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Consultant Blasts Marketers' Efforts to Date

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 understands."

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&ampE 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&ampT for a cheaper long distance supplier."

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 816-941-3514.

Joe Fisher, Houston

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