Will loyalty programmes work for energy utilities?

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By: Wise Marketer Staff |

Posted on September 17, 2002

Do loyalty programmes fit into energy utilities' marketing strategies? Despite the common idea that there's no real place for them in the energy supply market, new research from Datamonitor suggests that there is.

A small number of utilities have shown that the adoption of a loyalty programme has delivered results based on the objectives set for their schemes.

Even though the majority of European utilities have shied away from rolling out loyalty programmes, one German supplier (HEW) has seen 50% of its incumbent customer base register for its loyalty card.

Datamonitor says that the main factors underpinning the success of such schemes are sustained board-level support, and using the right loyalty structure to achieve the targets that are set for them.

Doubts about strategies
Some countries have yet to see their markets liberalise, so utilities have concentrated their efforts on customer retention, with a few taking up aggressive acquisition strategies as well.

At this stage of market development, it is understandable that only a few companies have seriously reviewed what a loyalty programme can offer them. And, according to Datamonitor, only a handful seem prepared to incorporate a loyalty programme into their efforts to support their customer retention and acquisition strategies.

Loyalty could work
The research found that there is a misconception by European utilities (among those in residential supply) that loyalty schemes have little value both in revenue generation and in binding customer loyalty.

Having examined a number of utility companies in this segment, those which have gained senior management support (rather than a token acceptance), and have assessed their objectives and programme structure, the outcome has been largely successful. The first hurdle is to get senior management on board, and to retain their support.

Focus on ROI
The ability to control costs and maximise on the return on investment is a necessary requirement for any business strategy. However, the CEOs who set, direct and implement the strategic objectives are often financially motivated to generate those earnings within their own tenure.

This situation leads to either the avoidance of loyalty programmes, or the reduction of support that would ensure the scheme can benefit a utility in more ways than just adding to its profits.

Market acceptance
Upon examining utilities that have introduced a loyalty scheme (such as Seeboard in the UK and HEW in Germany), Datamonitor found that a relatively high proportion of customers signed up. The rate of take-up has been between 20% and 30% of the utility's existing customer base. This compares favourably when benchmarked against other vertical industries where a 10% penetration rate is deemed successful.

Risk aversion
Having been historically in the public sector, many utilities are careful about risk-taking. The research suggests that this may account for an often less-than-entrepreneurial nature of utilities. However, as their experience in the competitive market increases, many are starting to assess all their strategic supply options.

Loyalty schemes are just one part of this jigsaw and, with an increasing number of FMCG personnel entering the residential energy markets, the ability to adopt new business ventures such as loyalty schemes will take place.

Other suppliers have shown that loyalty schemes can work in their favour but it is now up to the ground-level staff as much as the board to work together toward the strategic loyalty objective.

According to the research report, Loyalty schemes in the residential utility sector, utilities must differentiate and capitalise on opportunities like loyalty programmes to achieve the kind of customer acceptance that breeds loyalty.

Salman Wasti, utility analyst for Datamonitor, summarised: "The first step in undertaking a loyalty scheme it to ensure the continued level of commitment from senior management to see through the benefits of a loyalty programme."

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