IBM Global Business Services

IBM Institute for Business Value



                                   Energy and Utilities
...
IBM Institute for Business Value
   IBM Global Business Services, through the IBM Institute for Business Value,
 develops ...
Lighting the way
Understanding the smart energy consumer
By Michael Valocchi, John Juliano and Allan Schurr




          ...
To continue our research about consumer             Generation, network and metering technology
      expectations of ener...
Lighting the way
Understanding the smart energy consumer


                    Understanding and encouraging new          ...
Customer goals in a participatory                  peak times. Since consumers have a renewed
     network                ...
In both years’   There is not much evidence that consumers            Managing usage to reduce
  surveys, consumers      t...
FIGURE 2.
      Availability of renewable energy by country.
       Does your electric power provider offer renewable ener...
slightly, from 85 percent in 2007 to 78 percent                          Analyzing and segmenting
    in 2008. But, during...
FIGURE 5.
       Types of residential and small commercial energy customers.




            High
                        ...
A groundswell of demand     in energy choices, and represent about one            Key consumer attributes by segment
     ...
Personal initiative and    The role of generational change                     To effectively determine the best strategy ...
FIGURE 7.
      Key interactions comprising the utility customer experience.

        •	Understand options for controlling...
This is three times the rate at which those        it enough to pay a premium. This is under-
      over 45 expected to us...
Over half of consumers      Our green power example shows the impor-                                      month, versus 13...
The fact that well over half of the under-25       Investing in the consumer
      age group is willing to pay these premi...
Companies will see    •	 Defining new or augmented business capa-         (other network-focused industries like tele-
   ...
Related publication                                 Allan Schurr is a 25-year veteran of the
      Valocchi, Michael, Alla...
About IBM Global Business Services
     With business experts in more than 170
     countries, IBM Global Business Service...
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Lighting the way: Understanding the Smart Energy Consumer

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To satisfy the smart energy consumer and stay competitive, utilities must plan now to gain insight and understanding of their customers.

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Transcript of "Lighting the way: Understanding the Smart Energy Consumer"

  1. 1. IBM Global Business Services IBM Institute for Business Value Energy and Utilities Lighting the way Understanding the smart energy consumer
  2. 2. IBM Institute for Business Value IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior executives around critical public and private sector issues. This executive brief is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an e-mail to iibv@us.ibm.com for more information.
  3. 3. Lighting the way Understanding the smart energy consumer By Michael Valocchi, John Juliano and Allan Schurr Almost 70 percent of 5000 respondents in our 2008 Global Utility Consumer Survey are willing to experiment with how they interact with energy providers. Many consumers have specific visions of what they want – and how much they will pay for it. Their attitude change coincides with rising environmental and economic urgency that is focusing attention on energy infrastructures across the globe. To satisfy the smart energy consumer and stay competitive, utilities must plan now to encourage beneficial consumer behaviors, leverage customer analytics and segmentation, and understand the enhanced customer interactions – all vital in a participatory utility network where consumers, utilities and service providers share responsibilities and benefits. Persistent climate change concerns, volatile substantial increases in investment in utility energy prices and a growing awareness of infrastructure are likely. For energy and utility technological advancement in energy are companies, this presents a historic opportunity leading consumers across the globe to recon- to encourage new, mutually beneficial behav- sider their role in the electric power value iors and create business models to meet new chain. Influenced by their experiences in other consumer demands. industries, they are willing to assume new roles and be more involved with providers and tech- Our 2007 report, “Plugging in the consumer: nology. Utility business models for the future,” explored the radically changing relationship between At the same time, due to global demands consumers and energy providers. Even during for climate change mitigation, the need to the global economic downturn, progress has support aging networks and some govern- continued along the two dimensions shaping ment stimulus plans for weakened economies, these changes: technology advancement and consumers’ desire for more control. 1 Lighting the way
  4. 4. To continue our research about consumer Generation, network and metering technology expectations of energy providers, we launched available today provide tremendous opportuni- a second survey in the fall of 2008 (see “The ties to improve capabilities and convenience 2008 Global Utility Consumer Survey”). We for residential and small business customers. found that the major influences on consumers’ Realizing this potential, however, requires decisions about taking control of their energy shifting emphasis from utility-controlled deci- experience have not changed much: respon- sion factors to consumer-driven ones. dents still believe energy prices are more likely to rise than fall and a strong majority value The 2008 Global Utility Consumer Survey environmental considerations in their choices We launched our second Utility Consumer of products and services (though economic Survey in fall 2008 to assess how changes in pressures have made them less likely to pay the economic environment, persistent strong premium prices to meet their goals). messages on climate change and increasing technological awareness of consumers are further In combination, our survey findings suggest influencing consumer expectations of energy strongly the historical view of customers as providers. This time, we surveyed an “expanded like-minded is not sustainable – it is already group” of over 5,000 customers, which included outdated in most places. As a result, utilities the “core group” of the six countries from our must plan now to: 2007 survey – the U.S., the UK, Germany, the • Understand and encourage new consumer Netherlands, Australia and Japan) – plus Canada, behaviors that will be important in the future Denmark, Belgium, France, Ireland and New industry environment Zealand. Questions covered a range of topics, including consumer preferences for green • Invest in customer analytics and segmenta- offerings (both energy-related and in general), tion to assess the current consumer base future views on costs, usage and control options, and lay the foundation for continual reevalu- sources of information on energy, and willingness ation to pay for new products and services. • Initiate a program to analyze enhanced and new customer interactions that will take place over a more dynamic and data-rich network. 22 IBM Global Business Services IBM Global Business Services
  5. 5. Lighting the way Understanding the smart energy consumer Understanding and encouraging new • Constrained Choice – Consumers take behaviors decisive steps toward more control, but are Four utility industry models limited to certain “levers” (technologies, To understand and encourage beneficial new usage decisions or choices in providers) by consumer behaviors, energy providers must regulatory and/or technological constraints. recognize that technology evolution and • Participatory Network – An interconnected increasing consumer control are pointing to environment characterized by a wide variety the emergence of four industry models (see of grid and network technologies enables Figure 1). As described in our 2007 report (see shared responsibility and benefits. Related publications section), they are: Though each is described distinctly here, • Passive Persistence – Traditional utility for at least the near term the industry will be market structures still dominate and represented by various combinations of the consumers either accept or prefer the histor- four models in different parts of the world. ical supplier-user relationship. Ultimately, increasing demand for control by • Operations Transformation – Some combi- consumers and continual improvement in nation of grid and network technology technology will result in movement of the basis evolves to enable shared responsibility, but of the industry to the upper right quadrant – consumers cannot (or elect not to) exert driving the creation of entirely new markets much control. (virtual and physical) and products. Figure 1. Utility industry evolution over the next decade. Distributed and Participatory Network Operations Transformation dynamic A wide variety of grid and network technology Some combination of grid and network evolves to enable shared responsibility, and technology evolves to enable shared respon- consumers’ strong interest in specific goals cre- sibility, but consumers either cannot exert ates new markets (virtual and physical) and new much control (or elect not to) and the balance Technology evolution product demands, which balances benefits more of benefits favors the utility equally between the consumers and utilities Passive Persistence Constrained Choice Traditional utility market structures dominate, Consumers take firm steps to move toward and consumers either accept or prefer the tradi- more control, but are limited to certain “le- tional supplier-user relationship vers” (technologies, behaviors, or choices in providers) by regulatory and/or technological and one-way Centralized constraints Low Degree of consumer control High Source: IBM Institute for Business Value analysis. 3 Lighting the way
  6. 6. Customer goals in a participatory peak times. Since consumers have a renewed network curiosity about energy and are willing to In our surveys over the past two years, many change behavior, now appears to be an consumers demonstrated at least one goal optimal time to “nudge” consumers in ways like or trait associated with asserting more control this toward behaviors that benefit everyone. over their energy usage. The features of a Thaler and Sunstein also mention another participatory network appeal tremendously to device that simply displays energy usage and them, because it would offer abundant service allows it to be transmitted to the Internet, facili- options and information to manage energy tating a sort of “conservation competition” that usage according to specific goals, such as 2 would benefit both the user and the provider. cost reduction or environmental impact. Linking such capabilities with Internet-based In order to best align societal benefits, personal communications – for example, customer needs and company goals, posting usage on a blog, Twitter, or Facebook providers must leverage consumers’ newfound – is particularly appealing to the habits of the openness to change, and then provide Millennial Generation, usually defined as those information, influence behavior and teach born starting in the late 1970s through the consumers new ways to meet their goals. 1990s. As we will show, these young people For example, increasingly common customer are well-prepared to embrace new participa- goals are minimizing cost and “carbon foot- tory network-enabled services. In addition to print” (estimated greenhouse gas emissions the immediate benefits, such offerings build produced by daily activities). Both conserva- the provider’s reputation as both aligned with tion and shifting energy-intensive work to an the consumer and forward-thinking both tech- off-peak time can help the customer meet nologically and socially. these goals while directly supporting utilities’ efforts to limit peak load growth and prepare Managing usage to reduce costs In our 2008 survey, cost remains the most for a carbon-constrained operating environ- powerful motivator for desire for control and ment. willingness to change behavior. Four in five In their book Nudge, Richard Thaler and Cass consumers would change the times at which Sunstein promote the idea that small changes they do energy-consuming housework in to individuals’ perspectives can cascade into exchange for large savings (50 percent). major shifts in behavioral patterns for entire This pattern did not vary much by income populations. Several of their examples are level – those in the upper 5 to 10 percent of about managing energy usage, such as one the respondents’ national income distribution utility’s visual device that glowed red when were as open to such change as those below 1 usage passed a certain threshold. In just median national income. Even for a small weeks, they reported, those with this device discount (10 percent) for changing time of reduced their energy use by 40 percent at usage, about half were willing to do this. These numbers were virtually unchanged from 2007 . 4 IBM Global Business Services
  7. 7. In both years’ There is not much evidence that consumers Managing usage to reduce surveys, consumers think lower rates are in store for them; only 6 environmental impact percent think that over the next five years, their The emphasis on climate change is as strong consistently expressed bills will increase more slowly (or decrease now as with consumers in our 2007 survey. It the desire to exert more rapidly) than their usage, while over half is also fairly consistent across our expanded more control over see the cost increasing roughly at the same group of countries. For ten of the twelve coun- energy usage to pace as usage. Forty percent see their bills tries, between 65 percent and 75 percent of reduce costs and increasing more rapidly than their usage (or respondents stated that environmental factors not decreasing as much as any reduction in are “important” in purchases of non-energy environmental impact. usage). products (only the Netherlands, at 64 percent and Canada, at 78 percent, fell slightly outside Overall, 2008 respondents have a slightly that band). more pessimistic view of the next five years than those in 2007 more because of , The availability of renewable energy programs expected increases in consumption than to in response to this demand for more carbon- any apparent change in perspective stem- neutral products remained about the same ming from energy price surges in the summer year to year. Across the core group coun- of 2008. Two-thirds see their bills increasing tries, the percentage reporting that they did over the next five years, versus 59 percent in not have renewable power programs avail- 2007; however, in 2008, 38 percent see usage able dropped from 21 percent in 2007 to 16 increasing versus 30 percent in 2007 so the , percent in 2008. Rather than increasing the differential between the two years’ numbers is percentage of affirmative responses, however, the same. most of the movement was to the “Don’t know” response (up to 50 percent, from 46 percent With the prevalent feeling that prices will move in 2007). Responses of the expanded group inexorably upward and awareness of smart countries were consistent with those in the meters growing, over 90 percent of respon- core group (see Figure 2). dents indicated that they would like a smart meter and tools for managing their usage, According to industry experts in some of the with 55 to 60 percent of these respondents countries surveyed, the high level of “Don’t willing to pay a one-time or monthly fee for that know” responses in part reflects doubts in capability. Consumers are largely indifferent some countries about the veracity of green to which form this control takes – the percent- power claims. Still, if to a larger extent these ages wanting this service via a dedicated customers truly cannot answer that question, control panel, a home computer interface or a this could indicate a valuable opportunity lost smart meter automatically controlling devices to ineffective communication with customers in are essentially the same, although there are countries with significant renewable resources some differences across age groups. and high participation levels. 5 Lighting the way
  8. 8. FIGURE 2. Availability of renewable energy by country. Does your electric power provider offer renewable energy sources (such as solar and wind power) as an option for your household energy use? UK 11% 28% 61% Japan 14% 31% 55% Germany 33% 12% 54% Australia 33% 14% 53% Netherlands 32% 17% 51% Core group US 11% 44% 45% countries New Zealand 5% 27% 66% Expanded group countries Denmark 12% 21% 67% Belgium 23% 11% 66% France 18% 29% 53% Ireland 5% 47% 48% Canada 8% 46% 46% Sample size = 5084 Yes No Don’t know Source: IBM 2008 Utility Consumer Survey. The impact of the global economic downturn This change in spending patterns also of 2008 is clearly competing with the envi- seems to influence perceptions of green ronmental concerns of consumers. Across power options among consumers from core the core group countries, the number of group countries who do not have (or are consumers paying a premium for green prod- unsure if they have) green power options. ucts and services is down 20 to 30 percent The percentage of these respondents who (see Figure 3). say they want green power options is down FIGURE 3. Percent of respondents who pay more for environmentally friendly products not related to energy. 61% Australia 46% -26% 2007 52% 2008 Japan 39% -25% 51% Germany 35% -31% 49% Netherlands 35% -29% 47% US 38% -20% 45% UK 33% -27% Sample size = 3345 (2008), 1893 (2007) Source: IBM 2008 Utility Consumer Survey. 6 IBM Global Business Services
  9. 9. slightly, from 85 percent in 2007 to 78 percent Analyzing and segmenting in 2008. But, during that one-year period, the consumers percentage of those willing to pay an addi- The emergence of new industry models tional 20 percent or more monthly dropped requires utility companies to abandon the by nearly two-thirds, from 16 percent to just 6 historical view of residential and small percent (see Figure 4). commercial customers as largely homo- geneous. In “Plugging in the consumer,” The percentage of those with green power we described an emerging segmentation options who actually buy them remained about comprised of four consumer types: Passive the same, however. This is not surprising, given Ratepayers, Frugal Goal-Seekers, Energy contractual commitments, significantly higher Epicures and Energy Stalwarts (see Figure prices for non-renewable fuels in the past year 5). Our 2008 survey results reinforce these (which eliminated some of the cost differential segments as likely outcomes of current trends. between standard and green power), and the overall commitment to the environment Two main attributes are associated with vari- expected of buyers of green power. ances in consumers’ behavior profiles: Still, prudence in launching new green • Personal initiative – A consumer’s willingness programs may be wise until the global to make decisions and take action based economy is in recovery. Extended reces- on specific goals, such as cost control, reli- sionary conditions or further deterioration in ability, convenience and climate change consumers’ incomes might suppress accep- impacts. tance of higher-cost programs until conditions • Disposable income – A consumer’s financial improve. wherewithal to support energy-related goals; in early adoption phases, only those with sufficient resources will be able to implement new technologies and buy more expensive products. FIGURE 4. Willingness to pay premiums for green energy. How much more would you be willing to pay for green power? (percentage of respondents) 50% or more 2% 2007 1% 2008 35% 4% 1% 20% 16% 6% 5% 44% 65% Would not pay more 34% 37% Sample size = 5084 Source: IBM 2008 Utility Consumer Survey. 7 Lighting the way
  10. 10. FIGURE 5. Types of residential and small commercial energy customers. High Frugal Goal-Seeker (FG) Energy Stalwart (ES) An energy consumer who is willing to take An energy consumer who has specific modest action to address specific goals or goals or needs in energy usage, and has needs in energy usage, but is constrained in Decision-making initiative taken both the income and desire to act on what they are able to do because disposable those needs income is limited 22% 21% Passive Ratepayer (PR) Energy Epicure (EE) An energy consumer who is relatively uninvolved A very high-usage energy consumer relatively with decisions related to energy usage and unconstrained by budget limits, but with little uninterested in taking or unable to take added or no desire for conservation or active involve- responsibility for these decisions ment in energy control 31% 26% Low Low Disposable income available for energy choices High Sample size = 5084 Source: IBM 2008 Utility Consumer Survey. We also found that other demographic char- and technology deployment permit advanced acteristics – such as age and country of capabilities to be rolled out to the consumer residence – affect the speed of technology in the form of new products and services, adoption, ability to leverage control “behind the a groundswell of demand is emerging. The meter,” goals embedded in accepting more demand is neither even nor universal, so responsibility for energy choices, and more. customer segmentation work is vital to deter- mine who wants what. Consumer profiles Passive Ratepayers (PRs), who embody a The number of more engaged and goal- passive preference for the status quo, remain oriented customers all along the income the most prevalent of any of the four consumer spectrum is approaching one-half of the total archetypes. However, we see a remarkable customer base. Frugal Goal-Seekers (FGs), transition in progress: in the past, these typi- about 22 percent of the 2008 survey popula- cally uninvolved, acquiescent customers tion, have limited resources but strong will to comprised virtually 100 percent of the change the way they use energy and manage customer base – they represent just 31 percent its consumption. This group desires low-cost of our 2008 survey respondents. control of energy choices. It is eye-opening that almost 70 percent of Energy Stalwarts (ESs) have enough strength customers would like to take advantage of in both will and wallet to proactively take what might be offered in a partnership that measures from making simple efficiency differs from the traditional utility-customer improvements to generating their own elec- relationship. Even before regulatory structures tricity. They have a clear willingness to invest 8 IBM Global Business Services
  11. 11. A groundswell of demand in energy choices, and represent about one Key consumer attributes by segment in five consumers surveyed. Both FGs and In order to evaluate and compare various is emerging for new ESs will strongly influence the other half of tendencies of the four consumer types, we consumer products and consumers as they succeed in meeting their used a scoring system to quantify the relative services in advance goals. response to similar questions based on six key of regulatory and attributes (see Figure 6): The remainder of the respondents (26 technological change. percent) are Energy Epicures (EEs), who are • Focus on Environment: Interest in green curious but not committed in the sense that, products and willingness to make changes while they actually demonstrate more knowl- to reduce personal environmental impact edge about their provider and options than • Hunger for Information: Desire for more the any other group, they do not share the frequent and more detailed information cost concerns or clear desire for information about the cost and impact of personal and control. This appears to be a matter of energy usage choice and not ignorance. While passive in • Willingness to Take Control: Motivation and some ways, this group is open to experimenta- desire to actively manage energy usage, tion in others, particularly when the cost and cost and environmental impact lifestyle impact of a behavioral change are low. Whether EEs gravitate toward ESs (if their • Motivation for Efficiency: Willingness to take early experimentation has results that spur steps to increase energy efficiency through additional involvement) or simply continue to some combination of lower-cost and higher- add new energy-consuming devices into their cost actions home while abstaining from (or postponing) • Knowledge about Providers: Overall moves toward more active management of awareness of energy providers and options energy usage, they will remain high-revenue- that the providers make available to manage producing customers for years to come. efficiency, environment and cost • Sensitivity to Cost: Sensitivity to overall cost of energy or options to actively manage it. FIGURE 6. Respondent scores for key attributes. Focus on environment Hunger for information Passive Ratepayer Energy Stalwart Willingness to take control Frugal Goal-Seeker Motivation for efficiency Energy Epicure Knowledge about providers Sensitivity to cost Low Average High Source: IBM 2008 Utility Consumer Survey. 9 Lighting the way
  12. 12. Personal initiative and The role of generational change To effectively determine the best strategy for While in the short term, changes in customer a customer-focused transition to the partici- income will drive change needs will occur based on personal initiative patory network of the future, every provider in the short term, but and income, in the long run, even more radical of energy or related services will need to even more radical changes may yet emerge as the Millennial construct an inventory of existing customer changes may be ushered Generation continues to move into adulthood interactions with the spectrum of current and in as the Millennial and the energy customer base. By varying future providers. They must also understand Generation ages. definitions, the first wave of these information- how customers get information from govern- hungry, technology-savvy consumers is ments, the media and even one another. somewhere in our 25 to 34-year-old demo- These will collectively shape the customer graphic grouping and fully encompasses the experience and pinpoint wants and needs 18 to 24-year-old age group. inherent in the experience they will find most Precisely at this juncture, we see major satisfying. Figure 7 shows a representation of changes in the survey results related to the a generalized electric utility customer experi- ways consumers learn about companies and ence. In the following sections, we outline how products, what they value and what they will specific consumer segments view the benefits pay for, as well as how they communicate with and costs associated with key interactions each other and the companies with which they (those in bold text). do business. This, ultimately, may give way to new consumer segments that will influence Learning about providers and their the shape of the industry in ways unimagined offerings just a decade or two ago. Important messages from providers do not always reach consumers, as evidenced by Understanding customer interactions consumers’ lack of awareness of available in a participatory network green power options (see Figure 2). In addi- As utilities and regulators begin the process tion, only one in six consumers foresees a of moving from the existing infrastructure decrease in usage over the next five years, base toward a participatory network, one of and only about a third say their provider can the most important questions in the public help them save energy – this despite strong debate is, “What are the societal benefits of efforts by the industry and governments these investments?” Both customers and to promote energy efficiency through utility company shareholders need to see clear providers. In particular, provider messages value in these investments. Utility companies are not reaching the youngest consumers: and other product or service providers need those 18 to 34 years old are 40 percent more some idea of how programs will be received likely to not know whether they have choice by customers prior to rolling them out – in providers than those 35 and older – and including an understanding of those groups twice as likely to not even know their provider’s to which they most appeal – so that marketing name. and awareness campaigns can be effectively launched. 10 IBM Global Business Services
  13. 13. FIGURE 7. Key interactions comprising the utility customer experience. • Understand options for controlling costs • Learn about providers and their offerings • Understand options for conserving energy • Understand how a provider fits my needs Enhance Learn service • Obtain information on outages and interruptions • Choose services • Report an emergency Solve Utility • Confirm services will meet problems Choose • Request help with appliance repair or customer my needs maintenance experience • Receive bill Connect/ • Schedule service connect/ Pay disconnect • Review and understand bill disconnect • Request help understanding bill • Activate service connect/ • Pay bill Use disconnect • Hook up appliances • Monitor Source: IBM analysis. energy use How providers communicate to consumers German companies did not conduct the same the effectiveness of new business models, level of direct marketing, but advertising is programs and services is critical to the increasing. More German customers are being success of the participatory network. Thus introduced to Internet portals through which far, performance in communicating options to customers can quickly check pricing for their consumers is mixed, with the problems noted region and switch online with minimal inconve- above contrasted by some recent success nience. regarding provider choice in the Netherlands While all age groups will continue to rely and Germany. While four of the six core group heavily on their providers for information about countries had similar results on reported avail- energy (85 to 90 percent of respondents indi- ability of retail choice in 2008, both the Dutch cated this was a likely source), reliance on (80 percent reporting yes, up from 56 percent) other sources differed starkly. For example, and German (80 percent reporting yes, up while 28 percent of respondents over 55 from 61 percent) respondents perceived much (more than one in three over 65) consider their higher levels of availability of competition. governments a trusted information source on In both cases, the numbers of consumers energy matters, only 16 percent of those under “getting the message” have clearly been 25 would use this source regularly. bolstered by intense competitive moves of late. Conversely, ten percent of those aged 18 to In recent months, providers in the Netherlands 24 were likely to view fast-growing Internet- engaged in vigorous direct marketing (particu- based collaborative platforms such as social larly by phone), approaching potential new networking and online video content – often customers with special offers to switch. referred to as Web 2.0 – as important sources. 11 Lighting the way
  14. 14. This is three times the rate at which those it enough to pay a premium. This is under- over 45 expected to use these technologies. standable, since 30 percent of green power Similarly, those ages 25 to 34 expected to go purchasers in this survey indicated that the to their now-familiar Facebook, Ning, YouTube annual impact on their electric bill is as high and Revver arenas to gather energy informa- as a 20 to 50 percent increase. Once these tion at almost twice the rate of the 45-plus amounts become real rather than theoretical, group. a consumer may pull back from an option that seemed previously to be a great idea (see Those over 55 are more than ten times more “Turning consumer information into valuable likely to look to governments for energy infor- intelligence”). mation than to social networks and other Web 2.0 content, while current trends imply that Turning consumer information into those under 25 are becoming almost as likely valuable intelligence to use the latter as the former. To reach all To try to predict who would be most likely to generations, companies need to understand purchase when given the option, we applied a how different consumers tend to educate simple screen to the set of interested respondents themselves about providers and their offerings currently without green power. We called those with the wide variety of media available. who passed the screening “Green Leaners.” We excluded from this group those who expressed Choosing services interest in green power, but act in ways that Evaluating what services consumers will indicate likelihood that they would ultimately not embrace – and which they will ignore – will be be willing to pay more for it. a tricky proposition in coming years, since they We then compared Green Leaners to actual green are not accustomed to making more complex power buyers to establish whether their behavior decisions about their energy services than was similar. Indeed, all of the differentiating when to pay the bill, and how high or low to set characteristics of the actual green buyer group the thermostat. Questionnaires can be useful were seen in the Green Leaners. Furthermore, in determining relative levels of interest, but among those without green power options, the more must be known about consumers before ratio of Green Leaners to likely non-buyers closely revenue estimates can be properly formulated. matched the ratio of buyers to non-buyers among those with green power options. For example, in both 2007 and 2008, we asked consumers who did not have the option to This suggests that simply surveying consumers’ buy green power if they wanted that option. interest in green programs may not provide an accurate barometer of their ultimate uptake. But it We found in both years that the percentage also demonstrates that close examination of the of people who say they want that option was respondents’ behavior in related areas may make twice the percentage who actually purchase it this distinction somewhat predictable (at least in if given the opportunity. the aggregate), even without specifying a cost Clearly, many respondents are likely to change (which may not be known with certainty at the their minds once the option is offered to time of a survey). them, perhaps because they do not value 12 IBM Global Business Services
  15. 15. Over half of consumers Our green power example shows the impor- month, versus 13 percent for a smart meter at tance of evaluating peripheral consumer the same cost). are willing to invest actions to determine the true demand for a in better energy This may suggest that consumers are uncer- product or service – predictions that can be usage monitoring and complicated by consumers’ inexperience tain of their ability to save money with a management – some on with such decisions. Expecting a certain smart meter on their own, but if an expert takes control and provides some guarantee their own, some with the level of imprecision in their responses about any program can help providers avoid over- of savings, their confidence may be higher. help of an outside party. Alternatively, it may be that providing an inex- estimating the willingness of consumers to pay for new products and services, and allow for pensive, simple avenue for saving energy to a better match of investments to likely returns. particularly energy-hungry consumer can be Even better, we found that learning more about an attractive proposition for both the consumer consumers’ overall preferences and evalu- and the provider. ating that data can help providers form more Understanding options for controlling tenable estimates of achievable revenues. costs and conserving energy Monitoring energy use via a service Not surprisingly, those age 18 to 34 were provider most eager for the types of “self-service” and Another service model in which consumers automated energy management that smart expressed interest is the monitoring and metering and smart grids will bring; after all, management of energy usage toward a partic- these young men and women have grown up ular savings target by some party other than with technology-driven interactivity with the the consumer. While more consumers were world as an essential part of their lifestyle. What interested in a smart meter at no cost than may be surprising, however, is that this age this monitoring and management service for group – and particularly those under 25 – is free, more consumers were willing to for this the most a willing to pay a stated premium for service than for smart meters (20 percent had these services of approximately US$100 as a “strong interest” in this program at US$5 per one-time fee, or a monthly fee of US$5 (see Figure 8). FIGURE 8. Willingness to pay for specific services across age groups. Percent of respondents that would pay a monthly fee for specific services. 18-24 75% Average (all age groups) 68% 65+ 65% 56% 57% 54% 45% 42% 37% Smart meter and energy Third-party energy Remote mobile notifica- self-management tools management services tion of outages Source: IBM 2008 Utility Consumer Survey. 13 Lighting the way
  16. 16. The fact that well over half of the under-25 Investing in the consumer age group is willing to pay these premiums As people around the planet seek ways to is remarkable because they generally have increasing the efficiency of all kinds of systems lower incomes; 72 percent of the youngest that affect their everyday activities, substantial respondents had incomes below national increases in investment in utility infrastructure median household incomes, versus 51 percent are likely. These investments, however, will of the rest of the groups. Compared with the come with a great deal of public, regulatory percentage of highly-motivated FGs below the and shareholder scrutiny. All of these stake- median income level (66 percent), one would holders will want to know how the public as a expect this age group to be about as willing whole can benefit. (maybe less) to pay for smart meters and their associated tools than FGs. But under-25s Some of the historical focus on operational overall are about 15 to 20 percent more likely improvement and cost reduction will shift to pay than FGs – in fact, they are even more toward societal benefits as calls intensify for likely than comparatively wealthy and moti- improved capabilities and convenience for vated ESs by a few percentage points. residential and small business customers. Energy and utility companies will need a Obtaining information on outages and strategy for aligning customer wants and interruptions needs with technology deployment roadmaps, Having a message sent to a mobile device beginning with rigorous customer segmenta- when power is out at the consumer’s home tion and building an inventory of customer also garnered significantly higher interest from interactions. the under-25 age group (about 30 percent This must be followed by a program to analyze were more likely than the other age groups the interactions that are anticipated of each to be willing to pay US$1 per month for such consumer segment and to assess whether a service). This finding may be related to the existing capabilities are sufficient to leverage generally higher willingness we observed of the new infrastructure in ways that support the younger age groups to subscribe to these new customer experience, including: programs, to their higher rate of ownership of mobile data devices and plans (over 80 • Identifying customer wants and needs percent higher mobile device ownership, 45 specific to each of the interactions inherent percent higher mobile Internet plan subscrip- in a particular segment’s customer experi- 3 tion), or a combination of the two. ence • Identifying the interactions that can be most effectively enhanced through participatory network deployment strategies 14 IBM Global Business Services
  17. 17. Companies will see • Defining new or augmented business capa- (other network-focused industries like tele- bilities and regulatory models that must be communications and cable), as well as those long-term benefits from developed in order to translate technolog- that are very different (like retail goods and developing strategies now ical capabilities into customer benefits; and banking). for leveraging valuable determining which, if any, will be ceded to consumer intelligence other providers for further development This needs to be an ongoing process; customer assessment will not cease to be that will be abundant in a • Integrating the development of specific new important after the participatory network is in participatory network. business capabilities into the participatory place. The good news is that the data required network deployment roadmap to perform this continual assessment will be • Communicating these new capabilities ubiquitous and arrive in realtime from multiple clearly and effectively to all stakeholders. sources of value-generating insights. But with this capability comes a challenge – finding The outcome of this program will lead to new and powerful ways to collect, assimilate critical decisions about the customer-facing and evaluate this torrent of new data to inspire business capabilities on which the enterprise new programs and products that appeal to an will focus. Existing organizational strengths expanding number of increasingly involved and new capabilities to be developed – one consumers. by one or in combinations – will form the basis for a broad menu of new products and Strategies must be developed now to manage services that the energy provider can offer. and leverage this new intelligence, setting the Each current (or potential) energy or service foundation for capturing, understanding, and provider must be prepared to analyze the meeting emerging consumer preferences in specific wants and needs of its existing (or the long run. Being prepared for and acting expected) customer base to determine how nimbly during this transition can open new customers want to see new products and avenues for consumer satisfaction, create services emerge, as different programs will new revenue streams, define new business appeal to different subgroups of consumers. models and accelerate technology deploy- After preferences are evaluated, they need to ment – lighting the way to a participatory utility be applied to the customer interaction inven- network in which consumers, utilities and tory in a way that identifies the interactions to service providers successfully share responsi- be enhanced through technological improve- bilities and benefits. ments, regulatory change or improvements to communication channels. To learn more about this IBM Institute for Business Value study, please contact us at Such customer segmentation and analysis will ibv@us.ibm.com. For a full catalog of our be new to many utilities. For early movers in research, visit: particular, lessons will come from consumer- ibm.com/iibv focused industries outside the utility sphere, including industries with some similarities 15 Lighting the way
  18. 18. Related publication Allan Schurr is a 25-year veteran of the Valocchi, Michael, Allan Schurr, John Juliano energy industry, spanning generation, delivery, and Ekow Nelson. “Plugging in the consumer: marketing, technology, strategy and regulatory Innovating utility business models for the affairs. Allan is responsible for IBM solution future.” IBM Institute for Business Value. development in the energy and environment Updated January 2009. http:/www.ibm.com/ arena. As part of this role, he is currently energy/plugin spearheading a global team that is working with utility companies, energy policy makers Authors and other partners to accelerate the devel- Michael Valocchi, Global Energy and Utility opment of an intelligent utility network and Industry Leader for IBM Global Business the integration of renewable energy sources Services, is responsible for the develop- and distributed energy assets. He can be ment and execution of the strategy to deliver contacted at aschurr@us.ibm.com. consulting services and directing industry thought leadership. Michael has 23 years Contributors of experience delivering projects related to Guido Bartels, General Manager, IBM Global mergers/acquisitions, risk, technology and Energy and Utilities Industry regulatory strategies. He has also written or Andie Dipasquale, Global Customer co-written numerous papers and articles on Operations Solution Leader, Energy and the utility industry. In addition, Michael has Utilities served on the editorial board of Montgomery Russell Ives, Director, Energy and Utilities Research Institute’s Energy and Utilities Project for the past five editions. He can be contacted Ricardo Klatovsky, Southern Europe Partner, at mvalocchi@us.ibm.com. Communications Sector John Juliano is the Global Lead for Energy Don Mak, Global Business Services Partner, and Utilities with the IBM Institute for Business Energy and Utilities Value. He has been a consultant in the utili- Ekow Nelson, Global Lead, Communications ties industry for 20 years, working in business Sector, IBM Institute for Business Value strategy, operations strategy, financial analysis Makoto Ohtani, Associate Partner, and technology assessment across the energy Communications Sector value chain. John has written or co-written over two dozen papers on utility issues. He is Acknowledgments currently working on research related to utility We appreciate the many IBM employees business models and electricity consumer across the globe who contributed to the behavior. He can be contacted at juliano@ development of the survey and this report, us.ibm.com. including: Steve Ballou, Loic Buot de l’Epine, Mal Collins, Tony Drummond, Paul Frenay, Brad Gammons, Carl Haigney, Dan Latimore, David Lee, Cheryl Linder, Kathy Martin, Tim McDougal, Tim Mondorf, Detlef Schumann, Ralf Thiemann, and Jeremy Willsmore. 16 IBM Global Business Services
  19. 19. About IBM Global Business Services With business experts in more than 170 countries, IBM Global Business Services provides clients with deep business process and industry expertise across 17 industries, using innovation to identify, create and deliver value faster. We draw on the full breadth of IBM capabilities, standing behind our advice to help clients innovate and implement solutions designed to deliver business outcomes with far-reaching impact and sustainable results. References 1 Thaler, Richard H. and Cass R. Sunstein. Nudge: Improving Decisions About Health, Wealth, and Happiness. Yale University Press. 2008. 2 Ibid. 3 “IBM study shows consumers will accept new forms of advertising if companies follow their rules.” IBM Corporation press release. November 18, 2008. http://www-03. ibm.com/industries/media/us/detail/news/ O496069Q67392X67 .html. 17 Lighting the way
  20. 20. © Copyright IBM Corporation 2009 IBM Global Services Route 100 Somers, NY 10589 U.S.A. Produced in the United States of America February 2009 All Rights Reserved IBM, the IBM logo and ibm.com are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol (® or ™), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and trademark information” at ibm.com/legal/copytrade.shtml Other company, product and service names may be trademarks or service marks of others. References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates. GBE03187-USEN-00

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