Turning Staid Utilities Into Marketers

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Electricity isn't the only thing crackling at your local power company. Energized by deregulation, its marketing department is generating a buzz of its own as it goes from quiet keeper of the status quo to retail-marketing machine.


Until recently, utility marketers focused mainly on two tasks - supplying regulatory information to state governments and serving large industrial clients. They spent their days justifying prices charged for electricity and burnishing the company's image as goodwill ambassador throughout the community.


Deregulation has expanded the job description. West Coast utilities now compete with counterparts on the East Coast for Midwestern customers. The war is on to win the largest share of retail consumers in the United States - and leading the charge are marketers battling, in some cases, for their companies' very survival.


A Marketing Must: Data Mining


Now that many customers are free to pick service providers, savvy utilities are sifting through years of accumulated customer data to become better acquainted with their constituencies. The umbrella term for that task is customer relationship management. Through the process of CRM, a company maximizes customer information to increase customer loyalty. CRM's primary goal is to build long-term, profitable relationships with chosen customers by improving interactions at every point of contact.


In successful CRM implementations, sophisticated analytical software converts reams of scattered customer data into meaningful business knowledge that can improve company processes. A key part of any CRM strategy is data mining, the process of selecting, exploring, and modeling large amounts of data to uncover previously unknown patterns for business advantage. In a utility context, data mining techniques are particularly useful for reducing churn rates - that is, predicting which customers are likely to jump to a competitor and helping to determine which of those should be enticed to remain.


Data mining also uncovers cross-sell opportunities - for example, identifying which customers would most likely buy energy-related products (gas water heaters, dryers, furnaces, etc.) as well as other products and services, such as long-distance services, credit cards or other types of merchandise.


Utilities especially want to gain new customers in recently deregulated states. When entering a new market, a utility company has three main objectives - and data mining plays a key role in achieving each goal.


The first objective is to maintain its customer base. Data mining helps marketers identify trends that drive churn in a particular market and suggest appropriate actions.


Secondly, the company wants to conduct more focused marketing campaigns. Data mining techniques can identify the ideal customer and help fine tune campaigns.


Finally, utilities want to cross-sell products to customers at every appropriate opportunity. The integration of scoring algorithms with other customer touch points allows the firm to more effectively cross-sell consumers in real-time during customer contact. When properly deployed, these technologies allow utility employees a single view of customers. This view extends throughout the corporation to include the call center, Web sites, service center, marketing campaigns and all other customer touch points.


In today's highly competitive deregulated environment, data mining allows utility marketers to see the big picture faster and more accurately than ever before. Data mining, when part of a larger CRM solution, also allows firms to integrate sophisticated analyses into everyday operations, creating a closed-loop system that continually "learns" from previous analyses.


The Next Step: A View of the Big Picture


Just as data mining technology is changing utility consumer marketing, sophisticated analytical software is transforming the executive suite. Increasingly, utility executives must understand the relationship between the marketing department and the more traditional regulated side of the business - to better understand the interaction and the risk associated with various decisions made at the highest level within a group.


Technology is making it possible to integrate models of both the physical assets of a utility company with those resulting from marketing activities. This integration allows executives to simulate various market place conditions to examine market risk and other potentially harmful factors. With this additional information, executives can make more informed decisions on crucial matters, such as whether to build or buy a new power plant, embark on a new marketing campaign, purchase power on the open market, concentrate on cross-selling new products or a combination of all of the above.


Changes in the utility industry are dramatic and continually evolving. These traditionally static companies are re-inventing themselves as competitive, consumer marketing machines.


John Bell is manager of energy solutions practice at SAS Institute, Cary, NC.
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