New tariffs boost utility customer retention

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By: Wise Marketer Staff |

Posted on December 9, 2002

Energy utility companies must invest more heavily in tariff modeling if they are to make necessary cost savings and meet customer needs, according to research from market analysts, Datamonitor.

According to Datamonitor, utilities' lack of investment has resulted in a lack of inspiration, leading eventually to customer apathy. It is not surprising that customers choose not to switch from their existing utility to a cheaper one when price comparisons are so difficult to do. Utilities must now pay closer attention to tariffs - not only to exploit cost savings and boost revenues, but also to finally recognise customers' legitimate complaints over tariff clarity and simplicity.

According to Datamonitor's research, the majority of utilities have failed to invest sufficient time and money in tariff development, and the market is characterised by traditional engineering-led volumetric tariffs that have existed for decades. These are both dull and uninspiring to the consumer, and inhibit the tariff's potential as a sales and marketing tool.

Tariff innovation
The research also indicates that tariff innovation can greatly improve customer retention and acquisition without negatively impacting profit. Utilities have, so far, been content to retain the same old tariffs, contributing to a market confusion and indifference that harms their ability to sell additional products to the customer.

Capped prices offered by utilities (such as British Gas), wholesale linked tariffs in Sweden, and family-related tariffs in Germany, all suggest that change is in the air. But in the USA, Georgia Power's flat bill proposition is likely to be a model for future market-changing developments.

The flat utility bill is a proposition similar to that offered by internet and mobile phone companies. The utility customer at Georgia Power can receive an individually tailored annual offer according to their previous consumption, so that they pay a fixed amount each month regardless of their actual consumption. More than 10% of Georgia Power's 1.5 million customers have already signed up, grateful for the predictability and budgetary ease that the tariff provides.

Alex Patient, residential utilities analyst for Datamonitor, commented, "Utilities have neglected tariff development, and have subsequently failed to exploit cost savings and opportunities for innovation. The flat bill offers an excellent means for long-term growth from satisfied and higher revenue customers."

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