Consultant Blasts Marketers' Efforts to Date
Energy marketers who haven't learned from other deregulated
industries' mistakes are condemned to repeat them. That's the
contention of consultant The Paladin Group, which last week issued
a paper chastising advertising-driven marketing efforts by energy
companies it says know more about trading than marketing.
"Frankly, we haven't seen too many moving very smartly in
electricity in the retail market," said Paladin senior partner Bill
Burgess. Mass marketing through expensive advertising is not the
way to enter a deregulating market. It costs too much and doesn't
target customer groups with specific offers, Burgess maintained.
"This is why everyone's retrenching from California and whining
about Pennsylvania. They don't know who they're talking to.
"They don't pay attention to what others do. You know that
electric guys think they're better and different than gas guys. And
gas guys think they have a history and an industry that no one else
Burgess colleague and fellow Paladin senior partner David
Francis notes those accustomed to operating in a regulated
environment are approaching the deregulated marketplace with the
same old regulated mindset. "They didn't know how to deal with
this, so they continued to do the old thing they were comfortable
with in a completely new environment."
Burgess pointed to Enron and its experience in California's
deregulated electricity market as an example. "Everyone knows their
Energy Services group has taken a serious black eye in California.
They rushed into that market with their eyes closed and without the
benefit of their experience in natural gas." He said other
companies, such as PG&E Energy Services, NICOR, and UtiliCorp,
have approached the deregulated marketplace as "hard-line wholesale
traders" rather than savvy marketers. "All of those guys have gone
out and built direct sales forces to make sales that should have
been made through indirect sales channels."
Included in the Paladin paper are what the consultant calls the
"three classic mistakes in deregulating markets." They are:
1. Moving into deregulating markets without knowing the costs
of sales and service;
2. Mistaking advertising for marketing;
3. And building or expanding expensive direct-sales forces in
markets that require low-cost channels of distribution.
Paladin advises marketers to "be selective - choose prospects
with care." The group said most prospects in deregulating markets
are, in fact, not profitable. Big industrial customers use their
clout to bargain for deals that leave little room for marketer
profit. Little residential customers don't use enough energy to
cover costs of advertising, direct sales, and supporting systems
and personnel. Most prospects never become customers, Paladin said.
"It is still amazing to us that most of the country took over 10
years to seriously consider leaving AT&T for a cheaper long
Paladin advises market segmentation and careful targeting of
markets are essential for success. "Several models for simple,
successful segmentation exist in other deregulated industries and
data exists to develop a model for retail energy prospecting sales
and service management." Put another way, "Smart marketers give
different prices to different people," Burgess said.
Early recognition of the right market opportunities, followed by
a highly focused sales effort, can result in substantial front-end
profits and a significant competitive advantage. "Timing is
critical in a competitive marketplace," Francis said. "Those who
recognize this and step out aggressively with the right strategies
and programs will find themselves in a position to acquire and keep
profitable market share."
Burgess and Francis also scoff at the spate of corporate name
changes that has occurred over the last couple of years.
"Everybody's tag line looks the same, and everybody's name looks
the same," Burgess said. Companies fail to realize brand identity
is something that accrues over years. Because the names look the
same to consumers, companies so far have been left to compete on
price with no one taking a distinctive market position, the
consultants said. "I don't know of anyone who has picked a spot
other than price," said Burgess, who predicted a "marketing
disaster if the industry doesn't wake up."
For more information and a copy Paladin's 12-page report, call
Joe Fisher, Houston