How Virgin plans to conquer utilities

Virgin is to extend its brand into utilities. Former British Gas Trading and Camelot marketer Jon Kinsey, who will head the Virgin outfit, claims there are considerable opportunities, despite market turbulence.

Virgin boss Richard Branson is taking two steps forward this week in his attempt to create the UK’s all-encompassing spread brand. Now the company which does your banking, entertains you, quenches your thirst and gets you from A to B is planning to provide heat and light. And in his spare time, Branson is putting together a bid to run the National Lottery.

The two latest moves are, by chance, related. Last week, Branson hired Jon Kinsey, director of marketing and strategy at British Gas Trading to run Virgin Home Services as managing director. Before joining British Gas in 1997, Kinsey spent three years as marketing director of National Lottery operator Camelot.

One source says Kinsey felt he did not get as much credit as he believed he deserved while at Camelot. The decline in Lottery sales and the comparatively tame marketing since he left show he may have had a point.

The new Virgin company will lure customers with a promise of cheap gas and electricity and it plans eventually to put water and telephone charges on the same bill. The service is likely to be offered through the Internet.

Both Camelot and British Gas Trading operate in heavily regulated markets, both have suffered from a poor public image and allegations of “fat cat” wages for their bosses, and both have provided Kinsey with limited scope for really innovative marketing. He has had to hack through a thicket of regulation to push each new development.

Kinsey is on gardening leave until he takes up the position in March, and refuses to make any comment on the shape of the new company. But Virgin spokesman Will Whitehorn says: “Eventually all services will appear on one bill. Like Virgin One, people are looking to run their lives on one bill – the reason services are compartmentalised is to make more money for the companies involved. What is true in financial services is true in utilities.”

In his latest role, Kinsey will still find his moves dogged by the concerns of the energy regulator, Ofgem. If Virgin runs the operation through the Internet, it will raise the spectre of cherry picking – where a utilities company creams off the wealthiest customers, in this case those with access to the Internet – leaving poorer customers out in the cold.

This accusation has been levelled at Internet bank Egg, but in the case of utilities, the regulator would move to stamp it out. It is understood that as a way round this, Virgin will allow customers to use terminals in Virgin stores.

Timing will be a vital calculation for Virgin’s move into energy supply. According to David Andrew, marketing director of National Power’s domestic energy supplier npower, Virgin is likely to wait until the market has “settled down” before making its move.

He says: “Deregulation in gas and electricity is recent, and electricity suppliers have only started their activity this year. If new people come in, it is all about price, and the acquisition cost is high because customers are confused and unlikely to change.”

He says that by waiting until competition has become more established, it will be easier to get a branding strategy in place and try to win customers through a brand offering additional services, rather than slogging it out on price.

Virgin has held talks with most of the established gas and electricity suppliers and will tie up with one or two of them, giving it a low-cost entry into the market – it will not acquire customers wholesale through buying up a regional electricity company, a strategy pursued by others such as PowerGen.

Virgin is likely to link gas and electricity supply to a telecoms offer and eventually water as well, so the whole range of utility services will be charged to one bill. The margins on energy and water supply are slim, but telecoms offers a rich seam of profits, given the bulging margins made by BT. By linking them all together, Branson and Kinsey will be able to form a powerful business, where low margins are compensated by higher margins on telecoms.

In 39-year-old Kinsey, Virgin has an executive described by former Camelot sources as a “number-cruncher more than a vision man”.

Saatchi & Saatchi joint chief executive Adam Crozier, who worked with Kinsey when the agency held the Camelot ad account, says: “He is very good at putting together a good team then managing it to get the best out of people – that is his real skill.” One that will be much needed in his new role as he assembles the team to run Virgin’s latest development.

Kinsey says of himself: “I am practical. I make things happen in the context of a vision. I focus on the realities and make it happen.” He says he left Camelot because it had become dull. “The first few years it was all new, there was no rulebook. You had to think on your feet. At the end of my time, the regulator started having more influence on game development, and it got duller.”

At British Gas Trading – hardly considered by most as an exciting marketing environment – Kinsey says: “For the first time there was competition – it didn’t have to market before, it didn’t have to worry about customers. It entered the electricity market from scratch and had to create a new culture.”

One of the most exciting developments for Kinsey was creating the 2001/2 campaign, which pledged to undercut regional electricity company’s prices until 2002. “BGT has 2.5 million electricity customers, and is now the second largest electricity supplier after Eastern.”

Kinsey believes that at Virgin Gas and Virgin Electricity he will be able to relive the excitement of the early days at Camelot and at British Gas.

“The two experiences were very different, but they were both start-ups, doing things that hadn’t been done before. They were limited by regulations, but were both most marketing men’s dream as they had never been done before. This venture will be similar.”

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