In the five years since the domestic gas and electricity markets were fully opened up to competition, the choice of residential energy provider has proved a boon for consumers, but the battle for market share and customer loyalty has been bruising for suppliers.
A briefing note on competition in the domestic gas and electricity markets published by Ofgem in June suggested that competition is "continuing to develop well" and argued that "healthy numbers" of customers are switching provider. "Around half of customers have compared prices and 70% of these say it is easy," it said.
And more competition is on its way. Last month, Lloyds TSB became the first bank to offer gas, electricity and telecoms services through its high-street branches to new and existing customers. The service, called Ideal, will be marketed heavily on price, with lines such as 'Want to stay warm and cosy for less?' and 'Like to call your mates for less?'
While pricing is of great importance, competing on price alone is an unpalatable strategy. "Taking a cheap positioning is the road to nowhere in an already low-margin business," says one former energy marketer.
Npower brand development director David Andrew believes utilities need more than "one club in their bag". Price is important, as the offer has to be seen to be delivering value for money, he argues. Yet Npower's research has found most consumers are happy with the pricing structure. "People are more concerned about the possibility of power cuts than a few pounds," says Andrew.
Yet as names such as Lloyds TSB enter the utilities market, backed by providers Scottish Power and Cable & Wireless, marketing becomes even more challenging for the established players - many of whom are relatively new to branding. And as brands with even deeper customer relationships gain ground in the utilities market, the established energy providers have realised they
have a fight on their hands. Given the ease with which consumers can now switch suppliers, they have had to look hard at their price offer and what their brand stands for.
The leading suppliers have spent millions on branding. But can they differentiate themselves from the opposition on values other than price? After all, utilities do not set most consumers' pulses racing. Social and environmental responsibility, cause related marketing and customer service have all become weapons in the battle for customers. But which suppliers can achieve the right balance in their armoury?
For both British Gas and Powergen, the UK market's top two players, being on the customer's side is a guiding brand principle.
Simon Waugh, British Gas deputy managing director and marketing director of parent company Centrica, says his brand's guiding value is service. "You win the battle on price, but you can win the war on service," he claims.
British Gas believes the key to creating further value is a greater focus on service and customer retention, rather than the pursuit of volume growth through customer acquisition. Waugh says that this 'customer first' approach is already yielding business benefits.
In the past few months, British Gas has significantly stemmed losses of gas customers, while continuing to grow its electricity business.
For Powergen, "being on the customer's side" is a key strategy, according to head of brand strategy and communications Helen Kerr. An example was its decision to remove the late payment tariff levied on TXU Energi customers not long after it acquired that business.
The tariff had been unpopular and generated ill will - not something Powergen considered compatible with developing a respected brand.
A second, equally important, strand to the Powergen brand has been a responsible positioning - both corporate social responsibility (CSR) and in terms of the environment.
Community initiatives undertaken by Powergen include a free electric blanket testing service for the elderly, run in collaboration with charity Age Concern. TV ads have been used to address environmental responsibility, focusing on renewable energy in the form of wind farms.
"I believe we differentiate ourselves through our responsible positioning," says Kerr. "We demonstrate responsibility. If we can help customers reduce household bills and protect the environment at the same time, that's a good thing."
No single supplier is ever likely to fully 'own' the green positioning, however. Appearing eco-friendly is tough for energy firms, as consumers tend to perceive them as dirty businesses that damage the environment.
Moreover, environmental responsibility has become something of a sine qua non for all energy businesses. The government has set out the testing objective that 10% of energy be generated from renewable sources by 2010.
This means all suppliers are striving to make themselves greener.
Npower, which sits in third place in the UK market, has gone so far as to form a partnership with Greenpeace to promote a product called Juice.
This offers renewable energy generated by the North Hoyle wind farm off the Welsh coast, the first major offshore wind farm being developed in the UK.
The supplier says the facility has the capacity to supply up to 50,000 homes. For every unit of electricity used by a Juice customer, one unit of renewably sourced energy will be fed straight into the National Grid.
No one is naive enough to believe, however, that adept communication of environmental prudence will be the main factor to sway the masses.
"Research shows that environmental responsibility, although it is on everyone's personal agenda, only motivates a small number of people to change supplier," says Andrew.
Even so, Andrew is confident that the environment will continue to move up the consumer agenda over the next few years.
Evidence that his confidence is well placed came with the government's announcement on July 14 that the world's biggest wind farms will be built on three sites off the British coast as part of its target of reaching the 10% renewable energy mark. The media gave this announcement high-profile coverage.
British Gas has tried to cover all the bases with its boiler repair ads, work with Help the Aged and positioning as a lifestyle brand. But can it be all things to all customers?
In the opinion of another former energy marketer, the company has proved adept at positioning itself as the trusted expert. "British Gas' advertising positioning is very strong. It is the brand leader and it's all about peace of mind and safety. The way it has executed it is fun and down to earth. The rest struggle to make the same impact. It's a hard market in which to differentiate yourself."
Since competition began, more than four million customers have left and then returned to British Gas. Moreover, it recently broke through the six million barrier for electricity customers - success partly driven by its dual fuel offering.
Its brand focus has allowed it to maintain a premium pricing position in domestic gas supply. Figures from 2002 show that it was able to increase its gross margins on gas to 20%, up from 12% the previous year. Overall, its annual turnover on home energy supply exceeds £5bn.
Although this is the core of the business, it is by no means the full story. Helped by the knowledge Centrica has of other markets, British Gas is able to stretch its brand in a way that none of its competitors can match.
Beyond delivering the essentials of gas, electricity and telecoms, it is recognised for home services such as central heating installation and maintenance, and home electrical care.
The www.house.co.uk web site shows where the British Gas business is headed. It already carries 39 different propositions, covering everything from insurance to telecoms.
British Gas says it will be looking at new tools to better serve customers, including text messaging, e-mail, online appointment booking and remote diagnostics for home appliances.
It is a case of putting the customer first, rather than asking them to fit in with its timetable.
Extending the brand into new areas has triggered headaches as well as opportunities, though. British Gas now has several hundred thousand customers who buy five or more products. But its rigid 'silo' structure has meant these valuable customers have often had separate points of contact for each service they buy.
That situation is changing, with greater emphasis being placed on segmentation. "We've invested about £350m on a transformational programme in British Gas," says Waugh. "We are spending to replace all our legacy billing systems and adding some proper customer relationship management front-end systems."
There is sound business logic behind this investment. Research has shown that the more products customers buy from British Gas, the less likely they are to defect to a rival. Developing high-value customers and hanging on to them is a central pillar of the business strategy.
CSR is another central pillar. But British Gas has not been placing as much emphasis on this in its marketing communications as some other suppliers, preferring to focus on how it is trusted. Ad agency Clemmow Hornby Inge has been briefed to take this message forward.
"I think the real strength British Gas has over its rivals is the heritage and trust built up around its engineers and gasmen," says CHI founder Johnny Hornby. "There are few people you would trust to enter your home in the same way you would a British Gas engineer. You want to bottle the goodwill in a way that shows the organisation is still contemporary and enables it to leverage the trust in the brand."
Where does this leave rivals? Facing an uphill struggle, without doubt.
But that is not to say they should be written off. British Gas' focus on home services will arguably give its competitors the chance to establish their brand as energy experts. But this must be done in the context of a strong customer focus.
CSR and environmental responsibility will have a part to play in building all the key brands in the home energy sector. But ultimately the customer is king. More robust acquisition and retention programmes will have to be developed, with the former focusing more heavily on customers under 35 - the age group more willing to switch supplier.
DUAL FUEL MARKET SHARE
2002 (%) 2001 (%)
British Gas 46 45
Powergen 19 9
Npower 14 11
SSE Energy 8 9
Scottish Power 7 6
Seeboard 4 2
London Electricity 3 2
Northern Electric - 4
TXU Energi - 10
Source: JD Power and Associates Gas and
Electricity Surveys 2001 and 2002
THE BIG SIX
British Gas 18.6
EDF Energy 5.2
Scottish & Southern Energy 5.0
Scottish Power 3.7
Source: Supplier figures
CONSUMERS WHO SWITCH ENERGY SUPPLIER
Gross switching as a Gross switching as a
proportion of total proportion of total
gas customers (%) electricity
1998 17 n/a
1999 25 11
2000 29 19
2001 37 38