Texas has been leading the nationwide move toward electricity market deregulation for many years. It launched with the promise of more choice, better plans and products, and lower prices. For the most part, these promises have been met. Few markets, if any, have more competition or products than Texas. But has it resulted in lower prices?
In 2014, Texans living in deregulated areas (such as Houston, Dallas, El Paso) paid approximately 15% more for electricity than their counterparts living in markets with integrated utilities (such as Austin and San Antonio), according to a report by the Texas Coalition for Affordable Power. In that same year, Texans in deregulated markets paid 12.59 cents per kilowatt hour, more than the national average of 12.52 and well above the rate paid by Texans living in areas with regulated utilities (just under 11 cents per kilowatt hour).
The report suggests several possible explanations for the higher prices, including inefficiencies in the deregulated market, customer confusion about comparing rates and higher prices from legacy companies that remain from their regulated counterparts. While these are all valid explanations, I suggest there is another element in play: customers are paying a premium because of the intrinsic value they place on the retail electricity provider’s (REP) products and brand.
Brand Trust among residential consumers of the nation’s utilities increased by one point in Q3 over Q2 of 2016. The industry’s overall Brand Trust Index now stands at 694. Emotional attachment brand traits increased two points, while management performance traits increased one point during the quarter. While this is an improvement, utilities are building Brand Trust very slowly, and they have a great deal of work to do to become truly trusted by their customers.
Leveraging Value-Added Products and Services to Build Brand Trust and Drive Customer Satisfaction
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When we think of world-class brands, companies like Amazon, Apple, FedEx and Nordstrom come to mind. For these companies, customer loyalty begins with trust—trust built over years of consistently delivering on a strong value proposition. Many energy utilities have built trust among their customers as well by consistently providing a reliable supply of electricity at a relatively reasonable price. However, the energy industry is at a turning point, and utilities can do much more than simply deliver reliable service. New, smart technology and advances in renewable and alternative energy offerings have customers searching for guidance to understand how these new offerings may improve their lives. Who better to fill that role than the trusted, local utility?
Why Trust Matters for Utilities
Some might argue that the concepts of trust and loyalty are irrelevant in a market without competition. Yet, it remains imperative that customers believe their utility is operating in their best interests. New products and technologies are changing the way energy companies interact with customers and have opened up an array of additional products and services to drive engagement and trust. Our research indicates that building brand trust is the best way for today’s utilities to drive adoption of value-added products and services, improve customer satisfaction and insulate the utility against negative events.
How Energy Utilities Can Become Trusted Advisors
As utilities continue to pursue stronger customer relationships, they tend to focus on one-size-fits-all operational improvements. Who would not want mobile access or an app, energy efficiency rebates, proactive outage alerts, electronic bills or online energy management tools? The answer is White households, which have lower demand for these offerings. In fact, all of those product offerings have high demand overall, but if utilities want to find the “low-hanging fruit” for adoption, they will be more successful if they target non-White customers. Specifically, Hispanic households have the highest demand and stated usage for each of these products.
This is just one interesting insight from our latest Cogent Energy Reports study, Residential Utility Trusted Brand & Customer Engagement, which explored the benefits of visualizing the customers you serve. Gaining a deeper understanding of your customer base through formal segmentation or visualizing them based upon what you know about them makes your customer management efforts more efficient. Recently published Opower research suggests that utilities spend $5.3 billion annually on customer service. Still, most utilities use the same platforms for every service interaction, paying little attention to customized service approaches by segment.
This week we celebrate St. Patrick’s Day. While not technically a holiday, here in the Midwest, it’s not only a celebration of Irish culture but also a milestone that winter is on its way out (hopefully). People will take to the streets in a sea of green to celebrate with parades, dancing and traditional Irish cuisine (does a Shamrock Shake count?). If you did not already know, wearing green is an American-born tradition that is supposed to ward off being pinched by leprechauns. But, if one gets close enough to you so you can capture it, legend has it that the leprechaun must use its magical powers to grant you three wishes–maybe even revealing its hidden pot of gold at the end of a rainbow.
As research consultants, we always strive to deliver a pot of gold to our clients in the form of valuable research, insight and consulting that leads to a better customer experience or a new and improved product that will increase engagement and brand trust. However, the only way to accomplish this is to be ever mindful that if we take our eye off the leprechaun, it could change from being good luck to becoming sneaky and confusing, making us lose sight of our objectives and pointing us away from the pot of gold.