Conference presentation on pricing options for utility services

1. An Evaluation of Alternative Pricing Models for Utilities Convergence Matthew Rees Principal Consultant Charteris plc

6. This example shows one bank’s use of Pricing Models on current accounts All of these are current accounts with roughly the same facilities What varies is who they are aimed at and the fees and charges The Pricing Model defines the product

9. Similarly, utilities can learn from their colleagues in other countries Pricing Models have evolved in other countries to meet local needs Some of these can be translated to the UK, especially for well-defined customer segments

11. A recent trend has been the introduction of single accounts for multiple purposes Bundling financial services in this way delivers clear customer value, e.g. reduce mortgage payments Bundling also helps the banks by locking-in customers to multiple products

12. The move to home services enables utilities to bundled multiple products “ Dual Fuel” has become a standard offering Some utilities, like Centrica, offer a wide range of products However, the degree of bundling is usually limited

13. Prepay phones enable customers to buy the phone and the calls at the same time Here prepay is used for the benefit of the consumer Generally, in utilities prepay is used by the company as a way of managing debt

14. Utilities could bundle their products with the things they are used for Customers could see the real life-time cost of an appliance if they bought the necessary energy at the same time Some cookers could have gas, electricity and water; you cook with all three

15. Powergen’s “Surf & Save” is an innovative product bundling Customers who use Surf & Save, Powergen’s internet service, get discounts on Powergen energy bills for every minute spent on-line

19. Individual customers can combine to increase their collective strength Investment and Savings Clubs are very common For the supplier, e.g. the stockbroker, they lock-in many people to one relationship

22. Traditional banks and building societies are introducing internet only products Telephone products have been common for some years Internet only products is the next logical step The aim is to reduce costs and, through this, offer lower prices

23. There are also several internet banks Internet only banks differ from internet only products primarily through branding which implies a different user experience

24. Electronic Bill Presentment and Payment (EBPP) enables internet only products Sutton and East Surrey Water were the first UK utility to offer e-billing

25. EBPP uses internet technologies to deliver, pay and query bills Presentment Payment Bill sent electronically May be full or summary bill Customer may be notified of a new bill by email or SMS Customer makes payment by direct credit, card, etc. If paying by direct debit then may need to do nothing Customer can query bill or seek more information by going to the biller’s web-site EBPP simply uses new technologies to support the common business process of issuing bills and collecting payments Customer Service

26. Utilities are interested in EBPP because there are significant benefits to them Reduced bill production cost Enhanced image Fewer payments by cash and cheque Fewer unreconciled payments Opportunities to market new services Fewer service calls to handle Service calls handled faster and more accurately It costs around £20 per year to service a utility customer and can cost as much as £1 to send one bill Presentment Payment Customer Service

27. There are some internet utilities amerada.co.uk is the most prominent internet-only utility in the UK American and Scandinavian utilities are leading the way, as they are in most things to do with the internet

31. Unmetered/fixed-price products are becoming common in telephony Unmetered services reduce costs by removing meter reads and reducing the number of bills sent Unmetered (i.e. fixed-price) services also help customers to budget

34. Profit is enhanced by getting customers to pay for something that they do not use The most common example of this is sports and health clubs that make money from the people who do not attend very frequently

38. Many UK companies give discounts to shareholders ad call lists lots of companies that give discounts to shareholders, but none of them are utilities

39. Affinity products are common in the financial sector This is just some of the affinity cards issued by the Halifax

40. Some utilities offer near equivalents to affinity products Powergen has developed an offering for pensioners in conjunction with Age Concern While this does not work the same way as an affinity credit card, the joint branding is a key element

41. Eastern Energy customers can earn Tesco Clubcard points This form of discounting a business partner’s products is less common Utilities could also consider which of their business partners should be allowed to discount their products

44. And pointed to examples in other industries that utilities can copy or adapt SUMMER SALE 3 FOR THE PRICE OF 2 Cash Back Special offers of all kinds are common elsewhere in the retail sector Free Delivery Special price for pensioners