Competing on the price of energy alone just gets harder and harder. Indeed, many retailers are moving away from price alone for a variety of reasons:

Margin compression. Cheap gas and low volatility make it difficult to get below the default rate. When it can be done, margins are increasingly shrinking. Simply put, winning on price is a losing strategy.

Better retention. Winning customers with low prices results in high churn; 35% is the industry norm. In contrast, retailers that quickly move the conversation beyond price have reduced their churn by 6-20 points.

Differentiation. When the conversation is no longer about price, it should be about other sources of value. Retailers can bring those values into the acquisition conversation. This makes them stand out—and yields higher conversion rates.

Cranky regulators. Amplifying consumer concerns, regulators are upset about unreal price claims. Yet even the stoutest regulators cite “value-adds” as a justification for higher prices. The best way to move regulators beyond price is for retailers to move beyond price.

Customer satisfaction. Low prices matter to consumers, yet data suggest that other things are more important. We’ll delve into the details in future columns, but Accenture aptly summarizes the situation in their 2016 New Energy Consumer study: “The time of energy as a commodity is over. It is now about knowing and engaging the whole consumer. Consumers expect providers to know and care about their individual values and needs.”

Digital platforms. To move beyond price it’s important to treat customers as individuals. But how can that be done at scale? The call center can’t talk to every customer twice a month… Technology solutions—better software platforms—enable inexpensive digital communications including personalized data. With better digital platforms, conversations beyond price yield impressive improvements in retention and margin.

It works. Price aside, customers engaged digitally are simply better customers. According to Accenture and DR2’s independent research, these customers are: 35% more trusting, 16% more satisfied, 74% more likely to buy energy-related solutions,
106% more sharing of their personal information, and 567% more likely to recommend your brand. Aren’t those the customers every retailer would like to have?

It’s clearly time to move beyond price. Next month we’ll talk about how some energy retailers are doing it, and why many still struggle to get started.

DR2 convenes a board of advisors every month or so, a small group of thought leaders in retail energy. We met last week, and several questions are at the front of my mind.

First, electricity is a curious commodity. Most commodities are raw materials (copper, cotton, etc.). Rarely are they presented to the retail consumer. Instead, they enter a supply / distribution chain, where they’re turned into differentiated, value-added goods before reaching consumers. A company establishes profitability in these commodities by scaling in the supply function (ALCOA, ADM). But sales are overwhelmingly wholesale; most commodity providers are strictly B2B. This is even true for oil and natural gas. Although a few companies own production, refinement and retail functions (Exxon, Marathon), the B2B and B2C functions aren’t really vertically integrated.

But in electricity they very much are. Overwhelmingly, the same companies produce, distribute and deliver to consumers the electric commodity. This leads to economies of scale but also stagnation; it creates equality but not innovation, low prices but not choice. We can put water in the same bucket (and score the pun!). But is there anything else like electricity?

Second, in the last decade or two, deregulation has emerged to, among other things, separate the B2B and B2C functions. Companies that barely existed 15 years ago have certainly arisen, both large (Just Energy, Constellation, AES, Ambit) and small (MP2, Source Power & Gas, Xoom). But curiously little has changed for most retail consumers. Why is that?

DR2 will keep striving to answer these questions. We’re curious to hear what you think, too.

Silly title, important topic. Do electricity customers care about value-added solutions? How much?

Consider data from Accenture and JD Power:
– 90% of energy customers are either interested or very interested in solutions to manage their energy use.
– 84% said they would turn to their utility first for solutions.
– Yet trust / satisfaction ratings for utilities are generally poor, in the bottom quartile.

In sum, energy customers are definitely seeking value-added solutions. 90% is a very high interest score.

But consumers have no idea where to turn for them! Most of them can only think to turn to an entity they don’t trust or like–which means they don’t actually go there, either.

Obviously, this creates opportunity. Energy retailers could certainly become the customer’s solution provider. More and more, they are. Because it works. As one example, Just Energy recently forecast double-digit EBITDA growth based largely on value provided beyond commodity. Value-adds are, indeed, valuable.

As a provider of retention and cross-selling services to energy retailers, I’m also often asked, “What about growing my company? Can DR2 help me acquire new customers?”

My response is, “We are.” In the first place, every customer retained is one that doesn’t have to be replaced. So retention is as important to growth as acquiring new customers. It’s just much less expensive.

In addition, the strength of a brand, after all, is a major factor in acquiring more customers. DR2’s services are all about building a strong brand through digital communication. While we’re improving retention rates and increasing margins through cross-selling, we’re also building our client’s brand. Although it is hard to measure directly, a stronger brand absolutely equates to more new customers.

But there’s an even deeper answer. Every energy retailer I’ve encountered has a core competency around acquiring new customers. It’s what every retailer does well. They manage the acquisition channels effectively (door-to-door, telesales, direct mail, direct selling, referrals, etc.). The overriding mood, the pervasive tone at most retailers is one of aggressive enthusiasm and excitement–because that’s the right mindset for acquiring new customers! At most of DR2’s clients, you can literally feel that buzz when you walk in the door.

Retention, however, is different. Once you have a customer, it’s important to adopt a different tone. Retention is all about communicating reassurance and comfort. Instilling confidence. (So is cross-selling.) It’s hard to create that softer tone inside most retailers, especially smaller ones, because the rest of the organization is built around aggressive excitement and enthusiasm. Indeed, this is why so many retailers struggle with retention, and why so many of them outsource it to DR2.

By focusing on retention as our goal, DR2 creates in each customer a confidence and trust in our client. That allows us to dramatically improve retention rates, but it also makes for a great brand–and brand is a major determinant in acquiring more new customers. In sum, better retention fuels even more new customer acquisition.

At the DNV Energy Executive Forum in May, J.D. Power presented eye-opening data. In a nutshell, it demonstrates how sadly unsatisfied customers are with energy retailers. From my notes on customer satisfaction scores:

– Credit cards, banks and car rental companies have some of the highest average scores of 790 or above.
– Airlines and cable TV providers are down around 720. (And who likes their cable TV company?)
– Electric and gas utilities are about 670.
– And where do competitive energy retailers score? 632. Ouch.

Retailers in Texas, it should be noted, score considerably higher: 715. But that’s still worse than the airlines. (And how satisfying is air travel these days?)

In addition, if you think price is key, also consider this from J.D. Power: In its listing of 5 drivers of customer satisfaction in service industries, price ranked third. Yet in broad market studies, retention correlates most closely with customer satisfaction. So energy retailers that are trying to grow must think beyond price, to customer.

The conclusion can be simply stated: Retailers can differentiate by delivering a superior customer experience.

At a minimum, it’s nice to have our work at DR2 affirmed…

In DR2’s work in digital communications for energy retailers, we keep a close eye on Facebook, of course. We’ve had success steering Facebook users toward our retail energy clients. But in this post we’re focused on Facebook’s revenue model and its implications for energy retailers.

Facebook makes money from ads. Lots of it, $1.5B in PROFIT in just the last QUARTER. Facebook gets you to look at their ads by giving you other things you want: connecting you and friends, pinging you on what’s trending, providing an outlet to express yourself, etc. Basically, it’s entertainment with a huge dose of personalization. From tracking your behavior in Facebook (likes, dislikes, clicks, etc.), relevant offers can be put in front of you while you’re Facebooking. And the average Facebook user spends a lot of time with them: 40 minutes a day, claims Mark Zuckerberg.

Most retail energy providers don’t get 40 minutes of mindshare a day. According to Accenture, it’s more like 9 minutes a MONTH. DR2’s retail energy clients average several times that number, and rising. This is because we help our clients use the advantages they have that Facebook doesn’t. Here are some comparisons:

– Essentially 100% of Americans consume electricity every day. Only 1 in 3 are on Facebook daily.

– Retail energy providers know how much energy their customers use. Increasingly, they know exactly when it’s being used. At DR2 we can even begin to tell WHAT it’s being used on. Facebook, in contrast, lacks this level of insight. They know you bought the shirt advertised, but they don’t know how many times you wore it or what you wore it with.

– Facebook’s theme is all-encompassing, virtually whatever one finds interesting (your friend’s kids, current events, fashion, etc.). Retail energy is focused on…everybody together now…energy! Greater focus means greater emphasis on solutions. 84% of consumers say the first place they would turn for energy solutions is their energy supplier. They’re ready to buy more.

In conclusion, it’s the similarity between Facebook and retail energy providers that is critical. Both can have an extraordinary level of personalization with their customers. Facebook makes a lot of money by presenting relevant offers to customers based on personal data.

If you’re an energy retailer, are you?