Energy marketers who haven’t learned from other deregulatedindustries’ mistakes are condemned to repeat them. That’s thecontention of consultant The Paladin Group, which last week issueda paper chastising advertising-driven marketing efforts by energycompanies it says know more about trading than marketing.

“Frankly, we haven’t seen too many moving very smartly inelectricity in the retail market,” said Paladin senior partner BillBurgess. Mass marketing through expensive advertising is not theway to enter a deregulating market. It costs too much and doesn’ttarget customer groups with specific offers, Burgess maintained.”This is why everyone’s retrenching from California and whiningabout Pennsylvania. They don’t know who they’re talking to.

“They don’t pay attention to what others do. You know thatelectric guys think they’re better and different than gas guys. Andgas guys think they have a history and an industry that no one elseunderstands.”

Burgess colleague and fellow Paladin senior partner DavidFrancis notes those accustomed to operating in a regulatedenvironment are approaching the deregulated marketplace with thesame old regulated mindset. “They didn’t know how to deal withthis, so they continued to do the old thing they were comfortablewith in a completely new environment.”

Burgess pointed to Enron and its experience in California’sderegulated electricity market as an example. “Everyone knows theirEnergy Services group has taken a serious black eye in California.They rushed into that market with their eyes closed and without thebenefit of their experience in natural gas.” He said othercompanies, such as PG&ampE Energy Services, NICOR, and UtiliCorp,have approached the deregulated marketplace as “hard-line wholesaletraders” rather than savvy marketers. “All of those guys have goneout and built direct sales forces to make sales that should havebeen 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 costsof sales and service;

2. Mistaking advertising for marketing;

3. And building or expanding expensive direct-sales forces inmarkets that require low-cost channels of distribution.

Paladin advises marketers to “be selective – choose prospectswith care.” The group said most prospects in deregulating marketsare, in fact, not profitable. Big industrial customers use theirclout to bargain for deals that leave little room for marketerprofit. Little residential customers don’t use enough energy tocover costs of advertising, direct sales, and supporting systemsand personnel. Most prospects never become customers, Paladin said.”It is still amazing to us that most of the country took over 10years to seriously consider leaving AT&ampT for a cheaper longdistance supplier.”

Paladin advises market segmentation and careful targeting ofmarkets are essential for success. “Several models for simple,successful segmentation exist in other deregulated industries anddata exists to develop a model for retail energy prospecting salesand service management.” Put another way, “Smart marketers givedifferent prices to different people,” Burgess said.

Early recognition of the right market opportunities, followed bya highly focused sales effort, can result in substantial front-endprofits and a significant competitive advantage. “Timing iscritical in a competitive marketplace,” Francis said. “Those whorecognize this and step out aggressively with the right strategiesand programs will find themselves in a position to acquire and keepprofitable market share.”

Burgess and Francis also scoff at the spate of corporate namechanges that has occurred over the last couple of years.”Everybody’s tag line looks the same, and everybody’s name looksthe same,” Burgess said. Companies fail to realize brand identityis something that accrues over years. Because the names look thesame to consumers, companies so far have been left to compete onprice with no one taking a distinctive market position, theconsultants said. “I don’t know of anyone who has picked a spotother than price,” said Burgess, who predicted a “marketingdisaster if the industry doesn’t wake up.”

For more information and a copy Paladin’s 12-page report, call816-941-3514.

Joe Fisher, Houston

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