AGENDA: Utility tie-ins signal market battle - The imminent opening up of the market is prompting new utility companies to forge deals to win custom from the old monopolies. Robert Gray reports

Marketers in electricity companies will be undergoing a rude awakening over the next few months. In an industry in which until a couple of years ago marketing was seen as an unnecessary expense, the major players are suddenly turning to brand building to hold on to customers as they face a newly opened-up market.

Marketers in electricity companies will be undergoing a rude

awakening over the next few months. In an industry in which until a

couple of years ago marketing was seen as an unnecessary expense, the

major players are suddenly turning to brand building to hold on to

customers as they face a newly opened-up market.

Last week, in one of the more unusual promotions to emerge, London

Electricity revealed its offer of free gas and electricity for three

years to anyone who signs up to a special mortgage offered through

Alliance & Leicester (Marketing, September 24).

The reason for this explosion of activity is the 750,000 customers in

various parts of the catchment areas for Eastern Electricity, Manweb,

Scottish Power and Yorkshire Electricity who, two weeks ago, were given

the freedom of choice to buy electricity from a source other than the

monopoly utilities.

In the coming months, competition will be extended into other areas

until all 26 million customers that make up the pounds 7bn domestic

electricity market will be able to choose their own supplier.

As the market opens up in stages, competition among the 15 Public

Electricity Supply (PES) companies will intensify. Marketing will become

key as companies vie to retain customers from their traditional

’footprints’ while attracting those from outside their old geographical


The entry of British Gas into the market has unbalanced the status


Having lost upwards of three million customers (many to PES companies)

through the introduction of competition in the gas market, British Gas

is determined to win back millions of electricity customers.

PES companies are aware that they have a fight on their hands. Many have

developed innovative marketing programmes, including the London

Electricity/Alliance & Leicester deal. The ’no bills’ mortgage will save

an average household pounds 1600 over three years.

’House-moving is the classic time to consider changing supplier,’ says

Simon Carter, London Electricity’s head of residential marketing.

The bank and the PES have agreed a deal based on average usage. If

consumers use more power than average, London Electricity will lose out;

if less is used, Alliance & Leicester will have the worst of the


London Electricity has started a poster campaign, which will be stepped

up into a ’heavyweight’ campaign in December when the first part of its

market area (about 10%) is open to competition.

’We were a boring utility, like all the others,’ says Carter. ’We didn’t

even have a marketing department until a couple of years ago. Now we

need to change customer perceptions.’

Eastern Group, the largest PES with three million customers, is expected

to be one of the most aggressive in pursuit of new business. It has

forged a deal with Barclaycard whereby consumers are given discounts on

bills when paying by credit card.

Eastern is not alone in developing affinity relationships. Southern

Electric has joined the Argos Premier Points loyalty scheme,

Hydro-Electric has a tie-in with Air Miles, gas supplier Amerada has a

link with retailer Currys, Yorkshire Electricity with rival retailer

Tandy’s, and Norweb has a partnership with Tesco, which offers loyalty

card bonus points to customers.

Scottish Power, which brought out its own Visa card on which points

collected can be redeemed as discounts on electricity bills, is the

first PES to offer what is called ’dual fuel’ billing: putting gas and

electricity charges on a single bill. This launches next month, when the

90,000 customers who have taken up the offer receive their first unified


Willie MacDiarmid, Scottish Power’s sales and marketing director of

energy supply, says quality of service and simplifying things for the

consumer are the way forward.

One danger is that margins will be cut to the bone as competitors slug

it out on price. British Gas is currently putting the cat among the

pigeons by running TV ads promising to offer cheap electricity until at

least 2001.

’The companies that will survive are those that give great customer

service and good products,’ says Jon Kinsey, British Gas Trading’s

director of marketing and strategy.

There is a consensus that consolidation in the industry is inevitable,

with smaller players forced to merge or be crushed by the giants.

Research from MarketLine International found that 4.2 million domestic

electricity customers intended to switch electricity supplier by the

year 2000.

Murray MacFarlane, head of the energy customer management practice at

PricewaterhouseCoopers, is author of several studies on the sector. He

has found that up to 55% of consumers are receptive to switching

electricity supplier. He says that PES companies will be under ’severe

pressure when competition begins next year’.

In the long term MacFarlane sees a greatly changed market in which

consumers might buy electricity from retailers, insurance companies,

clubs or even their employers. But however the future pans out, it will

be a million miles from the monopolies of old.


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