Utilities need targeting nous to tap into domestic users

Householders in Scotland, Wales and Yorkshire are likely to be the most attractive targets for electricity suppliers looking at recruiting new customers after electricity deregulation in 1998, according to new research by Experian, the global information services specialist.

On the other hand, London and East Anglia are least likely to find themselves at the top of the electricity suppliers’ hit lists because these regions have the lowest level of electricity expenditure per household in Great Britain.

On the gas front, households in the North-west and South-east are most likely to be targeted by prospecting gas suppliers. The South-west, Wales and East Anglia represent poor pickings for the domestic gas traders.

Average weekly household spend on electricity varies from a high of 9.75 in the Orkney Islands, to just 5.23 in Norwich. Weekly average expenditure on gas ranges from 6.99 in Bearsden and

Milngavie in Scotland, to only 2.22 in Ceredigion in Wales and other rural areas where there is a low level of gas penetration.

The areas shown in the charts (opposite page, bottom) are based on local authority districts, and show which will be most attractive to electricity and gas marketers and, at the other end of the scale, those least likely to receive concerted attention from companies courting new supply business.

The cost of recruiting new customers will be a crucial consideration to companies seeking to compete in the newly deregulated gas and electricity supply markets.

Attracting the right sort of customers will be a key aim of suppliers. They will be taking into account that some customers are likely to remain loyal, while others will be keen to switch from their existing supplier.

With deregulation of electricity supply, companies will have to develop accurate nationwide customer segmentation systems that enable them to target profitable households outside their areas.

Profitable customers may not necessarily be the wealthiest as these people are more likely to switch frequently from one supplier to another. In fact, less wealthy households with a large number of occupants will be highly sought after by new suppliers.

The regional electricity companies have plenty of data on customers in their own licensed areas but, after 1998, this will no longer be enough. With deregulation of electricity supply, the RECs and other potential suppliers are having to develop accurate UK-wide customer segmentation systems enabling them to target profitable electricity and gas customers outside their areas.

To add to the challenge of retaining market share, the Data Protection Registrar has made it clear that use of billing information for target marketing will not be acceptable. This is exemplified by recent enforcement action against British Gas. In effect, it means RECs interested in retaining their supply business are targeting third-party companies to promote the development of effective customer prospecting systems.

A major difficulty for utilities competing in the domestic electricity and gas markets is the low level of profit each customer represents. Therefore, it is vital that customers likely to switch supplier are separately identified and cost-effectively targeted with appropriate offers.

They need to identify customers most likely to switch their electricity accounts after 1998. Through segmentation, they can not only “cherry-pick” the best customers but, more importantly, develop loyalty among existing and new customers.

Calculating the cost of targeting customers is crucial. Within limited budgets, costly mailers should only be used to send to loyal and responsive customer segments. These segments will change according to the product and offer, therefore a portfolio of appropriate communication methods should be used.