Direct Mail Is Part of Utilities' Growth Cycle

Servicing more customers is one thing. Billing them is another. In the age of government deregulation, utility companies have not been shy about acquiring more customers. We have all been subject to one of their methods used to obtain new clients, which occurs too often at dinner time.

Some utility companies have even created subsidiary companies enabling them to hold current market share while they continue to expand their customer base. By creating their own competitors, the utility companies grow larger and larger.

Concurrently, in the realm of water utilities, more stringent EPA regulations have generally posed stiff challenges to smaller companies that do not have the capital needed to make the necessary improvements to their treatment facilities. As a result, many smaller authority and municipal water systems have realized the benefits of selling their systems to private companies that already comply with the new regulations. In southeastern Pennsylvania, for example, Philadelphia Suburban Water Company of Bryn Mawr, PA, has become the water company of choice for many municipal authorities and small private systems. Having acquired more than 25 systems in six years, PSW has significantly expanded its customer base.

In fact, merging and acquiring companies has become quite the business and economic trend in the past few years. According to KMPG International, deregulation is one of the main driving forces in strengthening the global economy. Merging companies, and even different industries, together creates an economy and efficiency that propels the companies even further than before. It has become a perpetual cycle of growth.

As an important aspect of marketing, direct mail is affected in many ways by the merging culture of today's business economy.

Outsourcing is the answer. Obviously, for water companies like PSW, billing consumers has become a more massive responsibility than ever before. While these large water companies have the inhouse expertise to pump and deliver more water, billing the consumer is often another story. These companies are forced to become print shops as well as water distributors. As operations functions expand because of mergers, print and mail operations are overwhelmed. This often leads to a decision to outsource the processing and printing of cyclical water utility bills. Outsourcing allows these growing companies to concentrate on their core business while preserving client/consumer relationships and their cash flow.

Outsourcing is the solution to what could be a major problem. Billing information from the utilities can be directly File Transfer Protocol down-loaded through the Internet each evening to capable direct mail lettershops, and invoices can be in the mail stream the next business day. A quality lettershop prints 364 days a year.

According to Fred Crotchfelt, PSW's senior manager of information services, “Our reason for outsourcing our billing is very similar to why smaller water utilities may decide to have PSW run their utility operation — economies of scale, specialization and depth of services. Our billing and mailing equipment was old and in need of replacement, but we recognized that printing bills and posting them was a part-time, noncore part of our business. So rather than invest in the replacement of the machinery, we chose to enjoy the economies of scale that a lettershop could bring to the party. We will direct our capital resources to improve our core business (i.e. pipes, mains, treatment plants, etc.) while the lettershop can provide flexibility and pricing that resolves the billing needs for a larger customer base.”

The direct mail connection. With billing being outsourced, direct mail offerings that are bundled with invoices also are being placed out of house. Where companies used to stuff their own bills with utility related industry matters, promotional materials and upgrading package information, they are now handing that all over to the lettershops which print their bills, creating a one-stop center for both billing and direct marketing.

One major company is offering stock options and reinvestment dividends to their water customers by sending them information in their invoices. How could there be a more direct way to market?

There is growing speculation that even investor-owned, water and sewer utilities will begin to offer electric and natural gas products. This potential mirrors the financial marketplace where banks, brokerage firms and insurance companies have begun offering overlapping services.

PSW, for example, has partnered with a major insurance company and is now offering PipeGuard, an insurance product to cover damage to the customer's service lines — the part of the water service line that extends from the curb into the customer's property. This is an example of the merging of the insurance, utility and direct mail industries. For the three months prior to the offering of PipeGuard, the lettershop that handles PSW's billing was inserting information about the new offering into clients' bills.

Economic trends point to more mergers in the coming years. The more industries grow together, the more they will need to outsource their billing and direct mail services in order to concentrate on the functions of their primary services. This is good news for the direct mail industry which is already a part of the growth cycle.

Tom Rigney, is regional director of financial sales at Communication Concepts Inc., Ivyland, PA. His e-mail address is [email protected]

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