While fixed billing – all you can eat pricing – isn’t a new idea (think cable TV, local phone, and Internet service) it remains a revolutionary concept in the residential and commercial energy industry. In fact few, if any, energy marketing programmes have ever achieved the diverse and broadbased goals of a fixed bill-type programme.
That is, until two years ago, when the uniquely modelled FlatBillTM programme rolled out across Georgia from Georgia Power Company, the Southern Company’s largest operating entity. This innovative rate plan as developed after customer research indicated customers wanted – and would pay a premium for – just such a payment option.
It took two years of market analysis, creation of a pricing model that protects the utility from risk, development of a ‘benefit-rich’ direct marketing programme, and two pilot programmes (with accompanying reporting requirements) before the Georgia Public Service Commission approved Georgia Power’s rollout of its custom-designed FlatBill programme. The programme offers customers a personalised FlatBill monthly product that is created for each individual customer, using several ‘predictive’ factors.
The company’s market research indicated that some of its customers disliked weather-related fluctuations in their bills – in other words, rising bills during summer’s heat or winter’s cold. Others said they would be better able to manage their energy bills if the bills were spread equally over the year, rather than spiking in certain months. With FlatBill there are no surprises, and the customer’s electric bill remains the same for an entire 12-month period. The flat amount is customised for each customer and takes into account the customer’s actual past electricity usage and the expected weather for the upcoming 12 months.
Since its inception, customer enrolment for FlatBill has been well above expectations. Statewide enrolment rates responding to the only marketing effort – a targeted direct mail campaign – resulted in a take rate in the double digits, achieving 155% of the expected goal. In addition, customer satisfaction surveys show that 90% of enrolled customers indicate that FlatBill either met or exceeded their expectations.
HOW IT’S DESIGNED AND HOW IT WORKS
The programme was designed to target both residential and small commercial customers with at least one year’s history of electrical use. Georgia Power began a pilot FlatBill programme in 2000 with 500 customers. Then the company increased the pilot to include 10,000 customers the following year. This gave time to evaluate all the financial impacts such a programme might have, as well as issues such as bill algorithm and software, risk coverage and premium, and the actual tariff design.
Approximately 30 days prior to the end of the 12-month FlatBill period, the customer receives a new offer for the next 12 months. This offer contains a new, updated amount based on their actual usage. If the customer chooses to continue with FlatBill, they pay that new amount. If they decide to decline the new offer, that’s it – there’s no true-up settlement or deferred amount to pay, and no surprise payment at the end.
While early cancellation hasn’t been an issue, one of the following two circumstances applies if it does occur:
• If the customer’s electricity usage was greater than the FlatBill amount billed, the difference will appear as an adjustment amount and is charged to his next monthly bill.
• If their electricity usage was less than the FlatBill amount billed, the message on the customer’s bill indicates they owe $0.00.
Georgia Power’s experience notwithstanding, the basic reluctance on a utility’s part to market a fixed bill programme is borne out of the industry’s unique risk-aversion culture. For example, the end-user’s mindset is to buy as much electricity as he wants, at any time, yet a utility cannot store its product and it must produce it when requested. These characteristics create the most volatile of commodities. Combine these facts with an industry that is traditionally risk averse and you have a major obstacle to adopting fixed bills. Consequently, utilities generally assume that the risks outweigh the benefits of such a programme. That has not been the case with a fixed bill product, however.
THE BENEFITS TO THE UTILITY
Demonstrated experience shows that 10-25% of the utility’s target market (depending on customer segment) will enrol in the programme and willingly pay a required premium for the convenience and predictability that a fixed billing programme provides.
While customer satisfaction increases, complaints and billing questions requiring customer service centre attention decline significantly. Fixed bills also facilitate automatic bill payment, with all its attendant benefits.
Utility earnings increase and growth occurs, and there is also the possibility of appliance conversions.
Fixed bill customers also tend to trust their utility more, as the rate is predictable and a guaranteed bill engenders customer value.
The Georgia Power programme has received favourable public reaction since its introduction in 2002, with positive television and newspaper coverage. Paul Harvey featured the rate plan in his nationally syndicated “Paul Harvey News and Comment” broadcast. In 2003 the programme won a Platts Global Energy Award for “Marketing Campaign of the Year.”
Judges of the award cited FlatBill’s marketing campaign for having originality, effective use of media, a clear message and trackable results.
FlatBill’s offer development plans relied on simplicity. Georgia Power focused on customer benefit and varied the terms and conditions of the offer to meet the needs of each particular market segment. We recognised that customer segments are “offer sensitive.” We made sure the product was supportive of other offers and pricing/payment options. We provided meaningful comparisons, and made an overall effort to make it easy for customers to say “yes.”
The creative materials mirrored our KISS – keep it simple and sweet – strategy. A personalised mailing was followedup with a ‘deadline’ mailer. An enrolment confirmation package was then sent to those who opted in. The collateral avoids the jargon and complicated language that can sometimes weigh down utilities’ communications with their customers, and concentrated on allowing the customer to make an informed decision.
In Georgia Power’s experience, FlatBill has stimulated healthy growth, mostly off-peak, as well as a reduction in deferral payments. The programme appeals to identifiable customer segments and can be modified to extend reach into incremental segments.
CUSTOMER SATISFACTION SURVEY RESULTS
The programme’s high retention rate is reflected in customer satisfaction survey results. Ninety-five percent of those surveyed said FlatBill met or exceeded their expectations. Seventy-one percent surveyed said they are “very likely” to renew, while only 1% said it was “unlikely” they would renew. The actual percentage of renewals has been more than 90%.
The overwhelming customer acceptance of FlatBill shows the importance of giving customers an option in how they do business with us. They value predictability and are willing to pay a premium to get it.
Georgia Power’s parent, the Southern Company, has been so impressed with the programme that it has introduced FlatBill to Southern Company’s other operating companies. Furthermore, Georgia’s FlatBill programme is the model for FixedBill programmes in North and South Carolina, Florida, Alabama, and several other states.
While factors such as capacity constraints, the built-in price premium, revenue risk and regulatory compliance deserve consideration, utilities must also remember that a fixed billing programme is designed to earn a certain return over several years, not to win every year.
The success of a fixed billing programme such as FlatBill presents new opportunities for the utility; increasing enrolment rates, reducing customer acquisition costs and effectively facilitating the enrolment process.
The breadth of sales and marketing challenges a fixed bill programme can accommodate are in the infancy stages of exploration. With its ability to generate and stabilise revenue, hedge weather, enhance customer satisfaction and stave off competition, a fixed bill is the ultra-successful product for which utilities have been waiting.