Happiness and the SME
The word energy derives from the Ancient Greek: ἐνέργεια energeia “activity,operation”, which possibly appears for the first time in the work of Aristotle in the 4th century BC.
When Aristotle used it he was referring to human activity as in life-force or energetic activities - or even happiness and pleasure. - This is still true in the SME segment today !
Happiness of an SME with their utility provider is inextricably linked to how busy they are !
Happiness of an SME with their utility provider is inextricably linked to how busy they are !
Reason:
Energy use is correlated to economic activity, but as activity drops to zero, energy use in an SME does not (you have to keep the lights on even if you are just drumming up sales, and the pub better be comfortably warm even if you only have one-or two punters at the bar).So SME profitability sensitivity to energy pricing is disproportionately high at times of low economic activity. Also, when as an SME you are not busy, it is one of the few times when you might be motivated to shop around for a better overhead prices. So utility client life-time value (before churn) is in turn strongly influenced by economic growth!
Result:
"Utility client life-time value (before churn) is strongly influenced by market rates of economic growth !"
SME is an important and unique Market Sector for Utilities
It is obvious why the SME market is very important to Utilities.In 2010, there were over 20.8 million enterprises active in the non-financial
business sector in the European Union, of which 99.8% were SMEs.
About 92% of the total business sector consists of micro enterprises, which employ fewer than 10 persons. The typical European firm is a micro firm.
About 67% of the employment in the non-financial business economy is provided by SMEs. Micro enterprises contribute about 30%, small enterprises about 20% and medium-sized enterprises about 17%. Source (EU study) pdf
SME is an important and unique Market Sector for Governments
It is no surprise that Governments seek to promote SME utility competition. In the UK the regulator advises businesses on switching and their rights and earlier this year brought in new measures to encourage switching and freedoms.
This brings up an interesting debate. It seems on the face of it that governments wants SMEs to be sensitive to energy usage and energy prices - because it is good for the economy and the climate (and votes - cynically).
However switching adds overhead so SME can be hurt through unintended consequences!
In a deregulated competitive marketplace for a commodity "super-normal profits" should tend to zero - that is if we believe in "perfect competition theory" :)
Economic Idealism (has some merit but also carries caveats)
So an efficient utility company (absent cartel activity and ant-trust behaviours) should only make enough money to just warrant staying in business !Amazingly - We do not hear a public outcry in support of our beleaguered utility companies - so we must suspect something else to be the case. Since a large proportion of utility costs relate to attracting and retaining clients, it is reasonable to assume that perfect competition is not a reality.
A dose of reality
Under perfect competition there is transparent pricing from identical suppliers and no switching impedance.However one form of switching impedance is ignorance - this is the source of much debated "roll-over contracts"
Research by Make It Cheaper in 2011 showed that 96% of business owners said it would be easier to manage their energy contracts if contract end dates were printed on bills. It predicts that clearer bills could save businesses more than £1 billion.In truth the battle for transparency is being won so we must exect utility conflict to move to a different playing field, for example E.on made a splash changing its attitude to rollover contracts for SME's last year. This is an attempt to differentiate on the basis of relationship.
Key Strategic Note:
Service differentiation in a commodity market is much cheaper that competing on price and with marketing budgets if it can be achieved.
On a more cynical note:
I have heard it mentioned that if you spam an SME with enough marketing rubbish, messages about switching opportunities will be lost and switching reduced. This cynical approach to avoid churn will back-fire as surely as you (dear reader) learn to ignore email spam ! It may work temporarily but it is short-sighted and stupid.
So what's the poor utility to do ?
Utilities are under assault on a number of fronts, especially in deregulated markets.These include feed-in from alternatives, market price volatility, ever more sophisticated price comparisons, compliance regards carbon etc and of course nobody expects the public or politicians to feel for them, any more than the public feel sorry for the bankers or politicians themselves.
However, the nature of these threats to "business as usual" has the effect of cornering utilities with regard to their business models. Just as a cornered wild-cat will inflict damage to protect its' interests, we can see signs that utilities will be fighting back.
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| Utilities will be fighting back |
Since we at kWIQly work for utilities (and for their clients - reducing energy waste really is a win-win !), we have been watching this and we believe we can prognosticate a little :
The traditional problems utilities faced were about navigating compliance and market regulation, and they become ever more costly (which ultimately hurts the client). The raw material provided (the kWh) has become lost in the picture, but two changes are emerging.
In Commercial and Industrial Markets (particularly in the UK) AMR roll-out is becoming a reality. However there is resistance from SME who do not look at energy management data monthly - let alone half hourly.
It seems clear that a service to "engage" the SME is needed. It must be attractive and "permission based", and deliver contacts that are timely, pertinent and actionable.
There is also the emergence of real energy insights using pattern recognition techniques that have emerged from the world of big data.
We imagine before long we may see the emergence of Utility "Service Charters" (We are already in the process of helping to define "the art of the possible" with some European Utilities.
These will promise certain valuable deliverables, and in exchange they will underpin a new type of client relationship. We are not talking about loyalty cards, or engagement "points" for prizes. Rather we foresee a simple set of promises that allows the SME to "opt out" of the rat-race, save time and still get a better deal, on buying less energy to achieve their core business objectives. In exchange the utility sees benefits of lower client acquisition costs, and possibly alternative revenue streams (through inbound cross-sales).
The simple fact is that with a meter reading arriving every few minutes, the opportunity to completely bore a client with data (even in what your IT team promise are pretty dashboards and graphs) is nearly overwhelming.
Ask this :
"How many mobile SME users will regularly engage with your energy apps ?"If you aren't sure - take a guess at zero and work out what this means !
To get an idea of what might actually be possible start here.