Power to make utilities ethical

The marketing director of npower must be a very frustrated man. Here is a company which can be justly proud of its branding initiatives. From a scratch start just a few years ago, it has built a successful brand with an estimated worth of £70m, whose trademark is astute television and sports sponsorship buying (look no further than the Millward Brown awareness figures).

And yet, through no direct fault of his own, the industry regulator, Ofgem, is threatening to intervene in the company’s affairs and suspend all marketing activities from January next year until such time as npower mends its ways.

And the reason for Ofgem’s sabre-rattling? The utilities industry in general, and npower in particular, has condoned sales practices which make Arthur Daley’s appear ethical. Npower has been ticked off by Ofgem before – for aggressive selling techniques which involved deception and fraud. The company promised to mend

its ways – but has evidently failed to satisfy an increasingly frustrated regulator.

How could a company be so apparently stupid as to jeopardise its achievements in this way? After all, if civil servants can spot the relationship between sales, marketing and brand reputation, it is surely not beyond the wit of a blue-chip company’s management to do the same.

Such a view, however, takes little account of the harsh realities of competition in the utilities sector. In such a low margin area, acquiring a huge customer base is critical to success – and offers the best route to added value cross-selling of products later. Centrica, which owns British Gas, is market leader by far and has also pioneered the cross-selling model through, for example, Goldfish and the AA. For the rest of this rather fragmented market, the scramble is on to be number two. Npower is ahead of the pack, but still desperate to acquire customers and put some clear blue water between itself and the rest of its competitors. It can achieve this by occasional acquisition – perhaps, for example, Amerada Hess, which was put up for sale last week. Or, routinely, by aggressive customer acquisition through doorstep selling.

Unfortunately, in its haste to acquire customers, npower has paid insufficient attention to the internal implementation of its programme. There has been poor co-ordination between various departments, primarily customer service, marketing and sales. With the result that an effective marketing strategy is now being imperilled by consumer fall-out from short-sighted sales practices. CRM, meanwhile, seems more focused on the requirements of the marketing department than those of the consumer.

To be fair, npower is not the only utilities company forced to address these problems. Nor is the regulatory framework entirely free of blame for them. It is unwieldy and places some unreasonable restraints on the exchange of useful customer information. It has also been a rather ineffectual policeman, strong on naming and shaming, but weak on apprehending the culprits. Until this month, that is. Under the provisions of the new Utilities Act, Ofgem can now impose fines of up to ten per cent of turnover on rogue electricity or gas suppliers. So it would be no surprise to find the industry has suddenly cleaned up its sales act. It cannot happen fast enough.

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