Consumer Behavior and Electricity Usage

Phil Carson | Jun 16, 2010

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To the ongoing conversation on how consumers behave, what they think and how to engage them, let's add a new Accenture study.

In January, Accenture surveyed consumers in 17 countries, including the United States, seven European nations and China, Japan and South Korea on residential energy management attitudes, knowledge and practices.

"We wanted to step back from the smart grid and its technologies and survey customers and consumers on barriers to changing behavior around energy usage, because - especially in North America - utilities are responding to pressures from various stakeholders to reduce use," Greg Guthridge, managing director for Accenture's retail and business services for utilities, told me.

"Most utilities are already fairly sophisticated in dealing with the large commercial/industrial sector, but not so on the small- and mid-sized commercial and the entire residential mass market," he added.

A broad-brush take on the findings among Americans:

  • "Consumers do not fully equate electricity usage with its environmental impacts.
  • "Though more than two-thirds say they know how to optimize electricity use, only one-third know of programs to do so.
  • Though most Americans identify their electric utility as the preferred source for such programs, few trust them.
  • Americans will manage use only if that saves money.
  • Americans can be grouped into one of six demographic groups: skeptics (31 percent), pragmatics (25 percent), cost-conscious (13 percent), proactives and indifferents (12 percent each) and eco-rationals (7 percent).

 

"It would be a mistake if utilities treat consumers as a single mass of undifferentiated audience," Guthridge said. "One size doesn't fit all. They need to offer differentiated services, options and messages. And those messages need to be fine-tuned."

Based on the survey results, Guthridge said, "smart grid-enabled programs aimed at the mass market are probably a waste of money."

Guthridge cited what he called a telco parallel. In the past, telcos treated the mass market as such. Today, the telcos are very sophisticated in offering differentiated services to various demographic market segments.

"The biggest surprise - the headline message - is the influence of 'control,'" Guthridge told me. 

In other words, consumers are averse to utility control of their residential data and appliances.

"Consumers are still quite nervous about this and it's a growing trend," Guthridge said. "Energy providers and utilities need to really explain these programs. You can see growing resistance. We were surprised by the numbers. Consumers have a low level of trust in their utility and it's even lower in competitive markets.

"Why? We've concluded that lower trust in deregulated markets is due to changing prices," he continued. "Fluctuation in prices turns off consumers, who want stability."

According to the study, the vast majority of consumers, asked if they know how to conserve energy, said yes - but they don't know of any programs offered by their utility.

"We think they confused general energy use - including other utilities such as water and gas, and recycling programs - with electricity usage," Guthridge said.

"Most premises in North America continue to grow in energy usage," he added. "Consumers don't tie electricity usage to broader environmental impacts and confuse electricity use with other energy usage."

So, what's a beleaguered utility to do?

"We're suggesting more education," Guthridge said.

Who is best positioned to deliver that education?

"Based on our findings about trust in utilities, the utility or energy provider will not be effective on their own," Guthridge said. "They'd better partner with other groups, such as environmental organizations, government agencies and even 'big box' retailers. This would make education more effective, swifter and less costly."

One finding that startled me: consumers spend, on average, 6-9 minutes each year interacting with their utility. Four of the top five reasons are negative, Accenture found. 

"It's not a high-value interaction," Guthridge noted. 

Ideas for moving the needle: focus on educating those in receptive demographics, perhaps addressing children rather than adults.

One idea that's been cited here on Intelligent Utility Daily is the notion that dynamic pricing programs should preserve one static rate for consumers who simply cannot or don't want to deal with changing rates.

"Regulators globally discuss a 'vanilla rate' option that doesn't disadvantage customers," Guthridge said. "But how do you limit use of that rate to only the disadvantaged? Fairness is an issue.

"In a sense, regulatory emphasis is on the opposite of our recommendation to differentiate the market - regulators say everyone should be treated the same," he added. "Thus, utilities will have to devise incentives for voluntary opt-in to differentiation. Not just with a stick, but with a carrot."

Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757

 

 

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Comments

Segmentation and Differentiation Are Critical

 "It would be a mistake if utilities treat consumers as a single mass of undifferentiated audience," Guthridge said. "One size doesn't fit all. They need to offer differentiated services, options and messages. And those messages need to be fine-tuned."

Based on the survey results, Guthridge said, "smart grid-enabled programs aimed at the mass market are probably a waste of money."


Identifying which customers 1) are most likely to sign up for smart meter programs (participate in some way) and 2) have the greatest potential for savings is critical to maximizing financial benefits.  This is another example of the 80/20 rule.  At least 80% of the benefits will come from 20% or fewer of customers.  Many customers such as those deemed "skeptics" and "indifferents" probably shouldn't be bothered with.  Figuring out which segment a customer falls into needs to be based on individual customer data rather than more generic zip code based classifications.  

Creating relevant programs (pricing, ease of use, etc.) and messages will be a challenge.  Sharing this effort across utilities to broadly test targeting and messaging to discover optimal combinations would speed learning and keep costs down.  No sense in each utility recreating the wheel.This type of shared learning can also help regulators understand how they can help all ratepayers by allowing for more tailored approaches.

Jeff Fread

SmartMeterMarketing.com 

Change must start with utilities and regulators

Utililities and regulators need to change before consumer behavior will change.  Utilities have been focused on supplying power to consumers for over a hundred years.  This required relationships with regulators but not consumers.  Once the supply spigot was turned down, utilities began to look toward the demand side to help maintain reliability, safety and rates.  Unfortunately, the production culture of the last 100 years has not changed for the utilities or regulators. 

Delivering power is still the utilities core function, but at the margin the biggest opportunities exist on the demand side.  Thus, the utility and regulator focus must transition from supply to demand, from production to marketing, from capital assets to consumers.  From a one size fits all approach which worked well on the supply side, to a differentiated approach that allows utilities to efficiently and effectively market to its diverse consumer base.

As with any company that is selling something, it must create and communicate value to its customers.  If there is no value, why will consumers care?  Our products, services, and information have value.  If there was no value Microsoft and Google would not be entering the industry with information portals.  Utilities need to place the consumer first, understand their needs, motivations, values, and attitudes, and create educational content, information, and programs/services that are valued by consumers.  This can only happen if utilities and regulators begin to think more like marketers and less like utilities.

http://rubbervines.com

Value proposition

Demand response resources are the key value proposition for the utility side of the emerging Smart Grid. The consumer will enjoy the benefits of energy management while the utility can deploy aggregated demand response resources to either manage power supply costs, better integrate renewables, or sell ancillary services to the market. The engine behind all of this is consumer behavior. Despite all of the attention around the environmental benefits of lower energy consumption, the consumer will be mainly motivated by the ability to spend less money on their utility bill while maintaining their comfort. As pointed out in this survey, one of the keys will be turning the consumer-utility relationship into a "high-value interaction."

Frank McCamant
www.mccamantconsulting.com

Carrots and Sticks

"Regulators globally discuss a 'vanilla rate' option that doesn't disadvantage customers," Guthridge said. "But how do you limit use of that rate to only the disadvantaged? Fairness is an issue.

Regulators tend to focus on price when the issue is the size of the bill (someone else's observation, not mine).  Prices are set with a number of often contradictory policy goals in mind but all they do is confuse consumers.  Have two dynamic pricing structures for those who are willing to take some initiative and one flat price for everyone else.  Allow "disadvantaged" consumers an opportunity to save money and help the grid.  Provide them with subsidized automation if necessary.

"In a sense, regulatory emphasis is on the opposite of our recommendation to differentiate the market - regulators say everyone should be treated the same," he added. "Thus, utilities will have to devise incentives for voluntary opt-in to differentiation. Not just with a stick, but with a carrot."

Explain the options in plain, simple English.  Write the tariffs in plain, simple English.  Hire Discovery to put together a few educational TV programs.  It cannot be that hard.