One might argue that Marketing is an expensive indulgence for Government-owned Corporations monopolizing an industry, such as National postal suppliers or Energy wholesalers. But as technology is evolving, indirect market entrants are challenging the market share enjoyed by the traditional suppliers, and customer focus becomes increasingly critical.
Ergon Energy’s network arm is a Government-owned business, responsible for distribution of electricity to regional Queensland users. Revenue is generated by selling to energy retailers, who then on-sell to consumers. Ergon Energy’s costs include network construction and maintenance costs.
Emerging energy storage technologies are a major threat to Ergon Energy’s network business, and Ergon Energy can’t afford to sit back and watch while the market changes. Ergon Energy must conduct a detailed segmentation to identify and target its most valuable customers, and develop a positioning strategy to ensure they have the right mix to retain these customers in the business. Unless it takes action to restructure its business model around the needs of its customer, Ergon Energy risks becoming an expensive and irrelevant relic of the 20th century.
Over the last decade, alternative energy generation methods have been introduced into Ergon Energy’s supply plan. Retail customers can support their energy needs using alternative energy generators, and Ergon Energy now has over 100,000 households with solar PV panels on their roof. Customers are credited for any excess energy produced and fed back into the network, and customers can purchase from Ergon Energy’s network when the PV system is not generating (i.e. at night time). Customers pay a service fee, even if their net power usage is negative. As battery systems grow in capacity and reliability and become more affordable, customers may be tempted to disconnect from Ergon Energy’s network altogether. This reduction in market share will reduce revenue for Ergon Energy, but more importantly, will drive a thickening of their fixed costs, eroding margin from all customers.
The good news is that Ergon Energy’s retail entity already has the segmentation gig down pat. Ergon Energy Retail contracted marketing specialist Experian to segment their 600k plus customers using their Mosaic model. A mosaic segments markets on the basis of consumer lifestyle information and combines data from sources such as census, real estate databases, credit records, and research surveys, to offer a general segmentation model tailored to the Australian market.
Picking up the Retail segmentation would be a quick and affordable mechanism for segmenting the network business. From here the Ergon Energy network business will be able to target the market segments that drive the highest profitability, and also those segments with the highest customer retention risk.
The Distanced Existence segment is big risk for the Ergon Energy network business. These customers are households from farming and mining communities in remote and regional Queensland. They have large houses and have above average to high energy consumption. They are likely to make further capital investments for savings and efficiency, 18% have already installed solar panels. Distanced Existence is 22% of the Ergon Energy market, making it a critical segment to retain.
The Ergon Energy network business should leverage the existing strengths of their current infrastructure network with the following offerings for the Exclusive Environ segment:
- Produce a battery storage product to use in conjunction with the network, to deter disconnection from the grid.
- Develop a time of usage tariff, rewarding off peak users.
- Promote companion products such as home automation switches to enable consumers to consume electricity at the cheapest times.
- Introduce a Brand campaign to highlight the reliability, value and relevance of a connection to the Ergon Energy grid.
If you were Ergon’s CMO how would you change your marketing mix to focus more on these customers?
Melanie Pollock & Melisa McIntyre
Marketing Management Blog 