This article is the second entry of a three-part series
- A more precise understanding of the energy consumer and market participant (beyond the name on the bill) is central to a cohesive strategy on how to compete in the new energy economy
- Customers are no longer defined simply by a rate class
- A customer is more than just an individual or business – or even a direct recipient of end-services
As discussed in part one of this series (The Role of the Customer in the Utility of the Future), customers are transitioning from passive recipients of utility services to active participants in the market. So, what are the implications for utilities and how they do business?
It’s no longer about serving “rate payers” that are members of a “customer class.” Nor does the utility’s interest in customers terminate at the meter. The “customer of one” has multiple options when it comes to purchasing and managing their energy, as well as greater expectations for service offerings. In this increasingly competitive and changing market, if utilities are to maintain and grow the relationship with their customers, they must move past the meter to meet those expectations and focus on two factors:
- There is more than one “consumer” of services within a given premise
- These buyers/participants are not defined simply by their rate class
Rates are associated with meters, not customers. Using rates as a primary means of classifying customers does not effectively connect actual customers with the services they expect in an increasingly competitive and changing market.
Overall, customers are focusing on their total energy bill relative to choice, value, comfort, sustainability, control and other attributes. However, within a premise (whether it is a residential or commercial account), there are numerous buyers with distinct buying behaviors, wants, and needs. In a small or medium business scenario, the building owner may be looking for more ways to manage energy use and reduce costs in order to attract or retain tenants, while the owner of a small business may want more predictability and control in their energy costs, and ways to market their business as “green” or as an active part of the local community. In a residential middle-income family, the older kids or younger adults may want to go green, while those paying the bills may care more about automation, real time information, and predictability in their energy costs. A market with a million utility accounts may have as many as 3+ million potential customers. Those additional customers create a novel market to tap into.
Understanding and classifying the wants and needs of this broader customer base allows utilities to tailor products and services to create value and compete in this changing market. Moving beyond the rate payer classification means understanding customers on a “micro-segment” level. No longer are utilities prioritizing and offering services based upon rate class alone. Instead offerings are prioritized and promoted based on the needs of the individual consumer, with the utility presenting the most relevant enhancements to existing programs as well as new services to meet customer needs. This “micro-segmentation” of customers is accomplished by classifying customers based on buying behaviors. It is an important step in understanding the size of the potential customer base, its most significant needs, and ultimately how to compete for the customer relationship.
Taking this a step further, there are customers that fall outside the traditional classification of an individual or an entity. Some customers may not be a direct recipient of end-services, but still play an important role in the overall value chain. These include entities or organizations which enable alternative or new services for the utility. For example, construction companies that work with utilities when establishing service to new communities can be a channel to offer community and premise-level programs in areas such as solar, energy efficiency, and automation.
Furthermore, a customer may be an entire community comprised of individuals and businesses. This is especially significant as utilities continue to move to a distributed grid model. A community can be an active participant or recipient of distributed energy services (such as Community Solar programs) from their utility, or they may elect to go elsewhere if they feel their utility cannot help them meet their goals.
The perspective around the “Customer of One” centers on the important goal of creating a targeted and tailored approach for bringing the right services to market for customers, and effectively competing for their relationship and business. Moving forward, utilities must understand how a more precise understanding of the customer beyond the account holder is central to their strategy and develop a plan to provide and prioritize tailored services to these “micro-segments” in an impactful and cost-effective manner. This is the key to strengthening the customer relationship, competing against third parties, and establishing a foundation for revenue growth in the new energy economy.
To learn more about Concentric’s expertise on how to define the Customer of One or developing innovative business models and programs to drive revenue growth, please contact Paul Rice.
All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The author’s views are based upon information the author considers reliable. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.