Thursday, August 29, 2013

Customer targeting and segmentation analytics

This article excerpt from IntelligentUtility written by my Jayhawk friend Christine Richards has some good points and some not so good points.  I hope that the full report gets into the details that I am suggesting below. Let me elaborate on the conversation and help educate the masses.

This is nothing new.  Utilities have been doing this for a long time.  That is how their pricing rates are created.  Utilities are pricing experts by demographic data (low income, churches, schools, elderly, etc).

Most generalizations about the Electric Utility industry are useless. Especially, customer marketing and customer segmentation generalizations.  Why?  Because there is no one single US Electric Utility Market. The market is segmented into 50 states in the continental US.  And within each of those 50 markets, there are IOUs (Investor Owned Utilities), MOUs (Municipality Owned Utilities), and COOPs (Cooperative Owned Utilities).

Those utilities behave differently due to their ownership and they have different market operating rules by law.  Furthermore, some markets have energy retail competition and some don't.  So for example, the customer segmentation and customer marketing sophistication that one can witness in the energy retail competitive electrics markets (Connecticut, District of Columbia, Illinois, Maryland, New Jersey, New York, Pennsylvania and Texas) would be totally different than the one exercised in non-competitive markets.

So, it would be much better to have a real analysis done within the different markets that can be compared and contrasted to learn from.  Do a price study in the Texas competitive market and publish the results. I guarantee that everyone will be amazed with your findings, as the Texas competitive market has been doing phenomenal things since it launched in 2002.

Location, Competition and Innovation are the only three driving forces for better customer segmentation and customer marketing within Electric Utilities.  Without focusing on them, the analysis is truly meaningless to the practitioner.



Customer targeting and segmentation analytics

Excerpts from our just-released publication

Today, I wanted to share some snippets from our hot-off-the-virtual-presses Customer targeting and segmentation analytics industry briefing. In this report, we discuss how it isn't about just satisfying utility customers as a group, but satisfying customers as individuals. That's a big change for many utilities, but fortunately customer targeting and segmentation analytics can help with that transformation. This report provides a snapshot of where utilities are at today with their customer targeting and segmentation analytics, as well as what's ahead. In this article, we pull out just a few highlights, like defining customer marketing, targeting and segmentation, and discussing the state of customer marketing and segmentation efforts.

Defining marketing, targeting, segmentation
In our Institute discussions, as well as one of our working group titles, we use the description of "customer marketing and segmentation." In the report we get a little bit more specific and talk about "customer targeting and segmentation." With this change, we thought it would be helpful to quickly review the differences between marketing, targeting and segmentation. Our analyst, Kim Gaddy, developed these base definitions.

Customer segmentation
Customer segmentation is the process of dividing the customer base into groups based on common characteristics. These characteristics include:
  • Age
  • Gender
  • Income level
  • Location
  • Interests
  • Participation in specific rate plans or programs
  • Level of engagement
  • Payment behaviors
  • Preferred communications channels

Segmentation efforts range from those that are focused on managing the overall utility-customer relationship to very specific segmentation efforts designed to support the marketing of a particular product or program or the prioritization of credit and collections efforts. The benefits of segmentation also extend beyond customers. For example, segmentation of buildings can be a valuable input for a utility's energy efficiency strategy.

Customer targeting
Customer targeting is the process of applying customer segmentation to specific marketing initiatives or campaigns. Some campaigns may target more than one customer segment. The idea is to improve marketing efficiency by focusing marketing efforts and resources on those customers most likely to, for example, benefit from a particular product, enroll in a particular program, or pay an outstanding balance.

Customer marketing
Customer marketing involves a number of components and encompasses both customer segmentation and customer targeting. In general, customer marketing includes four elements, the 4 P's of marketing:

  • Product | This includes product concept, selection, defining the value proposition and product development
  • Price | Determination of a product's price
  • Place | Selection of the distribution channels that will be used to reach customers
  • Promotion | The design and execution of a promotional strategy

How utilities are using targeting and segmentation analytics
Now let's see what utilities are actually doing with targeting and segmentation. In this article, we'll share just a smidge of the results from our customer marketing and segmentation working group survey, including targeting and segmentation status and resources, customer criteria usage and segmentation usage.

According to utility survey respondents, most utilities have some segmentation/targeting framework in place. And this is all happening in spite of the fact that 93% of our respondents haven't developed a business case surrounding segmentation and targeting.
As far as where these frameworks are developed and managed, many different groups are involved in the effort. Of the most frequently mentioned responses, about 67% of respondents said their market research departments are involved and another 50% said their customer marketing departments participate in the effort.

So we know about a few of the groups involved, but what about the people involved? How much time are they spending on customer targeting and segmentation efforts? We found that most utilities have more than a couple of folks working of these efforts. About 31% of utilities have two to five FTEs, and 31% have five to nine FTEs devoted to this work. Utilities are definitely dedicating resources to developing and maintaining customer targeting and segmentation.

Alright, so we've covered some basics with customer  targeting and segmentation efforts. Now let's look at how utilities are applying some of that targeting and segmentation work. The first area we'll explore is what are the most-often used criteria by utility companies. When looking at all customers, key criteria used by utilities include past participation in utility programs, customer location, consumption patterns and demographics. If we dig into different customer types, the criteria can vary. For example, we found that criteria for residential customers focus more on rate class, geography and program participation, whereas the top commercial customer criteria include consumption, firmographics and rate class.

Now let's see how this segmentation and targeting information is being used by utilities. In terms of departments using segmentation and targeting information, we found that there are a ton of groups leveraging this information-from engineering to finance. The top departments, however, include marketing/market research, public affairs, product/program management and customer service. The top ways in which these departments are using this information include conservation/usage awareness, customer satisfaction research, message development and customer use patterns.

Another way to look at usage is to look at how segmentation and targeting information can help utility companies shape and deliver their programs and educational materials. Top programs and materials that benefit from this information include special billing, energy efficiency/water conservation, self-service, and different payment options.

And that's just a smidge of what we covered in the report. If you'd like to learn more details about our Customer targeting and segmentation analytics publication, please contact me and I'll be happy to provide you with more details, or you can go directly to our research report page.

Thanks for reading!

H. Christine Richards is a research director with the Utility Analytics Institute. You may reach her at

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