Talk to Me: Outsourcing to Make Big Gains with Small Businesses by Chris Trayhorn, Publisher of mThink Blue Book, January 15, 2002 Talk is cheap, but meaningful dialogue is valuable. For utilities, speaking to each segment of the market in its own language can be satisfying and profitable. Don’t make the mistake of talking to each segment in the same way. Tailor your conversation and you’ll see an up-tick in customer satisfaction and your bottom line. And remember to speak to a largely underserved segment of the market — small businesses. There’s something in it for them and something in it for you. Events in California and elsewhere have illustrated the need to broaden your strategic approach. It is wise to hedge your portfolio so that your business model does not become too narrow. You know that the current volatility of the market can rapidly undo any gains you may have made. What worked yesterday may not work today or tomorrow. Holding onto current gains by holding onto current customers is a good strategy. And utilities can do a better job of pleasing current customers. Not convinced? Look to the most recent American Customer Satisfaction Index, a poll conducted by the University of Michigan Business School. Satisfaction ratings for utilities for the first quarter of 2001 are at a seven-year low. Coming in at a dismal 68.4 percent for the first quarter of this year, utilities ratings are down 3.1 percent from last year and 9.4 percent from 1994, the first year the poll was taken. Focusing on your small business customers pays off. Utilities traditionally concentrate on residential and large industrial accounts for a number of reasons: regulatory and political pressures, sheer numbers of accounts, and impact on the system. They were the biggest slices of the pie. But, commercial customers spend over $70 billion per year on energy, and nearly 70 percent of that — or about $50 billion per year — is spent by small businesses. Overlooking this segment of the market is a mistake. Small and mid-sized commercial accounts can play a pivotal strategic role because their electric load is often coincident with your peak. Reducing peak demand can be an effective way to hedge against price volatility in your supply mix. With peak MWh costing 20 to 100 times more than average MWh, achieving peak reduction can pay big dividends. Small and mid-sized businesses create about 155 GW peak demand nationally. A very achievable 5-percent peak reduction across this customer group — about 7.7 GW — would save costs to utilities ranging from about $9 million per hour at the high wholesale rates experienced in parts of New York state to $23 million per hour at the highest western wholesale power rates. Furthermore, your local small and mid-sized business customers are loyal; they are far less likely to defect than large, multi-regional indust rials. Finally, remember that every giant customer you serve today was once small. Concentrate on increasing your standing with this segment of your customers and continue to serve the residential segments with value-added programs to balance the impact of the big industrials. You can do this by using tried and true customer relationship management tools. Renewed Emphasis on Customer Service Customer relationship management is more than just a catchphrase when applied to small businesses. It is the process by which you predict, assess, and meet your customers’ needs. Far more than providing energy to your customers, CRM is your key to giving them power. Empowering your customers may mean offering incentives, and providing reliable billing and easy payment options. It may also mean educating them with cost-saving tips and information on the telephone and the Web. These jobs are as important to your business as supplying energy. Case Study: Silicon Valley Power and Mondo Burrito Background Silicon Valley Power (SVP) is the municipal utility for the city of Santa Clara, California, home of some of America’s largest corporations and — like all communities — thousands of small businesses. A number of small companies in the Santa Clara region have implemented load-reducing, energy-saving, business-building projects under the OPUSsm program that SVP outsources through Aspen Systems Corporation. Mondo Burrito Upgrades Facilities Food service establishments are among the most sensitive to any changes in refrigeration and lighting. It is particularly difficult to get the independent restaurant owner to see the advantage to investing in upgraded utilities. Owners want to focus on presentation, quality, service, delivery, and maintenance without disruption to the bottom line — customers. Frequently restaurants are housed in older structures, often built to outdated standards. Capital, when available, is more likely devoted to cooking productivity and services enhancement than energy efficiency. The maitre d’ lives on the ambiance of the interior, and shudders at changes in either lighting or HVAC systems. The chefs can’t abide anyone touching the food preparation equipment, and the insurance broker is nervous about any changes to refrigeration, freezers, and food preparation facilities. SVP found a way to work with local Santa Clara restaurants to upgrade energy efficiency without interfering in a proprietor’s tending to his core business, and both SVP and Mondo Burrito met with success. Steven Dutra, owner of the popular Mondo Burrito restaurant, was skeptical when his Silicon Valley Power energy audit recommended he save on his monthly energy bill by changing the light bulbs. “When SVP told me that moving from incandescent bulbs to compact fluorescents would produce a notable difference in my monthly bill, I couldn’t believe anything that simple would be enough,” said Dutra. “I’d increased my building size by 10 percent and sales were skyrocketing-I was skeptical that the bill could go down. But then SVP introduced a double rebate program, which allowed me to buy the new bulbs for the same price as the old ones. I had nothing to lose.” Dutra purchased 60 compact fluorescent bulbs, which normally retail for $9 each. The SVP double rebate reduced that to just about what he was paying for incandescent bulbs. The unexpected bonus was in the wattage — while he normally used 60W bulbs, he found that 15W fluorescents generated the same amount of light. “Another thing I didn’t know was that fluorescents last more than four times longer than incandescents (NOTE: Fluorescents typically last 7 to 10 times as long as incandescents do),” Dutra added. “Even without the rebates, the cost is actually the same due to the difference in lifespan, and I don’t have to change them as often. The fact that the fluorescents use 75 percent less power, combined with our other conservation measures, caused my monthly bill to go down 20 percent a month at a time when my sales and square footage were climbing. I was skeptical, but now I’m a believer!” While these are key customer service obligations, your main focus remains the very real challenge of keeping the power on and moving it down the line to end-users. That’s why so many companies look to the experts to handle portions of their customer care. By outsourcing call center operations, billing, shipping and receiving, and other functions, utilities can provide better service to their customers. Seamless integration of these services can be achieved by partnering with vendors that have raised customer service to an art form. It is worthwhile to outsource customer service functions when you find a company that can deliver in a way that works for you. Outsourcing to consultants who have defined best practices in key areas of customer care makes sense for utilities because they can help you focus more attention on your core energy production and distribution businesses. Standout small business CRM providers offer you cost effective, profitable options for increasing the effectiveness of your small business interaction. Investigate vendors that can help you sharpen your focus on these customers. It can pay off for you and for them. Energy Service Solutions for Small Business Let’s get back to that underserved customer, the small business. It will pay to stimulate that portion of your business. But how do you go about doing that? It may not be as difficult as you think. Strike up a conversation and spend a little time with business owners, both in your service area and elsewhere. Impress upon them that you value them as customers. Recognize that they, like the big guys, might be able to go elsewhere. While deregulation has slowed in some regions, it is not going to vanish. Under restructuring in the United Kingdom, Scottish Power lost 25 percent of the customers in its franchise area. Today, small businesses may not have as much political clout as large industrials, but they will soon have choices in service providers. It pays to lock in their loyalty now. Moreover, if your business model includes unregulated affiliates, the business-friendly status will pay off in off-franchise market capture. Again, while Scottish Power reported customer loss in the franchise territory, it gained a million customers off-franchise, in part by offering energy service solutions for business. Show your small business customers how to get the best value for their energy dollar. Counsel them on how they can lower bills by increasing their energy efficiency. Help them find and implement efficiency solutions that are easy, cost effective, and good fits for their business. The standard for customer service has been significantly elevated. Giving small businesses a break can have a direct effect on your bottom line. If you introduce programs that reduce their total utility costs, be sure you choose programs that help you with demand reduction. Customer service programs exist that do both very effectively. Energy Efficiency and the Small Business — Problems Courting the small business customer is more than a mannerly thing to do. It can help you realize your load reduction goals. If you help reduce their usage at peak hours, you will be taking steps in the right direction to reduce demand and reduce your headaches. You can’t count on the fact that you might be able to pass price spikes and other costs associated with peak power production or acquisition on to customers, large or small. You need another solution. Helping them increase efficiency and reduce load will help you in the long run. And remember, load reduction is not generally a concern for small businesses. Half of the small business customers in the United States are billed on an energy basis only. They don’t see load reduction as their job at all. And it really isn’t their job. It’s yours. But here’s where your newly revived relationship with your small business customer begins to work for you. You create service offerings that will encourage them to use less energy at peak times, and you don’t have to lift a finger. Turning them on to load-reducing, energy-efficient programs is easier than turning on a switch. Can It Be That Easy? Do such easy solutions really exist? Can you develop a symbiotic relationship with your existing small business customers without breaking a sweat? The traditional wisdom has been that they are a very hard segment to reach due to transaction costs, low bills, and modest savings potential. For example, ESCOs largely ignore them. Aspen believes, however, they can be served effectively and profitably. There are turnkey solutions in the market to which your small business customers will gravitate because they are easy, affordable, and effective. We know that in order for any solutions to be attractive to your small business customers, they can’t jeopardize cash flow. Therefore, favorable financing options should be included. And — most importantly — implementing these solutions cannot interfere with regular business. Case Study: Silicon Valley Power and Goble Properties Goble Properties Adds Value and Saves on Costs Property management firms have long shied away from adopting energy efficiency incentives because of competing views of such investments by property owners, management agents, and tenants. Management agents focus first on rental values and second on high occupancy. When the utility bill is included in rents, tenants are unaware of the energy cost consequences of using energy inefficient appliances, or keeping lights on unnecessarily. Goble Properties manages 50,000 square feet of space in seven buildings in Santa Clara. Tenant companies range in scope from computers to an environmental testing lab. Goble Properties Manager Robin Jewell noted, “We knew our tenants could benefit from improvements in HVAC and lighting in our buildings, and that their productivity would increase as a result. We guessed that, in the long haul, we would see our utility costs drop if we upgraded. What we didn’t know — how could we undertake an upgrade without costing us an arm-and-a-leg?” SVP offered a double-rebate incentive, prompting Goble to agree to retrofit its existing T12 fluorescent tube lighting to the energy saving T8 type. By upgrading its lighting, Goble achieved long-term energy reductions, without negatively impacting its tenants, the quality of life, or the quality of light. In this same time period, SVP had tripled rebates to motivate Santa Clara companies to upgrade their air-conditioning. Goble opted-in here as well, replacing five rooftop HVAC units totaling 23 tons of cooling with new units that featured twice the efficiency of the old equipment. Goble completed its air-conditioning and lighting upgrades in just over 3 months, from inception of its OPUS agreement to final installation. Goble’s net cost for the upgrades was about $32,000, which was financed internally. Goble now saves nearly $10,000 per year in power costs. “The changes have saved us money without costing us business,” Jewell noted. Investing in the Community Santa Clara-area contractors implemented Goble’s HVAC and lighting upgrade installations. Their net gain was about $60,000 in new business, with minimal marketing cost. The OPUS team delivered a qualified sales prospect, helped close the sale, and then dealt with all the utility paperwork to ensure best value for the customer. The OPUS team took care of all technical assistance, contractor interaction, and utility paperwork filing to gain customer rebates — the customer suffered no interference with its main business. Such benefits are replicable in many settings outside Santa Clara. Typically, in a region where distributors are purchasing wholesale peak energy at $1,000/MWh, the 30 MWh delivered to a customer like Goble is worth as much as $30,000/hr to the utility. The added incentives for contractors and trades allies are enormous. Making your solution work best requires your entire trade ally team — from banks to contractors. Energy efficiency projects must be attractive to lenders who work with small businesses. A small business will reject a project out-of-hand unless flexible financial options are available; and your local financial institutions will not touch a project that does not satisfy their financial criteria. Contractors have to buy into the value of these programs, too. Traditionally, contractors shy away from small business projects because they are too — well, um, small. Even when utility incentives are available, contractors frequently avoid such projects due to the paperwork burden. If projects are grouped, sales cycles are shortened, dispute resolution is streamlined, and commissioning is simplified — and then contractors are more likely to work with them. Sound like a daunting task? Can you implement customer service solutions that deliver energy efficiency benefits to your customers without excessive transaction costs, and without intrusion into their businesses? Can such programs offer flexible financing options that are attractive to customers and local lenders? Can these programs be made profitable for your local trade ally community, even though they focus on the small business sector? And, most importantly, can these programs make business sense for your utility in this new era? The featured case studies describe proven, turnkey solutions offered in the market today. They allow you to sign up for as much or as little of your own staff involvement as you desire, with suppliers doing the rest. The programs are broadly replicable and can lead you to success in an underserved market niche. Driving Down Load While Driving Sales to Your Customers Let’s look at another large-scale energy efficiency success story. Consider New York’s Keep Cool program. This program was responsible for replacing about 40,000 old window air-conditioning units in summer 2001 alone. Through Keep Cool, residents were urged to turn in inefficient air conditioners, and received a $75 turn-in bounty if the old unit was replaced by a new ENERGY STAR® rated air conditioner. The program did more than give relief to sweltering New Yorkers. By their very nature, air-conditioner efficiency programs give relief to those who need it most — you, your small business customer, and your residential customer — a “win” all around. Keep Cool had a significant impact on load reduction. Under reasonable assumptions, New York saved nearly 7 MWh — enough power to meet the peak power needs of about 8,500 homes in the state. By the same token, appliance dealers (small business customers) saw their sales increase. The turn-in bounty drove a measure of early replacement sales to the dealers that were in addition to normal replacement sales. Finally — depending on wholesale prices — utilities may have experienced up to $2 million per year in cost avoidance from the program. Programs like OPUS and Keep Cool have been shown to be highly effective. The key is to find and implement a program for small businesses that offers a complete, worry-free solution that benefits utilities, small business customers and your trade allies. For energy companies, the program should increase profits by increasing customer loyalty and enhancing brand positioning, which helps retain existing customers and attract new ones. For businesses, the program should be specifically designed to maximize profits by identifying and implementing optimal energy use solutions at each facility. Success stories like those in California and New York are within reach for you. But these successes would not be possible without outsourcing programs that provide services such as surveying, reporting, project specifications, vendor proposal evaluation assistance, project contract negotiation assistance, financing assistance, and post-installation inspections. Find an outsourcing program that guarantees these services and you will be looking at a win-win situation for you and your small business customers. Programs like these are not just talk. They provide real benefits to you and to your customers. Your small business customers are waiting to hear from you. Filed under: White Papers Tagged under: Utilities About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.