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Market Research for Electric Utilities
Market Research for Electric Utilities Marketing research is increasing in importance as utilities become more marketing oriented. Marketing research managers need to maintain autonomy from the marketing director or ad agency and make sure their work is relevant to the utility’s operation. Glenn Shippee
D Glenn Shippee, formerly an economist with the Arizona Corporation Commission, was President of Market Fidelity Corporation, a marketing research and analysis firm serving clients involved in the electric utility industry. He holds a Ph.D. degree in social psychology from Arizona State University and has published frequently on the social sciences and the utility industry. This article represents solely the views and opinions of its author, not those of any organization with which he has in the past, is presently, or may in the future be affiliated.
December 1999
eregulation of electricity production, distribution, and transmission enterprises has led to an increased emphasis on marketing among electric utilities. Unlike the days when a single, vertically integrated utility provided these services in a monopolistic fashion, the future will see a more competitive arena in which multiple companies vie for customers. Electric utilities thus have increasingly turned to traditional industries that have been dominated by consumer marketing to assist them in making the transition to the competitive marketplace, and we have seen a corresponding surge of interest in “branding,” advertising, marketing, promotion, new prod-
uct development, customer service, and service quality.1 While all of these new strategic thrusts are important for a utility, they cannot occur simply in a nonprogrammatic, or “helter-skelter,” fashion. What is needed to orchestrate the strategic marketing direction for an electric utility is a systematic and comprehensive marketing research program. When designed properly, a strong marketing research program lends strategic direction to a utility’s marketing efforts. Like a map that guides a stranger through a complex urban metropolis, a wellconceived marketing research program can provide direction to utility marketing executives.
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
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Finally, a strong marketing research program can be useful for regulatory authorities, particularly if the utility is contemplating entry into new markets or into performance-based ratemaking (PBR). Sharing with regulators key market research studies that reveal the likely response of consumers to new products and services that require regulatory approval can be very propitious in demonstrating that sound marketing decisions are being made and that the utility is attempting to understand its customers. At the same time, market research can be used in PBR applications, for example, the measurement of service quality which can then be employed to reward or penalize a company for its performance. This article will outline a model
marketing research program for an electric utility. While a utility may not conduct each and every type of research described, the programs presented offer a smorgasbord of activities which successful electric utility marketers often use or have access to.
specifically, customers’ awareness of the utility, awareness and knowledge of the products and services it offers, affective feelings about the company (positive or negative), and the company’s “positioning.”2 The “positioning” of a utility represents the primary cognitive associations evoked by the utility. For instance, via direct experience and media representations over time, customers could hypothetically perceive a utility as reliable and trustworthy; charging high rates, but being reliable; or as being expensive and large and impersonal. Some “positions” are positively valenced, while some may be negatively valenced. ote also that there are usually cognitive or knowledge components that constitute a
I. The Content of a Marketing Research Program for an Electric Utility Table 1 outlines a marketing research program whose varied activities will be elaborated upon in subsequent sections of this article. A. Customer Perception Research
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This type of research gauges customer perceptions of the utility—
Table 1: Market Research Programs for Electric Utilities Program
Purpose
User(s)
Frequency
Customer perception and image research
To determine levels of organizational awareness and corporate or “brand” image
Quarterly, supplemented by annual focus groups
Product utilization or purchasing research
To determine the customer needs satisfied by the product, methods of purchasing the product, and product perceptions To determine effectiveness of advertising; image resulting from advertisements; recall of content To discover consumer reaction to new products or services, including attitudes and propensity to buy or use
Marketing, sales, advertising, public relations, executive management Marketing, sales, advertising
Marketing, sales, advertising, public relations
Quarterly
Marketing, sales, line managers of relevant divisions, senior executive management Marketing, advertising
As needed
Marketing, sales, line management Marketing, sales, advertising
Ongoing
Marketing, human resources, advertising, public relations Marketing, human resources, senior executive management
Ongoing
Advertising effectiveness New product development research Customer segmentation/ demographic research Marketing program evaluation Sales analysis Service quality research Organizational research
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Establishes the demographic, psychographic composition of the customer base Determines the marketing effectiveness of products and services Product sales analysis by customer group, geographic region Ascertains the overall quality of service being provided to customer groups by the company Assesses organizational morale and organizational climate
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
Bi-annually
Annually
Ongoing
Bi-annually
The Electricity Journal
brand’s positioning, as well as affective or feeling components. The former are reflected in factualbased cognitions held by the customer regarding the company. The latter are reflected in either the positive or negative attitudes or feelings elicited by the brand or entity. Customer perception research is usually conducted via a telephone survey on a periodic— typically quarterly—basis. Normally a standard battery of questions is used repeatedly, in order to examine changes in perceptions over time. This can be particularly helpful in determining the effectiveness of a utility’s advertising program over time. Often, image research is supplemented with annual or bi-annual focus groups. These are used to “flesh out,” qualitatively, the image and positioning of the utility. ypically, customer perception research is used by the marketing and advertising staff of the utility to assist in the design of future advertising and to assess the effects of current advertising. Understanding the positioning of the utility can be very helpful in establishing future, strategic marketing directions for the firm. For instance, a utility perceived as “expensive, but reliable” can perhaps work toward attaining a “value-plus” positioning where customers perceive the reliability of service as being worth the extra cost. Or a utility perceived as “expensive and impersonal” may attempt to move toward a “high touch positioning” by which the higher rates perhaps are seen as “darn well worth the extra human
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December 1999
attention and service we get.” Of course, the utility cannot just decide on a positioning. It has to insure that it can deliver on its promise. Failure to deliver on a promise inherent in a new or existing positioning can be disastrous. B. Product Utilization or Purchasing Research This type of marketing research is uncommon in the utility industry, but perhaps should be less so.
Failure to deliver on a promise inherent in a new or existing positioning can be disastrous.
Product utilization research attempts to determine customers’ perceptions of the service or product a company is offering. The needs that the product fulfills for the customer is the primary focus of the research. Product utilization research also can provide the market researcher with insight into additional methods in which the same need could be satisfied. A final area that can be explored is alternative methods of product delivery: Could the product be offered to customers in a different way? Could it be offered by phone? On a pay-as-you-go basis? By plastic card?
Product utilization research is typically conducted in the field via personal interview or via telephone survey. Personal interview research in this realm can provide a particularly rich description of the meaning of the product to the consumer. Product utilization research is typically conducted every two or three years, depending on the product being examined. arketing and advertising staff can utilize the results of this research to accomplish several goals. First, more effective advertising often results from this type of research when the organization discovers how the product being advertised (in this case electricity) is being perceived by customers and how it is satisfying their needs. At the same time, product enhancements, product extensions, and alternative delivery options may result if it is discovered that other options exist for satisfying the identified consumer needs. Pricing and other elements of the purchase decision can also be assessed in this research realm.
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C. Advertising Effectiveness Advertising research examines the effectiveness of the utility’s advertising campaigns. For instance, it answers questions concerning whether advertisements are being seen, in what media, and what content points are being recalled. Advertising effectiveness research goes hand in hand with customer perception or image research, and often data for these studies are obtained via the same research design. For this type of research, large
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
45
samples within utilities’ market areas generally are sampled by telephone, typically on a quarterly basis—particularly if image advertising is being employed by the utility on a relatively ongoing basis. This research is particularly important for the utility’s advertising manager and the advertising agency. It should be reviewed in collaboration with the marketing research manager on a regular basis. The agency can utilize this research to determine whether a particular advertising campaign is effective, with the findings influencing whether the campaign is altered or even dropped. D. New Product Development Research This type of research is used to gauge consumer reaction to new products and services. Utilities have infrequently conducted this type of research because of a dearth of new products, but heightened attention toward this type of research is being driven by two events. First, pursuit of demand-side management (DSM) initiatives led many electric utilities to become more “marketing sensitive” and attuned to the needs of their customers, and represented their initial foray into the realm of consumer needs, preferences, and desires. Utilities have sought to fill these needs by introducing a wider array of new products and services. The second factor has been deregulation. Utilities now see that one of their primary intangible assets is their customer base.
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Significant management attention is now being directed first to leveraging the extant customer base by offering new unregulated products and services, and second to attempting to attract new customers with new products and services. Some electric utilities are now offering their customers a “packaged” set of utility services in addition to the standard electric service traditionally provided. For instance, some electric utilities are offering customers such services as
Utilities now see that one of their primary intangible assets is their customer base.
Internet access, long-distance telephone, home security, or an appliance warranty program. Some of these programs have been heavily researched prior to launch to insure that customers will receive them well—and, most importantly, will buy them. The most commonly used method for this type of research is the focus group. Various quantitative methods (e.g., conjoint analysis, a survey-based multivariate technique in which customers are asked to state their preferences among different product profiles) can also be employed in conjunction with focus groups to deter-
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
mine the most efficacious combination of product features, pricing, packaging, and delivery system for the product. roduct development research is usually conducted on an as-needed basis. For the purpose of conserving resources, it is often advantageous to gather several product or service concepts (but three is the absolute limit so as not to induce burnout) and assess them simultaneously. The above does not apply to the use of a quantitative method, such as conjoint analysis, which precludes multiple products from being tested simultaneously. Line managers are particularly interested in this type of research, notably those who will be heading the company’s diversification efforts. Marketing, sales, and senior executive management are also enthusiastic users of this type of research.
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E. Customer Segmentation/ Demographic Research Many electric utilities conduct research that attempts to segment demographically or psychographically their customer base. Demographically, most utilities’ customer bases reflect the overall characteristics of the population as a whole, although occasionally it may be skewed by the presence of a demographic anomaly—say, a high concentration of retirement communities. The various psychographic typologies developed over the past few years have enabled utilities to categorize their customers by user groups (e.g., elderly/budget con-
The Electricity Journal
scious, energy aware/conservation minded, socially conscious/environmentally sensitive, etc.). While this research has been intellectually interesting, it should be recognized that much of this effort has been less than useful because many of the research findings are not actionable. For instance, if a utility determines that 20 percent of its customer base is socially or environmentally conscious, how can the utility exploit this research result? Much customer segmentation research needs to pass the “usefulness” test before it should be endorsed. The most frequently used methodology for this type of research is the telephone survey, due to the large number of respondents required to normalize the distribution of psychographic types in the utility’s customer base. This is also what makes this type of research expensive, since large sample sizes are needed to obtain statistically meaningful samples (especially for small segment types which may represent 1 percent or less of the total customer base). Marketing and advertising are the most likely users of this type of
research, particularly the advertising agency responsible for the utility’s account. A key advantage of employing a customer typology system is that once the types are assigned, much subsequent research can be enhanced by knowing which types of customers are participating in various programs. That is, the demographic or psychographic profile can be appended to customer records and subsequently be used as a blocking variable in future research involving that participant. F. Marketing Program Evaluation Like new product development research, this type of research does not receive enough emphasis at major electric utilities today. In this type of research, a new or existing product or service is analyzed from a marketing perspective. For instance, perhaps a utility offers a small commercial or residential energy audit program. Research conducted on this program would assess 1) consumer awareness of the program, 2) effective ways
of marketing and promoting the program, 3) attitudes and perceptions of the program participants, 4) suggestions on how to enhance the program, 5) ideas for program extensions, 6) new delivery mechanisms, and 7) new pricing opportunities. This research needs to be ongoing, but first priority must be afforded to programs that are struggling. These priorities often can be set through meetings with line management. Methodologically, this type of research can take on many varying types, including personal interview research, telephone surveys, and focus groups. Surprisingly, qualitative research methods can, again, be quite valuable in this realm because they provide a richness of data that can offer rapid insight of program deficiencies. However, it is still important to base most evaluation research on quantifiable methodologies, including structured questionnaires. he target user groups for this research are usually marketing, sales, and the line managers responsible for the programs. The true value of this research is
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The target user groups are usually marketing, sales, and line managers.
December 1999
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
47
that it allows line management to introduce changes to programs that will lead to increased marketing success. G. Sales Analysis Load analysis, of course, has been conducted for many years by electric utilities. However, most of this research has not been considered to be within the boundaries of “marketing research.” While not conducting load research per se, the marketing research area needs to understand consumption patterns as a function of geographic, demographic, and firmographic variables or categories. (“Firmographic variables” are the demographics of organizations and include such variables as revenues, headcount, and years in business.) The detailed assessment of consumption needs to be an ongoing research focus for sales analysis research. As utilities move into nontraditional products and services, a sec-
ond direction for sales analysis becomes important: determining customer profiles for other services offered by the utility. For instance: “Who, demographically, is most likely to participate in the utility’s new home security program?” “Which demographic groups of customers are most likely to enroll in the utility’s Internet and telecommunications access program?” “Are there demographic, psychographic, geographic, or other factors that seem to correlate with the new-product-buying behavior of customers?” “Are there any patterns for cross-selling that emerge (e.g., home security buyers are more likely to purchase long distance services)?” oth types of sales analysis described above tend to involve large data sets. Most research on consumption can be conducted with in-house data bases. The research involving new products tends to be of a telephonic
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nature. One alternative way to enhance the collection of customer data for new products is to employ “service or product warranty signups” for services, where customers can provide demographic or psychographic data at the time of product sign-up. Typically, line managers, product managers, and marketing managers are very interested in this type of research. The primary benefit of sales analysis is that it allows line management and marketing management to know who their customers are, and thus what promotions, advertising, and product and service designs can be targeted to them. H. Service Quality Research This type of research has grown in importance over the years, so much so that it is often no longer “housed” within utility marketing research divisions but rather has become “operations-oriented.” That is, utilities are tracking indi-
Load analysis, of course, has been conducted for many years by utilities.
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© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
The Electricity Journal
ces such as elapsed time for service telephone calls to be answered by staff, time in which a request for service is responded to successfully, percent of time that company personnel arrive for a service call on time, etc. In turn, these indices are used as part of PBR where regulators will “tie” rate increases to a company’s performance on service quality indicators. lternatively, the market researcher may be interested in more global assessments of service quality—that is, with the overall perception of a company’s service quality rather than the quality of service rendered on any one particular occasion. Perceptions of a company’s service quality are as important, in one sense, as actual service quality. For this reason, it is important to measure the company’s continuing efforts to satisfy its customers. Just as they do with actual measures of service quality, some states are beginning to use global perceptions of a utility’s service quality as a determinant of PBR. For example, regulators may require a company to maintain a particular percentage of favorability on a global service quality indicator obtained via telephone survey. Service quality research is usually conducted on an ongoing basis with large telephone samples. It is often included as part of advertising effectiveness research. Marketing, line management, senior executive management, and human resource departments will have the highest interest in this class of research, but its audience will widen if rate
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December 1999
increases are tied to the company’s performance on service quality indicators. I. Organizational Research Human resource departments are almost exclusively the users of this type of research. Organizational research is designed to assess the “organizational quality” or “morale” of an organization, pinpointing problems within an organization, such as
Perceptions of a company’s service quality are as important, in one sense, as actual service quality.
poor communication, poor compensation practices, lack of employee motivation or ambition, a lack of trust, etc. Research of this type also can be targeted at the executive levels of a company to ascertain instances of maladaptive behavior such as destructive infighting among senior executives, intentional subversion of programs or projects by executives, lack of trust and communication among senior executives, etc. A personal interview methodology or focus group methodology is often employed for this type of research. With larger organiza-
tions, an organization-wide survey is often utilized. Organizational research is generally conducted on a bi-annual basis, or in the case of senior management studies, on an as-needed basis.
II. A Word about the “Actionability” of Research In one context, at least, we referred to the importance of insuring that marketing research is “actionable.”3 Actionability is the requirement that a research result lead to a business action that someone could take to ultimately change or alter the research finding. For instance, suppose we conducted a research and found that those persons who disliked the utility were less likely to pay their bills on time. This would be a research finding with low actionability, as it would be extremely difficult for a utility to adopt special measures to change attitudes sufficiently to improve bill-paying performance. n contrast, consider the research finding that persons who purchase home security systems are more likely than nonpurchasers to believe that their house will be burglarized. This finding possesses high actionability, because the utility could conduct a customer survey to identify those areas of their service territory where consumers are most fearful of being burglarized or develop advertising campaigns which showed the peace of mind that results from the installation of a security system, particularly among the target market.
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© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
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III. Organizational Issues and the Marketing Research Function There are several “organizational” issues that confront the marketing research function in an electric utility, some of them relating to the politics of conducting marketing research in organizational settings. A. Headcount and Reporting Structure There is no formula or appropriate number of researchers for a marketing research section. Of course, the size of the utility dictates to a considerable extent the size of the marketing department, which in turn dictates the size of the marketing research section. All that need be said here is that it would be alarming for a utility to possess a larger marketing research staff than its sales and marketing staff! n terms of a reporting structure, it is best if the marketing research manager reports to the director of marketing of the utility. There are two reasons for this. First, it is the market research manager’s frequent contact with the marketing director that allows the market research manager to gain an understanding of the marketing priorities of the organization. A good marketing research manager can then “translate” the strategic marketing initiatives into research that, in turn, will produce valuable insight and direction for the company. Similarly, the marketing research manager has to “translate” previous marketing research findings in the opposite fashion.
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That is, implications of previous studies on marketing decisions need to be frequently communicated to marketing management. In keeping with the previous discussion on “actionability,” the importance of frequent meetings and discussions of marketing research findings cannot be overstressed. It is absolutely essential that the marketing research manager be held accountable for the dissemination and implementa-
far too large and complex to be handled by the utility staff. Therefore, it is appropriate for most market research to be “contracted out” to vendors, particularly for ongoing, large sample projects. he use of vendors will require a budget for most marketing research functions. This budget should not be administered by the marketing director or through the advertising agency. Instead, to insure quality and responsiveness, budgets for research should be prepared annually, administered, and managed by the market research manager. This budgetary autonomy preserves an important level of independence for the market research function and its manager.
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IV. Conclusions
tion of the implications of marketing research findings. Certainly, the most damaging accusation that can be leveled against a marketing research unit is that its work is “irrelevant” to the operation of the utility. B. Use of Vendors Most marketing research units are dependent upon the use of external vendors to collect data, analyze data, or provide data interpretation via reports. While there are instances where research can and should be performed “inhouse,” in most cases, the types of projects described in this paper are
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
As utilities become more marketing oriented—perhaps even moving toward a consumer product marketing structure—marketing research will increase in importance. Marketing research is critical for a marketing-oriented organization, since it provides strategic guideposts for decisions. Research findings can direct marketing, promotion, advertising, pricing, new product development, and even sales management—all crucial functions in a deregulating environment for electric utilities. j Endnotes: 1. Eric Novak and Michael Lyman, Brand Positioning: The Art of Retying Connections, Elec. J., Nov. 1998, at 17–22. 2. David Ogilvy, Ogilvy on Advertising (Random House, 1987). 3. Kurt Lewin, Field Theory in Social Science (Harper, 1951).
The Electricity Journal
D Glenn Shippee, formerly an economist with the Arizona Corporation Commission, was President of Market Fidelity Corporation, a marketing research and analysis firm serving clients involved in the electric utility industry. He holds a Ph.D. degree in social psychology from Arizona State University and has published frequently on the social sciences and the utility industry. This article represents solely the views and opinions of its author, not those of any organization with which he has in the past, is presently, or may in the future be affiliated.
December 1999
eregulation of electricity production, distribution, and transmission enterprises has led to an increased emphasis on marketing among electric utilities. Unlike the days when a single, vertically integrated utility provided these services in a monopolistic fashion, the future will see a more competitive arena in which multiple companies vie for customers. Electric utilities thus have increasingly turned to traditional industries that have been dominated by consumer marketing to assist them in making the transition to the competitive marketplace, and we have seen a corresponding surge of interest in “branding,” advertising, marketing, promotion, new prod-
uct development, customer service, and service quality.1 While all of these new strategic thrusts are important for a utility, they cannot occur simply in a nonprogrammatic, or “helter-skelter,” fashion. What is needed to orchestrate the strategic marketing direction for an electric utility is a systematic and comprehensive marketing research program. When designed properly, a strong marketing research program lends strategic direction to a utility’s marketing efforts. Like a map that guides a stranger through a complex urban metropolis, a wellconceived marketing research program can provide direction to utility marketing executives.
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
43
Finally, a strong marketing research program can be useful for regulatory authorities, particularly if the utility is contemplating entry into new markets or into performance-based ratemaking (PBR). Sharing with regulators key market research studies that reveal the likely response of consumers to new products and services that require regulatory approval can be very propitious in demonstrating that sound marketing decisions are being made and that the utility is attempting to understand its customers. At the same time, market research can be used in PBR applications, for example, the measurement of service quality which can then be employed to reward or penalize a company for its performance. This article will outline a model
marketing research program for an electric utility. While a utility may not conduct each and every type of research described, the programs presented offer a smorgasbord of activities which successful electric utility marketers often use or have access to.
specifically, customers’ awareness of the utility, awareness and knowledge of the products and services it offers, affective feelings about the company (positive or negative), and the company’s “positioning.”2 The “positioning” of a utility represents the primary cognitive associations evoked by the utility. For instance, via direct experience and media representations over time, customers could hypothetically perceive a utility as reliable and trustworthy; charging high rates, but being reliable; or as being expensive and large and impersonal. Some “positions” are positively valenced, while some may be negatively valenced. ote also that there are usually cognitive or knowledge components that constitute a
I. The Content of a Marketing Research Program for an Electric Utility Table 1 outlines a marketing research program whose varied activities will be elaborated upon in subsequent sections of this article. A. Customer Perception Research
N
This type of research gauges customer perceptions of the utility—
Table 1: Market Research Programs for Electric Utilities Program
Purpose
User(s)
Frequency
Customer perception and image research
To determine levels of organizational awareness and corporate or “brand” image
Quarterly, supplemented by annual focus groups
Product utilization or purchasing research
To determine the customer needs satisfied by the product, methods of purchasing the product, and product perceptions To determine effectiveness of advertising; image resulting from advertisements; recall of content To discover consumer reaction to new products or services, including attitudes and propensity to buy or use
Marketing, sales, advertising, public relations, executive management Marketing, sales, advertising
Marketing, sales, advertising, public relations
Quarterly
Marketing, sales, line managers of relevant divisions, senior executive management Marketing, advertising
As needed
Marketing, sales, line management Marketing, sales, advertising
Ongoing
Marketing, human resources, advertising, public relations Marketing, human resources, senior executive management
Ongoing
Advertising effectiveness New product development research Customer segmentation/ demographic research Marketing program evaluation Sales analysis Service quality research Organizational research
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Establishes the demographic, psychographic composition of the customer base Determines the marketing effectiveness of products and services Product sales analysis by customer group, geographic region Ascertains the overall quality of service being provided to customer groups by the company Assesses organizational morale and organizational climate
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
Bi-annually
Annually
Ongoing
Bi-annually
The Electricity Journal
brand’s positioning, as well as affective or feeling components. The former are reflected in factualbased cognitions held by the customer regarding the company. The latter are reflected in either the positive or negative attitudes or feelings elicited by the brand or entity. Customer perception research is usually conducted via a telephone survey on a periodic— typically quarterly—basis. Normally a standard battery of questions is used repeatedly, in order to examine changes in perceptions over time. This can be particularly helpful in determining the effectiveness of a utility’s advertising program over time. Often, image research is supplemented with annual or bi-annual focus groups. These are used to “flesh out,” qualitatively, the image and positioning of the utility. ypically, customer perception research is used by the marketing and advertising staff of the utility to assist in the design of future advertising and to assess the effects of current advertising. Understanding the positioning of the utility can be very helpful in establishing future, strategic marketing directions for the firm. For instance, a utility perceived as “expensive, but reliable” can perhaps work toward attaining a “value-plus” positioning where customers perceive the reliability of service as being worth the extra cost. Or a utility perceived as “expensive and impersonal” may attempt to move toward a “high touch positioning” by which the higher rates perhaps are seen as “darn well worth the extra human
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December 1999
attention and service we get.” Of course, the utility cannot just decide on a positioning. It has to insure that it can deliver on its promise. Failure to deliver on a promise inherent in a new or existing positioning can be disastrous. B. Product Utilization or Purchasing Research This type of marketing research is uncommon in the utility industry, but perhaps should be less so.
Failure to deliver on a promise inherent in a new or existing positioning can be disastrous.
Product utilization research attempts to determine customers’ perceptions of the service or product a company is offering. The needs that the product fulfills for the customer is the primary focus of the research. Product utilization research also can provide the market researcher with insight into additional methods in which the same need could be satisfied. A final area that can be explored is alternative methods of product delivery: Could the product be offered to customers in a different way? Could it be offered by phone? On a pay-as-you-go basis? By plastic card?
Product utilization research is typically conducted in the field via personal interview or via telephone survey. Personal interview research in this realm can provide a particularly rich description of the meaning of the product to the consumer. Product utilization research is typically conducted every two or three years, depending on the product being examined. arketing and advertising staff can utilize the results of this research to accomplish several goals. First, more effective advertising often results from this type of research when the organization discovers how the product being advertised (in this case electricity) is being perceived by customers and how it is satisfying their needs. At the same time, product enhancements, product extensions, and alternative delivery options may result if it is discovered that other options exist for satisfying the identified consumer needs. Pricing and other elements of the purchase decision can also be assessed in this research realm.
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C. Advertising Effectiveness Advertising research examines the effectiveness of the utility’s advertising campaigns. For instance, it answers questions concerning whether advertisements are being seen, in what media, and what content points are being recalled. Advertising effectiveness research goes hand in hand with customer perception or image research, and often data for these studies are obtained via the same research design. For this type of research, large
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
45
samples within utilities’ market areas generally are sampled by telephone, typically on a quarterly basis—particularly if image advertising is being employed by the utility on a relatively ongoing basis. This research is particularly important for the utility’s advertising manager and the advertising agency. It should be reviewed in collaboration with the marketing research manager on a regular basis. The agency can utilize this research to determine whether a particular advertising campaign is effective, with the findings influencing whether the campaign is altered or even dropped. D. New Product Development Research This type of research is used to gauge consumer reaction to new products and services. Utilities have infrequently conducted this type of research because of a dearth of new products, but heightened attention toward this type of research is being driven by two events. First, pursuit of demand-side management (DSM) initiatives led many electric utilities to become more “marketing sensitive” and attuned to the needs of their customers, and represented their initial foray into the realm of consumer needs, preferences, and desires. Utilities have sought to fill these needs by introducing a wider array of new products and services. The second factor has been deregulation. Utilities now see that one of their primary intangible assets is their customer base.
46
Significant management attention is now being directed first to leveraging the extant customer base by offering new unregulated products and services, and second to attempting to attract new customers with new products and services. Some electric utilities are now offering their customers a “packaged” set of utility services in addition to the standard electric service traditionally provided. For instance, some electric utilities are offering customers such services as
Utilities now see that one of their primary intangible assets is their customer base.
Internet access, long-distance telephone, home security, or an appliance warranty program. Some of these programs have been heavily researched prior to launch to insure that customers will receive them well—and, most importantly, will buy them. The most commonly used method for this type of research is the focus group. Various quantitative methods (e.g., conjoint analysis, a survey-based multivariate technique in which customers are asked to state their preferences among different product profiles) can also be employed in conjunction with focus groups to deter-
© 1999, Elsevier Science Inc., 1040-6190/99/$–see front matter PII S1040-6190(99)00096-2
mine the most efficacious combination of product features, pricing, packaging, and delivery system for the product. roduct development research is usually conducted on an as-needed basis. For the purpose of conserving resources, it is often advantageous to gather several product or service concepts (but three is the absolute limit so as not to induce burnout) and assess them simultaneously. The above does not apply to the use of a quantitative method, such as conjoint analysis, which precludes multiple products from being tested simultaneously. Line managers are particularly interested in this type of research, notably those who will be heading the company’s diversification efforts. Marketing, sales, and senior executive management are also enthusiastic users of this type of research.
P
E. Customer Segmentation/ Demographic Research Many electric utilities conduct research that attempts to segment demographically or psychographically their customer base. Demographically, most utilities’ customer bases reflect the overall characteristics of the population as a whole, although occasionally it may be skewed by the presence of a demographic anomaly—say, a high concentration of retirement communities. The various psychographic typologies developed over the past few years have enabled utilities to categorize their customers by user groups (e.g., elderly/budget con-
The Electricity Journal
scious, energy aware/conservation minded, socially conscious/environmentally sensitive, etc.). While this research has been intellectually interesting, it should be recognized that much of this effort has been less than useful because many of the research findings are not actionable. For instance, if a utility determines that 20 percent of its customer base is socially or environmentally conscious, how can the utility exploit this research result? Much customer segmentation research needs to pass the “usefulness” test before it should be endorsed. The most frequently used methodology for this type of research is the telephone survey, due to the large number of respondents required to normalize the distribution of psychographic types in the utility’s customer base. This is also what makes this type of research expensive, since large sample sizes are needed to obtain statistically meaningful samples (especially for small segment types which may represent 1 percent or less of the total customer base). Marketing and advertising are the most likely users of this type of
research, particularly the advertising agency responsible for the utility’s account. A key advantage of employing a customer typology system is that once the types are assigned, much subsequent research can be enhanced by knowing which types of customers are participating in various programs. That is, the demographic or psychographic profile can be appended to customer records and subsequently be used as a blocking variable in future research involving that participant. F. Marketing Program Evaluation Like new product development research, this type of research does not receive enough emphasis at major electric utilities today. In this type of research, a new or existing product or service is analyzed from a marketing perspective. For instance, perhaps a utility offers a small commercial or residential energy audit program. Research conducted on this program would assess 1) consumer awareness of the program, 2) effective ways
of marketing and promoting the program, 3) attitudes and perceptions of the program participants, 4) suggestions on how to enhance the program, 5) ideas for program extensions, 6) new delivery mechanisms, and 7) new pricing opportunities. This research needs to be ongoing, but first priority must be afforded to programs that are struggling. These priorities often can be set through meetings with line management. Methodologically, this type of research can take on many varying types, including personal interview research, telephone surveys, and focus groups. Surprisingly, qualitative research methods can, again, be quite valuable in this realm because they provide a richness of data that can offer rapid insight of program deficiencies. However, it is still important to base most evaluation research on quantifiable methodologies, including structured questionnaires. he target user groups for this research are usually marketing, sales, and the line managers responsible for the programs. The true value of this research is
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The target user groups are usually marketing, sales, and line managers.
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that it allows line management to introduce changes to programs that will lead to increased marketing success. G. Sales Analysis Load analysis, of course, has been conducted for many years by electric utilities. However, most of this research has not been considered to be within the boundaries of “marketing research.” While not conducting load research per se, the marketing research area needs to understand consumption patterns as a function of geographic, demographic, and firmographic variables or categories. (“Firmographic variables” are the demographics of organizations and include such variables as revenues, headcount, and years in business.) The detailed assessment of consumption needs to be an ongoing research focus for sales analysis research. As utilities move into nontraditional products and services, a sec-
ond direction for sales analysis becomes important: determining customer profiles for other services offered by the utility. For instance: “Who, demographically, is most likely to participate in the utility’s new home security program?” “Which demographic groups of customers are most likely to enroll in the utility’s Internet and telecommunications access program?” “Are there demographic, psychographic, geographic, or other factors that seem to correlate with the new-product-buying behavior of customers?” “Are there any patterns for cross-selling that emerge (e.g., home security buyers are more likely to purchase long distance services)?” oth types of sales analysis described above tend to involve large data sets. Most research on consumption can be conducted with in-house data bases. The research involving new products tends to be of a telephonic
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nature. One alternative way to enhance the collection of customer data for new products is to employ “service or product warranty signups” for services, where customers can provide demographic or psychographic data at the time of product sign-up. Typically, line managers, product managers, and marketing managers are very interested in this type of research. The primary benefit of sales analysis is that it allows line management and marketing management to know who their customers are, and thus what promotions, advertising, and product and service designs can be targeted to them. H. Service Quality Research This type of research has grown in importance over the years, so much so that it is often no longer “housed” within utility marketing research divisions but rather has become “operations-oriented.” That is, utilities are tracking indi-
Load analysis, of course, has been conducted for many years by utilities.
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ces such as elapsed time for service telephone calls to be answered by staff, time in which a request for service is responded to successfully, percent of time that company personnel arrive for a service call on time, etc. In turn, these indices are used as part of PBR where regulators will “tie” rate increases to a company’s performance on service quality indicators. lternatively, the market researcher may be interested in more global assessments of service quality—that is, with the overall perception of a company’s service quality rather than the quality of service rendered on any one particular occasion. Perceptions of a company’s service quality are as important, in one sense, as actual service quality. For this reason, it is important to measure the company’s continuing efforts to satisfy its customers. Just as they do with actual measures of service quality, some states are beginning to use global perceptions of a utility’s service quality as a determinant of PBR. For example, regulators may require a company to maintain a particular percentage of favorability on a global service quality indicator obtained via telephone survey. Service quality research is usually conducted on an ongoing basis with large telephone samples. It is often included as part of advertising effectiveness research. Marketing, line management, senior executive management, and human resource departments will have the highest interest in this class of research, but its audience will widen if rate
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increases are tied to the company’s performance on service quality indicators. I. Organizational Research Human resource departments are almost exclusively the users of this type of research. Organizational research is designed to assess the “organizational quality” or “morale” of an organization, pinpointing problems within an organization, such as
Perceptions of a company’s service quality are as important, in one sense, as actual service quality.
poor communication, poor compensation practices, lack of employee motivation or ambition, a lack of trust, etc. Research of this type also can be targeted at the executive levels of a company to ascertain instances of maladaptive behavior such as destructive infighting among senior executives, intentional subversion of programs or projects by executives, lack of trust and communication among senior executives, etc. A personal interview methodology or focus group methodology is often employed for this type of research. With larger organiza-
tions, an organization-wide survey is often utilized. Organizational research is generally conducted on a bi-annual basis, or in the case of senior management studies, on an as-needed basis.
II. A Word about the “Actionability” of Research In one context, at least, we referred to the importance of insuring that marketing research is “actionable.”3 Actionability is the requirement that a research result lead to a business action that someone could take to ultimately change or alter the research finding. For instance, suppose we conducted a research and found that those persons who disliked the utility were less likely to pay their bills on time. This would be a research finding with low actionability, as it would be extremely difficult for a utility to adopt special measures to change attitudes sufficiently to improve bill-paying performance. n contrast, consider the research finding that persons who purchase home security systems are more likely than nonpurchasers to believe that their house will be burglarized. This finding possesses high actionability, because the utility could conduct a customer survey to identify those areas of their service territory where consumers are most fearful of being burglarized or develop advertising campaigns which showed the peace of mind that results from the installation of a security system, particularly among the target market.
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III. Organizational Issues and the Marketing Research Function There are several “organizational” issues that confront the marketing research function in an electric utility, some of them relating to the politics of conducting marketing research in organizational settings. A. Headcount and Reporting Structure There is no formula or appropriate number of researchers for a marketing research section. Of course, the size of the utility dictates to a considerable extent the size of the marketing department, which in turn dictates the size of the marketing research section. All that need be said here is that it would be alarming for a utility to possess a larger marketing research staff than its sales and marketing staff! n terms of a reporting structure, it is best if the marketing research manager reports to the director of marketing of the utility. There are two reasons for this. First, it is the market research manager’s frequent contact with the marketing director that allows the market research manager to gain an understanding of the marketing priorities of the organization. A good marketing research manager can then “translate” the strategic marketing initiatives into research that, in turn, will produce valuable insight and direction for the company. Similarly, the marketing research manager has to “translate” previous marketing research findings in the opposite fashion.
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That is, implications of previous studies on marketing decisions need to be frequently communicated to marketing management. In keeping with the previous discussion on “actionability,” the importance of frequent meetings and discussions of marketing research findings cannot be overstressed. It is absolutely essential that the marketing research manager be held accountable for the dissemination and implementa-
far too large and complex to be handled by the utility staff. Therefore, it is appropriate for most market research to be “contracted out” to vendors, particularly for ongoing, large sample projects. he use of vendors will require a budget for most marketing research functions. This budget should not be administered by the marketing director or through the advertising agency. Instead, to insure quality and responsiveness, budgets for research should be prepared annually, administered, and managed by the market research manager. This budgetary autonomy preserves an important level of independence for the market research function and its manager.
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IV. Conclusions
tion of the implications of marketing research findings. Certainly, the most damaging accusation that can be leveled against a marketing research unit is that its work is “irrelevant” to the operation of the utility. B. Use of Vendors Most marketing research units are dependent upon the use of external vendors to collect data, analyze data, or provide data interpretation via reports. While there are instances where research can and should be performed “inhouse,” in most cases, the types of projects described in this paper are
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As utilities become more marketing oriented—perhaps even moving toward a consumer product marketing structure—marketing research will increase in importance. Marketing research is critical for a marketing-oriented organization, since it provides strategic guideposts for decisions. Research findings can direct marketing, promotion, advertising, pricing, new product development, and even sales management—all crucial functions in a deregulating environment for electric utilities. j Endnotes: 1. Eric Novak and Michael Lyman, Brand Positioning: The Art of Retying Connections, Elec. J., Nov. 1998, at 17–22. 2. David Ogilvy, Ogilvy on Advertising (Random House, 1987). 3. Kurt Lewin, Field Theory in Social Science (Harper, 1951).
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