In February last year, gas watchdog Ofgas began an investigation into the misleading selling of gas by a sales agency employed by Northern Electric.
The action, just three weeks after Ofgas introduced new licence conditions designed to outlaw bad marketing practice, saw the agency Utilities Limited temporarily suspended from marketing gas on the door step.
Ofgas’ new guidelines covered the training of agency staff, the auditing of sales activity, a ban on asking for payment in advance and the introduction of compensation schemes.
Northern Electric subsequently dropped Utilities Limited, and over the past 18 months other suppliers have also attempted to clean up their act and restore consumer confidence. Yet there are still occasional horror stories reported to the regulator of salesmen allegedly forging signatures or failing to explain the terms of a contract properly, especially to elderly home-owners.
Competition in gas supply began with pilot schemes in the south west and south east in 1996, while the domestic electricity market was opened up in May this year. So far five million gas and almost three million electricity customers have been persuaded to switch suppliers, according to the new joint industry watchdog, the Office of Gas & Electricity Markets (Ofgem).
It is the promise of lower bills rather than a better service which is tempting most people, and the National Audit Office estimates that the average gas customer can save £78 a year by shopping around.
Few field marketing companies were involved in the early days of gas deregulation, but the industry has complained that its reputation has been damaged by some sales agencies promoting themselves as field marketers.
Callum McCarthy, Ofgem director general of gas and electricity supply, confirms that in a number of cases the process of changing supplier has not been conducted properly. “It is vital companies perform their selling responsibilities carefully. Where necessary, Ofgem will take action to ensure they do,” he says.
With so many new utility companies entering the market at the same time, these direct sales teams have been under enormous pressure to steal market share from British Gas and each other. The policy adopted by most suppliers of using commission-only regional sales forces is blamed by many for encouraging pressure selling and aggressive, underhand marketing techniques.
Gary MacManus, Aspen Field Marketing managing director, says bad practice is impacting on the field sales profession and is caused by the poor quality of training that some field operatives receive. “Specialist skills are essential for face-to-face selling of complex products or services in the crowded market of utilities, particularly when targeting consumers in their own homes,” he says.
The Field Marketing Association (FMA) spent months watching how the utilities were marketing themselves and the effect the rising number of complaints was having on the image of its members. When the bad publicity reached a peak early last year, Alison Williams – FMA chairwoman and managing director of field marketing agency FDS, which has represented Yorkshire Electricity for two years – explained to the gas and electricity regulators and the Association of Energy Suppliers (AES) how all utility companies could benefit from using bona fide field marketing teams.
“I told them about the service we offer other blue-chip clients and was armed with evidence confirming that those gas and electricity businesses already using field marketing agencies were experiencing a lower level of customer complaints,” she says.
Her approach seems to be working – in the past year the FMA and its members have been contacted by suppliers in the second phase of their marketing strategy, which is to encourage customer loyalty so their users are not tempted to switch again.
Jill Waters, retail sales manager for Yorkshire Electricity, says the company chose a field marketing agency because FDS had experience running a number of regional sales forces and could advise on new marketing opportunities.
She says: “FDS had the idea of visiting shopping centres to target potential customers. We had been purely a telesales, door-to-door and direct mail operation, but today over 15 per cent of new clients are gained in shopping centres.”
Yorkshire Electricity undertakes its own in-depth checks on FDS staff and new customers are sent a questionnaire within 48 hours of signing a contract to check they fully understand the terms of the agreement. “We can check if complaints are one-off or if other people visited by the same agent have also had problems, and act accordingly,” says Waters.
Among the other utility businesses already using field marketing companies is Eastern Energy, which employs field marketing company CPM to sell its services and gather demographic information for future marketing campaigns.
London Electricity – which has two million customers in the capital, 1.3 million in the south west, and a further 100,000 gas customers – uses sales agency Sira Utilities, but is putting its contract out to tender when it ends in December.
London Electricity spokesman Derek Salter says: “There is potential for field marketing agencies to be involved because we are looking for the company with the best ideas to help us grow our new business.”
The AES, which represents about 30 gas and electricity companies, agrees that more field marketing companies are being recruited. But the association says that improvements in selling techniques have also come from suppliers tightening up their own internal procedures and reducing the amount of work they sub-contract.
The AES launched its Code of Practice for Marketing in 1998. Code administrator Derek Baggs says it is not designed to restrict innovative marketing ideas, but to ensure that all sales material complies with the British Codes of Advertising and Sales Promotion and that suppliers act responsibly when visiting homes. They must, for instance, ensure that the person who signs a contract is responsible for paying the bills.
James Moyies, managing director of PMI Field Marketing, which is negotiating with two suppliers, would like to see more utility companies using field marketers. However, he complains that many gas and electricity clients are reluctant to pay a fee plus commission and fail to understand that if a field marketing company is to do its job properly, it needs to cover costs such as advertising for staff, IT support and analysing the results of any research.
“Suppliers must remember that commission-only attracts a different type of sales person. I cannot understand why the utilities want to risk damaging their brand image when a professional field marketing team would create a system in which consumers have confidence,” he says.
But Nick Fennell, CPM sales and marketing director, says utility companies are becoming more aware of how field marketing can alter consumer perception of door-step selling.
He says: “You have to find a way for a brand to become welcome in the home. The public are usually pleased to see an Avon salesperson, for example, but not a utility or replacement window representative. Field marketing teams can make a gas or electricity brand acceptable using different techniques, while still being able to sell.”
The poor publicity of the last two years means the utilities must engage in much bridge building if they are to convince some of the more sceptical consumers to switch suppliers.
Richard Thompson, chairman and chief executive of field marketing company EMSChiara, says this represents a prime opportunity for field marketing companies. “One of the fears everyone had about deregulation was that there would be a queue of salesmen from different companies outside the homes of people who met the demographic target. Field marketing companies have the skills to sell a number of services from non-competing utilities at the same time,” he says.
British Gas admits that it has benefited from the negative press coverage that some of its new rivals have attracted, and claims that half a million former customers have returned. It does not employ a third-party sales or field marketing agency but controls its operation in-house.
Eric Moorhouse, BG national sales manager, says staff are paid a basic salary plus commission, and are trained in selling and promoting the BG brand.
“It means we go into people’s homes with well-trained staff who are wearing the BG uniform and can explain the different savings available. Customers must also put their signature over the word ‘contract’ on the paperwork and sign again to show they understand they have a seven-day cooling off period and a 28-day period in which to cancel the contract,” he says.
BG employs a mystery shopping agency to monitor its service and a telephone helpdesk is manned while sales teams are working, so consumers can check if callers are genuine.
Moorhouse says BG studied the marketing mistakes made by its rivals when the gas market was deregulated, so it could avoid the same traps when it began selling electricity.
“Everything is based on retaining the brand image that BG has built up over many years. Even the sales bonus competitions we have internally are based 70 per cent on quality of service rather than quantity of orders,” he says.
After gas and electricity, it will be intriguing to see what marketing techniques the water companies adopt, as competition increases in that market over the next few years, and to what extent field marketing companies become involved in the initial clamour for market share.
Competition for domestic water supply is some way off, however, because there is no national grid for water and the technical infrastructure is still being put in place.
A sign of possible things to come was seen in September when Ofwat director general of water services Ian Byatt began a consultation process on whether to allow Hartlepool Water to supply several sites in the area of Northumbrian Water. The greenfield sites have been earmarked for residential and leisure facilities and developers can choose their water company because the sites do not have an existing water supply.
Like the gas and electricity suppliers, the water companies may discover that field marketing agencies are just what they need to sway users who have been scared off by the other utilities.