How do you market electricity in a newly deregulated energy economy?

Ontario opened its electricity market to competition on May 1 and while government brochures don't say consumers will save money, the fact that they can choose their electricity provider, as they can natural gas or telephone services, is positioned as being a good thing. But consumers aren't really convinced of that yet.
Overall there has been little education. There is a lot of confusion as well as reluctance to sign on with retailers after the aggressive marketing tactics taken by some agent/brokers in the deregulated natural gas market.

Ontario opened its electricity market to competition on May 1 and while government brochures don’t say consumers will save money, the fact that they can choose their electricity provider, as they can natural gas or telephone services, is positioned as being a good thing. But consumers aren’t really convinced of that yet.

Overall there has been little education. There is a lot of confusion as well as reluctance to sign on with retailers after the aggressive marketing tactics taken by some agent/brokers in the deregulated natural gas market.

The Ontario Energy Board (OEB) has issued retail licences to 64 agent/broker/marketers including large companies such as Toronto Hydro Energy Services, Ontario Hydro Energy and Ontario Power Generation as well as some smaller local utilities.

Also getting a licence was Direct Energy Marketing, the company that received so many complaints for its natural gas marketing techniques. Direct Energy is already garnering complaints for using similar tactics for electricity with a sales pitch that advises the door-to-door sales people to ask consumers for their electricity bill. It is addressing these issues and has fired some of its sales force.

In March, the OEB levied penalties against both Ontario Hydro Energy and Toronto Hydro Energy Services for the tactics of their sales people, specifically not properly identifying themselves at the door and pressuring consumers to sign contracts. Matters became more confusing last month when the Ontario Superior Court ruled the government lacked the legal authority under the province’s Electricity Act to sell its transmission and distribution company, Hydro One.

David Drinkwalter finds the lack of deregulation communications surprising given that the provincially owned utility Ontario Hydro began preparing for deregulation in 1999, when it split into five companies to generate, distribute and market electricity. Drinkwalter has a PhD in economics and has been chief economist for Ontario Hydro and former chairman of another large utility. He is now a consultant based in London, Ont.

He says the government put out some pamphlets late last year but the Energy Board licensed the electricity retailers in the summer of 2000, giving them a good 18 months to educate the public. In the same campaign, a TV spot running for the past several months leads with how Ontario keeps growing so the need for electricity also keeps growing. Continuing, it states that deregulation will mean a ‘continuous supply for the future’ and ‘more companies generating electricity.’

Right now the problem lies in the fact that consumers don’t actually know what they’re paying for electricity in Ontario, says Drinkwalter, so they have no foundation on which to make the kinds of decisions the door-to-door marketers want them to make. They won’t know until they get their first deregulated bill.

‘In London, which has a three-part bill, what is called electricity is in fact the cost of electricity delivered to the utility. It works out to be about 7.4 cents a kilowatt-hour when in fact the cost of electricity has only been 4.3 cents. The remaining three cents are going to continue although it will be called other things such as debt retirement. So when they compare the bill at 7.4 cents to what people are offering at the door, it sounds like a good deal.’

When it comes to marketing communications, Drinkwalter says the only thing retailers can really push is stability of price if consumers sign on for a fixed rate. ‘What you’re doing is buying insurance should the price go up. My own sense is it’s very expensive insurance for a purchaser. I have been recommending to people that they don’t do anything until they get sufficient information to know if it is worth it.’

Both California and Alberta had short-term problems with high prices when they deregulated. Drinkwalter says in both cases, the problem was shortage of supply. Although the Ontario government is reassuring consumers that the province has an adequate supply, Drinkwalter says that might not be the case. ‘We’re relying essentially on nuclear [generating] units that were mothballed in about 1997,’ he says. ‘[Ontario Hydro] shut off eight units, six of which will come back into service. If there are delays, Ontario is facing the potential of some very short supply days if it’s a hot summer.’

All in all, electricity marketers have a tough challenge ahead. Strategy asked four ad industry executives how energy companies should market themselves to consumers who have a lack of understanding about the issues, or might even be predisposed to think negatively about deregulation.

Terry Johnson, president and CEO

Allard-Johnson, Toronto

Terry Johnson says consumers are motivated most by security rather than price when it comes to energy providers. He says they’re suspicious of lower-price promises because they have heard about the California brownout experience where prices spiked. Some may also be afraid that switching might hurt the quality of service.

‘Deregulated firms must have consumer trust, and credibility is the precursor to trust.

‘Some firms, by relying initially on door-to-door sales, an inherently aggressive approach, have compounded their credibility problems. Other tactics, like cash-back offers, also do not help build trust.

‘Electricity is a commodity and one would think that [purchases] would be purely based on price. But electricity is not driven by price alone. It is underpinned by a concern over the security of supply, a very emotional context.

‘We would work with [hypothetical] ‘EnerCo’ to distil a unique selling proposition that builds on company strengths and addresses the key consumer needs.

‘[We would] build a brand that promises security, builds trust, operates ethically, and places quality service as a prominent benefit. [And] the first entrant to challenge the incumbent provider may have a permanent advantage over subsequent entries.

‘Build the relationship with the consumer by ensuring that all advertising has a significant direct response element, driving the audience to a phone number or Web site to sign up.

‘Build credibility [with] co-branding partnerships with existing companies. Take opportunities to bundle these services with other utilities.

‘Strengthen the benefits message by building a pool of credible, arms-length customers who could provide independent third-party endorsement. For example, public buildings such as hospitals could be targeted to sign up, and spokespersons could communicate that hospitals were pleased with the quality of service, security and savings they could count on.

‘Make EnerCo a visibly ethical company. [Put out] materials [with] neutral facts about deregulation; appoint an ombudsman to handle consumer complaints; be environmentally sensitive, for example by purchasing electricity produced in environmentally friendly ways.’

Rick Padulo, chairman and CEO

Padulo Integrated, Toronto

Rick Padulo says the energy category is new to consumers and the recent media coverage around Hydro One has only served to confuse consumers even more because who actually owns what in the province of Ontario has never really been fully explained. For example, he says, Toronto Hydro Corporation is not owned by Ontario Hydro, Hydro One, or Ontario Power Generation. The company, which includes Toronto Electric Systems and, Padulo’s client, Toronto Hydro Energy Services is owned by the City of Toronto.

‘It is unfortunate that when the natural gas market deregulated some 10 years ago marketers used poor marketing tactics to sign up consumers. Customers will remember the bad experience they may have had for a long time – and as a result may be reluctant to sign with an electricity retailer.

‘[Our client] Toronto Hydro Energy is committed to keeping its marketing simple, clear and easy for consumers to understand and make a choice between a fixed price or variable rate.

‘Ontario consumers have been overwhelmed with door-to-door marketers who state that they are from their local utility, when they aren’t. Consumers should not be pushed to sign on the spot. The OEB has established some very strict rules to protect the consumer and ensure energy marketers provide consumers with clear, concise offers.

‘No one ever thinks about their power until the lights go off or they get their bill. There’s no real motivation to learn [about deregulation] because the category is about as boring as watching paint dry. Furthermore, it’s about as low an involvement category as you can get. But it’s big business. In Ontario it’s about three times bigger than telecommunications. I believe Toronto Hydro, which is the amalgam of the greater Toronto area local utilities, is the second largest municipal utility in North America behind Los Angeles.

‘Our job is to educate, inform and work from a consumer agenda rather than a corporate agenda. Simply, we need to be good retailers.’

Christopher LaPrairie,

VP, group account director

Wunderman, Toronto

Christopher LaPrairie says it’s unlikely that an immediate solution can be orchestrated because consumers’ current perceptions of deregulation have been influenced by negative press. He says further challenges to build immediate positive brand presence increase as numerous, diverse players enter the market, creating messaging noise.

‘Energy providers need to embark on a tactical ‘build’ approach to branding, ensuring consistency and clarity are delivered by imagery and messaging across all customer touch points. Suddenly facing complex variables, the consumer is easily overwhelmed.

‘Within the industry itself, the challenge will be to change an organizational structure and working culture from that of a provisioner supplier to that of a competitive marketer.

‘The consumer’s three key drivers that influence choice of an energy provider are: price, service and brand. All are promises that can only be as valid as the actual deliverable, or proof. Recognize that this proof will only be realized over a longer time and then structure communication content and arrival to spread over that time period.

‘[Energy marketers must be] transparent in pricing methods, terms and bundling. [Strive] for the most user-friendly explanations. Consumers have a current baseline impression of energy provider service. Communication and delivery of incremental experiences would help impact decisions. The key is to build towards recognition, delivering relevance with an underpinning of security.

‘[It is critical to have] consistent messaging and imagery utilizing general mass brand building vehicles. Incorporate direct initiatives to provide more detailed information that can be retained and revisited. Support with an informative e-presence that can educate or, if requested, deliver customized supplemental information.’

Michael Scher, VP and CD

McArthur Thompson & Law, Halifax

MT&L works for several regional and provincial utilities, including Nova Scotia Power. Based on the questionable results in California, Michael Scher believes electricity deregulation is going to be a tough sell. He suggests staying away from a heavy marketing push.

‘Marketing is based on convincing the consumer of the benefit you offer, or at least enticing him into interest. Considering that North America has some of, if not the lowest energy prices in the world, how much lower can they go, and at what cost?

‘I don’t have a great deal of faith in the deregulation of the energy market, at least in the unstudied, undisciplined way that it is being undertaken. I am nervous because the maintenance and defense of our energy supply is an undertaking best left to government regulation. And given that most folks care about this as much as I do, I wouldn’t market the deregulation of energy at all. I would hire a bunch of PR guys and try to slip it by in the dead of night with as little public consultation as possible.

‘As for marketing the [new] energy companies, there is a lesson to be learned from the residential telephone providers whose ads once dotted the daily newspapers. Consumers will eat you up and spit you out if all you’re selling is a price story. In fact the only companies to have survived were those that could layer price, as one of many differentiators, on top of a solid foundation of trust and stability. Saving a penny or two as a long-term consumer benefit will quickly evaporate with the first brown-out, power interruption or system failure.’