Utilities march up and down the hill

Although Centrica marketing supremo Simon Waugh may not appreciate the historical reminiscence, he bears a passing resemblance to the Grand Old Duke of York. He’s marched his men to the top of the hill, and now he’s marching them down again.

The view at the top, it has to be said, was pretty good while it lasted. Any armchair strategist would have appreciated the sweep of Centrica’s ambitions, which for a while threatened to make the utilities sector a really interesting one for marketers to work in.

These ambitions stemmed from two important conclusions about the post-deregulated market. The first was that the utilities, and in particular the market leader British Gas, had an immense captive customer base apparently eager to be cross-sold a variety of goods and services not immediately related to the energy market. The second was that utilities were not essentially in the energy business, but in the service business. Centrica seemed to embody this truth. It grew out of the retail experience of British Gas (originally showrooms) and has, logically, come to embrace such things as plumbing, central heating, home security and, more recently, the maintenance of domestic electrical goods.

But why stop there? All the major utilities companies have made exploratory forays into being proper multi-service companies. With Powergen it was telephony and internet services. Npower, the services offshoot of National Power, similarly toyed with telephony, but seemed to lack the resources to practise what it preached. Much more ambitious was Centrica’s sortie not only into telephony, but also financial services (Gold Card) and roadside services (The AA, which itself has a substantial financial services component).

Why has almost all of this bold diversification come to grief? It would be easy but misleading (we are told) to conclude that these companies had simply got out of their depth and extended their brand offer inappropriately. Centrica’s decision to jettison the AA is a case in point. The &£1.7bn Centrica can expect to extract from the successful bidder represents a healthy premium on the &£1.1bn it paid for it. Nor has this prospect been achieved by unimaginative cost-cutting. Investment and marketing have reaped dividends, if rapidly rising membership and revenue figures are anything to go by. The overriding reason for a radical strategic rethink, says Centrica, has been the increasing volatility of an energy market where wholesale prices are rising steeply. In short, it needs more cash.

While undoubtedly true, this is surely not the only reason for utilities companies having to retrench to their core “energy offering”. Their history over the past decade is in many ways a history of lost opportunity. Although vigorously professing a customer-facing culture, the utilities have found it difficult to move from rhetoric to reality. It is a sad fact that, while Centrica may have done wonders with the AA, the image many customers have of utilities companies is that of unscrupulous salesmen mis-selling on their doorsteps. It will take a long time to eradicate that image.

Stuart Smith, EditorCover Story, page 24

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