Biff the Buggers! Power Companies Swap Customers

Ever wanted to just get rid of your customers the way you toss out yesterday’s papers?  I’m not talking about the irritating but valuable clients and suppliers we sometimes have to deal with, but the literally thousands of customers you’ve only recently done your best to gain.  Well, it can, and has been done, raising some interesting questions few have sought to discuss.

Let’s set the scene first - stop and think for a moment about the hottest topics in marketing over the last decade or so and at least three will stand out – CRM, the power of the brand, and customer loyalty.  My colleagues and I research these things daily and some serious money is spent in the market research industry each year, as marketers seek to build a brand-loyal and valuable customer base.

Some of the strongest practitioners of such brand-oriented marketing have been the retailers within the deregulated power industry – the deregulation exercise has been a bonanza for marketers as they create, re-invent, differentiate and personalise their brands – First Electric, Mercury Energy, Genesis Power and the short-lived On Energy are just some of the club members, all trying to convince Joe Consumer that they really have something different worth switiching to.

So what do we make of our electricity retailers who are treating their customers as tradeable commodities, confusing and alienating them in the process?  Not a lot apparently - the news that electricity companies Trust Power and Mighty River Power are swapping more than 40,000 customers passed with precious little comment – despite the fact that it strikes at the very heart of the concept of customer choice and market deregulation.

The 40,000 customers affected have been told they need not be concerned at all – the companies have agreed to ensure that they will not be affected by the swap at all.

What a terrible message to give customers – essentially, you’re saying…

1. We don’t value your business enough to want to keep you.
2. It doesn’t really matter who you use anyway!

Is this in effect a re-regulation of the power industry?  Are these companies telling us that, in fact, it’s not worth their while to have customers outside their geographic areas?  And if so, why did they go to all the bother, not to mention the cost, of persuading customers to switch power companies in the first place?  Especially as the deregulated electricity market is only now really hitting its stride, having grown up in public with some pretty poor PR - remember the billing fiascos!.  Only now hitting its stride?  I say this because it’s worth highlighting here that the first people to switch usually don’t look to closely at “the brand” to which they are switching their allegance - we know that when markets deregulate, customer switching happens in a fairly systematic – yet little recognised – way.  First to go are the philosophers, then the disgruntled, and then, finally,  the real switchers….

• The philosophers are philosophically opposed to monopoly suppliers.  These customers switch on a matter of principle, to support the concept of competition.  The competitors simply have to make themselves available to get this group of customers – though in the power sector this was confused by the lack of new competitors to support.  This customer group is generally small, often early adopters of new things in general – and I suspect, very few switched power companies for lack of an apparent underdog to support.
  
  
• The disgruntled are those with an axe to grind – the ones who switched, for example, to punish Mercury Energy for leaving them or their city without power during the power crisis.  Though this is a dramatic example, mostly these people have deep-seated and often long remembered reasons for hating their incumbent supplier, and the offer of an alternative is all they need to make the switch. 

So then come the real switchers, the ones for whom the expensive branding and PR will be most relevant and effective – these are the people who actually change based on an assessment of the alternatives.  Clearly, they need some basis on which to compare companies, and to date, the companies have been busily doing all the prerequisite brand-building (some of it quite well, too). 

But the actions of Trust Power and Mighty River Power show only too clearly that the electricity retailers are battling with this concept, reverting to discounts and price bribes to force switching – a strategy which again reinforces the idea that it doesn’t matter who you use or that price is the only difference.  The problem with this approach is that it erodes margins for the whole industry, and leads to a merry-go-round of costly customer transfers – which in the case of the power industry, are administratively intensive, but on which customers often incur no installation or connection costs.

So IS there any reason – other than price – to switch power companies?  The electricity, after all, is the same whoever you buy it from.  Perhaps Trust Power and Mighty River have been brave and truly innovative in swapping their customers to achive a more suitable distribution.  From the consumer viewpoint, the company being dealt with isn’t even responsible for outages, or network repairs.  So who really cares?  Well, here’s the news – customers do care, and they care on two fronts….

• They care about billing – yes, believe it or not, this is the one thing that really matters to customers – and well beyond the actual price.  It’s about how often the bill arrives, whether it’s predictable, what the payment options are, and most importantly, how comprehensible it is to the average householder!
  
  
• They care about the company image and reputation – “my local power company, that supports my community” – is one of the strongest ties that keep customer in (just as well, given that the companies themselves now appear to be moving to shed out-of-town customers from their geographically clustered customer bases).

So how do you think the “traded” customers feel – especially those who actively made a decision to switch away from the company that has now ‘bought’ them back?  Did the two companies involved even consider that?  I’d lay bets that many of these customers are now looking for third alternative – a company that isn’t necessarily local, but which will value their business, and not treat them as some tradeable commodity.  Genesis, Meridian, First Electric, and the others take note…

Jonathan Dodd