British Gas is reeling from accusations of profiteering levelled last week when it unveiled a five-fold rise in profits for 2007 shortly after announcing that residential gas prices would soar by 15%.
The energy giant needs to counter the impression that it is exploiting rising wholesale gas prices and pushing through domestic price hikes to line its pockets. It has suffered from negative perceptions before – when it raised gas prices steeply in 2004 it lost almost 1 million customers.
This leaves BG’s new top marketer Chris Jansen with the delicate task of promoting the brand as it comes under increasing scrutiny from energy watchdogs over allegedly ripping off customers.
As part of a new charm offensive, BG is this week launching a television campaign encouraging consumers to save money on their bills by making their homes more efficient (MW last week).
Jansen says the brand campaign – BG’s first since 2004 – is about “establishing our expertise and seeing why we are different from our competitors”. He adds: “Our point of differentiation is expertise. We are the only energy company in the UK with a national force of engineers.”
As inflation rises in a variety of sectors such as food and energy, marketers need to persuade their consumers that the price hikes are justified. There is always a suspicion that companies are profiteering in inflationary times, passing on costs but taking the opportunity to add an extra increase to line their pockets.
For two decades, consumers have been trained to expect tumbling prices on a wide range of goods. Promotions have focused on discounts and special offers. But in sectors where prices are surging, brands need to shift marketing away from simple price reductions to other issues such as service or intangible brand benefits. One source calls it “de-sensitising the price issue”.
Jansen thinks consumers are looking for “expertise” from their energy supplier, adding: “It’s about communicating the service. We serve 12.5 million homes and there are 9,000 engineers on the road every day. Service is very important to our customers.”
However, he admits BG has not made as much of the service side of the business as it should have done and says: “We are definitely driving up the service part now.”
In the energy market, individual brands need to find ways of standing out from each other and, more importantly, must consider how best to market in times of inflation. For utility companies, this means developing high-level service and promoting brand differentiation. BG and rival e.on are both branding themselves as “energy experts”, advising consumers on how to save amid steep price hikes. Meanwhile, npower is using its “red carpet” campaign to promote personalised service standards for its customers.
Regulator Ofgem’s latest inquiry into the energy market – its 15th in seven years – is sure to further fuel consumer fears about profiteering. In an added twist, BG owner Centrica has warned that bills could rise further as energy companies invest in “green generation” to meet Government targets.
UK chief executive of branding consultancy Interbrand Rune Gustafson believes consumers find the utility sector hard to understand. “The whole break-up of the market is confusing to people,” he says. “What is the key difference between the brands? It is inevitable that service needs to improve and people will certainly stay with someone they trust. There is value in that.”
He argues that BG needs to work harder to market its service, rather than simply relying on the fact it is the most visible brand in the sector.
Gustafson thinks energy companies should look at how mobile phone brands have evolved. He points out that when mobiles were first introduced all the focus was on the handsets but now companies market other services. “Vodafone and Orange had to establish themselves as very different brands. They could have gone the commodity route but they didn’t. The Orange brand chose to focus on optimism with its ‘The future’s bright…’ strapline.”
Director of customer marketing at npower Kevin Peake admits consumer perception is a problem for the market as a whole. “Energy companies are getting bad press,” he says. “It’s a brand issue and it’s our problem to solve.”
With planned nuclear power stations costing up to £800m each, Peake calls energy a long-term investment, adding: “The risk factors are huge and the complexities are awesome. We need to educate the customer, which will open up debate.”
He thinks that BG uses its position as the market leader to its advantage and uses the
“fear factor” to dissuade people from leaving.
While the environment is becoming an increasingly important issue for brands in the energy sector, take-up of “green” services is slow. Just 50,000 of npower’s 6.4 million customers have chosen its green “Juice” products and tariffs.
But a Government pledge to fine energy suppliers who do not meet the imposed energy reduction targets is an added complication.
Jansen believes customers are looking to the energy providers to do their bit when it comes to the environment but admits that most customers are not prepared to pay extra to be more environmentally friendly.
Peake says npower’s marketing strategy is based around customer service. The company’s “red carpet” campaign sees a carpet rolled out when engineers visit customers’ homes. The engineers also bring flasks of tea and Peake adds: “It’s the little touches that are defining our brand. Many utility companies talk down to customers, but we speak on a level to people and don’t over-promise.”
While each of the energy providers must look to differentiate themselves from their rivals, that is only half the battle. They also have to find a way to placate customers whose cynicism grows with every profits increase. BG’s experience in 2004 should act as a reminder of what can happen if they fail to do so.
Additional reporting by David Benady