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Companies Perceive Little Value in Switching Electricity Vendors

November 4, 2014 By Karen Henry

frost&sullivanus-Energy ManagePrice competition cannot be the sole method for electricity customer retention and loyalty, according to an analysis from Frost & Sullivan. Between October and November 2013, Frost & Sullivan surveyed 250 medium and large commercial and industrial (C&I) companies across manufacturing, data centers, hospitals, small franchises and education sectors to determine customer perception and purchase criteria for electricity and energy service management. The survey indicates that US customers are satisfied with their existing provider, and very few intend to change their provider at the end of their contract.

Highlights from the analysis, “Commercial and Industrial Customers in the US Deregulated Electricity Market,” include the following:

  • Among customers with five-year contracts, financial viability and line of credit were more important purchase criteria than power reliability.
  • On average, electricity accounts for 9 to 11 percent of yearly operating costs, and up to 20 percent for select customers.
  • Approximately 40 percent of C&I customers expect their electricity consumption to increase in the next 24 months.
  • About 80 percent of C&I customers are concerned about the future costs of energy.

Since the majority of customers perceive little product differentiation among the utilities, vendors that focus on product development and enhanced offerings, particularly in the area of energy management, will win new customers, according to Frost & Sullivan.

Energy providers can offer customer value and differentiation through services such as supply management, energy efficiency management, facility optimization and demand response. However, most customers conduct these functions in-house and do not seek to outsource them to third-party vendors.

Nearly 70 percent of those who do outsource energy management services preferred utilities as the primary vendors. They may be persuaded to collaborate with a third-party energy management solution provider if it can clearly demonstrate operational cost savings.

Currently, customers do not comprehend the difference between distribution utility and competitive electricity retailer, Frost & Sullivan noted. Therefore, appropriate marketing campaigns that promote the benefits of deregulations will go a long way toward increasing participants’ market shares and brand awareness.

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