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California's Deregulation Slow to Attract Customers

Direct mail was the most effective advertising medium used by energy companies in the months leading up to California's retail energy program launched March 31, according to a study of more than 1,800 residential and industrial energy customers.

Mike Rucker, principal of The Second Opinion, Atlanta, a marketing and brand strategy firm, said the study found that direct mail better introduced a company to a consumer than other forms of advertising — including television, radio, in-person visits and word of mouth. However, the study, “Retail Access in California: Before and After,” found that direct mail did not fare well in terms of educating customers about the deregulation situation.

“Here, consumers want to be educated more on the editorial pages [of newspapers],” Rucker said. “This gives companies more credibility, whereas direct mail does a good job of identifying the values of a particular company and the kinds of products and services they offer.”

Business and residential customers in California can choose from the almost 300 energy companies that have signed up with the California's Power Exchange Corp.'s network, called the PX, or Power Exchange. In the months before March 31, energy companies sent thousands of direct mail pieces to consumers in the state.

In general, however, The Second Opinion — which conducted focus groups, telephone surveys and online interviews from a sample of business and residential customers in March — found that most customers were largely unfazed by the marketing blitz. In fact, initial findings cite ineffective marketing, rather than consumer apathy, as the primary obstacle to “power shopping” in California.

“Most Californians are aware that they're paying some of the highest rates in the nation and welcome the arrival of competition,” Rucker said, “but a close look at customer's attitudes shows that energy marketers have not told a compelling tale about what they can bring to the table for consumers.”

The study found that Californians are frustrated because they don't know more about the other competitive electricity providers that they can choose from. TV and radio campaigns were most memorable to those surveyed, but respondents had a difficult time correlating the message to the name of the provider.

Indeed, most would argue that California's deregulation program is not working. Recent numbers show that under 30,000 California customers — out of 9.9 million — have switched providers, and experts said the reason for this small amount is because Californians remain confused about the purposes of the program and are doubtful about the payoff. In general, they are taking a wait-and-see attitude.

The Second Opinion's study also found that while customers were quick to say price is the most important decision factor in choosing a provider, customer service might be even more critical.

“Essentially, in the minds of both business and residential consumers, the primary definition of customer service is a friendly, real person who fields customer inquires quickly and politely, Rucker said. “They are exasperated with automated telephone answering systems requiring push-button responses and prerecorded messages.”

Survey results offer an opportunity for direct marketers, Rucker said.

“What the study really tells energy [direct] marketers is that the opportunity exists for companies that are going to California and grabbing market share,” he said, “but in order for this to work, these companies have to really put a stake in the ground, identify who they are, what they stand for and what they are going to deliver that differentiates themselves from anyone else.”

The second phase of the study will be in October, when The Second Opinion attempts to talk to the same people and possibly add to the quantitative sample size.

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