British Gas is the energy company everybody loves to hate. With soaring oil and wholesale gas prices as well as dwindling gas supplies affecting the entire market, it has been forced to put up its prices three times in the past year alone. Its parent, Centrica, has warned further increases are likely to follow.
But much to the chagrin of its customers, the company's profits continue to rise. Last week - during which it also announced that British Gas customers' bills would rise by 14% - Centrica reported a profit increase of 19% to 拢967m.
The company's high energy prices, in comparison with its competitors' tariffs, have much to do with its former status as the national supplier. Yet the rises and increasingly cut-throat competition in the utilities sector, which has seen British Gas targeted in antagonistic advertising by rival firms such as Npower, EDF and Powergen, has started to hit its customer base. British Gas has lost 500,000 customers so far in 2005.
To offset this it has recently embarked on a high-profile advertising campaign pledging to freeze prices until 2010 if customers sign up to a special Price Protection scheme.
It has also split its business into two separate divisions in an attempt to halt customer churn. One division focuses on providing energy, while the other covers its growing home services business. The latter offers appliance care, boiler recovery and on-call assistance and is viewed as vital to retaining British Gas' competitive edge.
Nick Smith, the marketing director who oversaw the introduction of the 'Doing the right thing' strategy and moved British Gas' 拢26m ad account from DDB London to Clemmow Hornby Inge, is leaving the company. He is to be replaced by former BT marketing chief Amanda Mackenzie in November. She will take on the new role of director of brand marketing and has been tasked with giving the firm much-needed impetus.
To find out what British Gas must do under its latest marketing regime to convince customers that it still the right supplier for them, we asked Mark Rapley, partner of search and selection firm The Garden Partnership, who was account director on the British Gas account when it was at BMP DDB, and Gunda Lapski, the director of utilities at global marketing information firm JD Power and Associates, for their advice.
DIAGNOSIS 1 - MARK RAPLEY PARTNER, THE GARDEN PARTNERSHIP
British Gas is more expensive than every other competitor and is losing large numbers of customers as a result. Indeed, its strategy is to accept volume loss but build margins to increase returns. These margins will be increased through additional and better service across both energy products and home services.
In the short term, the tactical plans make sense, as does separating into two divisions: the commodity-based residential energy, and value-added home services, which offer higher margins in the form of engineer visits to repair not only boilers, but also central heating, plumbing and appliances. It also continues to bundle deals under the brand theme of 'Doing the right thing' and muddy the water with a confusing array of price packages.
But the market will eventually be attacked by a new and lower-cost operator with a genuine service ethos. And the home services market has many competitors with real focus.
Regulatory factors hem in British Gas - and protect it from new competition. But in the long run, it is in trouble.
REMEDY
- Become a federation of smaller companies under one banner.
- Focus each smaller company (sub-brand) on a discrete customer segment.
- Encourage front-line staff innovation.
- Unite the effort through the vigorous application of the existing 'Doing the right thing' branding platform.
- Develop 'Doing the right thing' to mean energy-saving and lead the industry with exclusive products and services.
DIAGNOSIS 2 - GUNDA LAPSKI DIRECTOR OF UTILITIES, JD POWER AND ASSOCIATES
Although price plays an important role in switching to another supplier, it is not the only driver. Problems with billing and unsatisfactory customer service also contribute to churn.
Throughout the industry there has been an emphasis on attracting customers and this brings challenges, especially when these consumers are serial switchers who are only influenced by price. Switching intent is highest six months after joining a supplier, and if these customers sign up to more than just the basic service from that supplier, then switch again, the loss of revenue is much greater.
Getting consumers excited about a commodity is not easy, but companies that can achieve strong brand awareness and commitment will fare better.
British Gas recently launched its Price Protection 2010 scheme, guaranteeing no price rises until that year. However, not everyone will want to sign a five-year agreement that includes penalty clauses. Interest in fixed contracts is high, but more than half of consumers lose this when cancellation charges are involved.
REMEDY
- Reward customers for their loyalty and make them aware of that incentive.
- Enhance satisfaction by improving perceptions of price and value.
- Look after new customers and make sure they are happy with the service.
- Improve billing - this is the cause of most customer complaints about their energy providers.
- Explore how customers feel about penalty clauses in fixed-price contracts.