Power Struggle

Energy regulator Callum McCarthy spent last week forcing electricity generators to cut their prices by ten per cent. As he did so, generator National Power’s new marketing director David Andrew was trawling some of London’s top advertising agencies with &£10m in his back pocket.

The troubled electricity giant – which according to press speculation may be sold off piecemeal over the next year – hired Andrew last month to commission an ad campaign to promote its new domestic energy brand, “npower,” which is launching tomorrow (Thursday) with a &£10m marketing budget.

The company, which generates 12 per cent of the UK’s electricity, has branched into the domestic energy supply market through the acquisitions of Calortex and Midlands Electricity, giving it 2.5 million customers. It aims to become one of the half-a-dozen gas and electricity suppliers which are destined to control the energy market over the next five years, and is aiming to sign up another 2 million customers.

But the utilities companies are hanging on the words of McCarthy, whose remit is to ensure that prices come down, either through introducing competition or because he orders the generators – which are not open to competition – to cut their distribution prices.

At present he believes the privatised utilities companies have experienced sufficient competition to ensure that customers pay a reasonable price for their heating, light and hot water.

But there is a problem for Andrew, and his marketing rivals in the other utilities. While their products may succeed in keeping their customers warm, most people’s feelings towards them are less than lukewarm. Although the regulator may believe the utilities are exposed to sufficient competition, the public perception is of greedy privatised businesses employing annoying door-to-door salesmen.

The energy companies are hampered in the already difficult task of recruiting new customers and retaining old ones by strongly negative feelings among the public.

“Consumers don’t like these brands – there is a strong feeling against paying bills, against getting cut off, against ‘fat cat’ directors. People can’t see any reason for brands in this market,” says one ad executive. This is supported by focus group research from the Gas Consumers Council (GCC), which shows users are sceptical about competition in the energy market, and resistant to changing suppliers.

GCC chairman Jenny Kirkpatrick says: “The consumer experience is of being harassed on the doorstep, ignored if they’re poor and being fed confusing information. Who can blame consumers for staying with the devil they know rather than shopping around for their gas?”

Some in rival companies claim British Gas Trading – the Big Greedy as it is known – deliberately sowed confusion with a complex array of tariffs when gas deregulation got under way. BGT denies this, and claims its competitors were making false comparisons with its prices and confusing customers.

BGT has now simplified its message. The “2001/2” campaign, which pledges to sell electricity at lower prices than local suppliers if customers take both electricity and gas, has brought focus to the market.

But Andrew claims his task will be to bring simplicity to the sector. “The industry is very confusing, with consumers unsure about suppliers and about what competition means. We want to make things simpler,” he says.

To this end, npower will use direct response press ads as part of the &£10m campaign that breaks this week. But it will also use the controversial door-selling techniques which householders find so irritating. The long-term plan of npower is reminiscent of BGT parent Centrica’s strategy, which involved buying the Automobile Association as a means of extending its brand across a wide range of basic services.

In the case of npower, Andrew says: “We are extending the brand into other home services. In three weeks, we will launch a home-movers service that can save you up to &£1,000 on moving house and we will expand into other areas.” He says the company is planning acquisitions in related sectors.

BGT believes that over the past few years it has overcome the sleazy image of an inefficient dinosaur interested only in the next fat pay cheque for its directors, while customer complaints were dealt with by a shrug of the shoulders.

The problems it encountered with customer service when it installed a new billing system in advance of competition are “well behind us”, according to a spokes-man. BGT has ploughed some &£60m into advertising created by BMP DDB which has portrayed it as friendly and funny – first with the Mrs Merton campaign and now the price-driven 2001/2 promotions.

A spokesman claims that BGT’s service has improved, and the “fat cat” tag which was attached to British Gas before it demerged to create Centrica is long forgotten. But, undoubtedly, advertising has played its part in creating the new image.

Meanwhile, PowerGen – through its acquisition of East Midlands – has been shelling out some &£10m a year through Saatchi & Saatchi to build its corporate brand. The East Midlands Electricity deal puts it up against BGT, npower and some ten other providers. As the industry consolidates, it is likely many more players will launch national brands.

Since so many regional electricity companies (RECs) are saddled with regional names, to compete nationally they will need to develop new branding. National Power’s &£10m rebranding of Calortex and MEB as npower is the first of many to come, and designers, branding specialists, ad executives and direct mail agents are rubbing their hands in expectation of big budgets.

Seeboard, owned by Texas-based C&SW, is likely to merge with Yorkshire Electricity, owned by US company AEP. This is driven by a merger in the US of C&SW and AEP.

London Electricity is owned by Electricité de France (EDF), which also owns South West Electricity Board and more acquisitions are believed to be in the pipeline. These companies will probably be consolidated with a joint brand to replace the “Premier” sub-brand which London runs outside its own area.

Scottish Hydro-Electric acquired Southern Electric to form Scottish & Southern Energy. A spokeswoman says the branding issue has yet to be resolved, indicating that another brand may well be launched to unite them.

Scottish Power’s name hardly does justice to the breadth of its services, which now include Southern Water.

Meanwhile, overseas predators such as the French utility EDF, the German giant RWE, and numerous US utilities companies are still casting their eyes over the UK market. Every takeover provides another potential review of domestic branding, and another opportunity for the marketing services industry to ply its trade.

As deregulation of the electricity and gas markets moves into its final phase, the scramble for customers is reaching fever pitch.

It is a major task to turn these companies – with their reputations for greed and cynicism – into brands that people like.

“They have got awareness, but not favourability. PowerGen sponsors the weather, which makes it famous but not loved. People don’t feel warmly about the utilities, which is a great opportunity for ad agencies. How do you give them a personality?” asks one ad executive.

But some believe the energy El Dorado could turn out to be a land of fool’s gold. Many question the utility companies’ commitment to building brands. It may just come down to a straight fight on price.

This would leave plenty of scope for price ads, but the ad accounts would then descend into the sort of high-volume, low-margin retail briefs that many agencies love to win but loathe working on.

Still, branding will be all important to bring the new names to the public’s attention and create a sense of trust and recognition which many lack outside their local areas.