego Gas & Electric, Sierra Pacific Power, Southern California Edison, Southern California Gas, Southern California Water, Southwest Gas and Washington Water Power from advertising their relationship with their affiliate. The utilities are not allowed to use their name or logo in any material circulated by the affiliate in California unless the affiliate discloses "clearly audibly and/or legibly" up front that: (1) the affiliate is not the same company as the utility; (2) the affiliate is not regulated by the CPUC; and (3) the customer does not have to buy the affiliate's products to continue to receive quality regulated services from the utility.
In addition, utilities may not participate in joint marketing with its affiliate, nor provide advertising space in billing envelopes to them, unless it offers the same to competing energy service providers (R.97-04-011, filed April 9, 1997).
PG&E Energy Services Vice President and General Counsel Doug Oglesby said they are pleased with the logo decision. Overall, he said, the plan is "a victory for competition and customers who need as broad a range of choices as possible."
Commissioners Jessie J. Knight Jr. and Richard Bilas withdrew a stricter alternate proposal that had recommended not allowing a parent's "name, logo, service mark, trademark or trade name" to resemble its affiliate's, which disappointed The Utility Reform Network, one of the two original proponents of such a ban, says spokesman Paul Klein. While the withdrawal pleased the Edison Electric Institute, a spokesman says that the adopted plan is still "too restrictive," will "hobble true, effective competition," and should not be viewed as a national model for other states' restructuring initiatives.
The utilities were required to file their implementation plans with the CPUC by Dec. 31, 1997. The CPUC is putting together penalties for violations. It intends to adopt strict penalties, which may include revocation of an affiliate's registration or a ban on acceptance of new customers for a specified period.
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