Pricing and distribution of commodities
Energy suppliers face major challenges in selling their commodities. There are no quality differences in the physical nature of electricity and gas. Nor can they be easily substituted. As a result, consumers essentially use two factors to assess quality: price and brand.
Reason for decision: Price
Consumers who decide only on the basis of price will always go for the cheapest supplier when comparing prices. These customers are only valuable to energy suppliers if they are on their way to (process) cost leadership.
Reason for decision: Brand
For all other consumers, a lock-in can be created via the brand. The most important thing here is to build up a relationship of trust with the customer. To the extent that the customer no longer feels any desire to switch.
If consumers are less willing to switch, they are usually also less price-sensitive. Energy suppliers should exploit the resulting higher willingness to pay prices. At the same time, however, early warning indicators must be established to signal a renewed increase in willingness to switch.
Solution approaches for the energy industry: customer segmentation
The customer base should be segmented in order to assess the willingness to switch in a meaningful way. This is best done on the basis of the two dimensions of churn score and customer value. These two dimensions make it possible to estimate whether it makes sense for the customer in question to increase tariffs and what the risk of switching is associated with such a plan.
The calculation behind such an approach must be dynamically anchored in the CRM system to be able to estimate changes at the respective customer at an early stage and avoid losses.
Pricing and distribution of non-commodities
In the non-commodity sector, it is not always just hard facts that play a role in the purchasing decision. Often there are also idealistic motives such as “doing something for the environment” or “strengthening the region”. This applies to both the B2C and B2B markets.
These ideal added values must be identified and taken into account in pricing. Energy suppliers should therefore move away from cost-plus pricing toward value pricing.
Value pricing in the energy industry
When it comes to value pricing, many people have complex and costly methods such as conjoint analysis (linking) directly in mind. And even though these approaches produce very good results and are definitely used by us, there are alternatives to them.
For example, within the framework of relatively simple and inexpensive telephone surveys using van Westendorp. In this way, it is already possible to estimate price willingness very well.
So, especially in the non-commodity sector, there are more frequent sales talks in which the added values have to be explained and prices have to be argued.
That is why both in-house and external sales forces must be empowered to sell added value. Value selling must also be established in the energy industry.
However, to achieve this goal, we don’t just use sales training. Based on facts, we also show the sales department which and when customers are more or less price-sensitive. We support this with sales tools that allow sales to optimally prepare for negotiation talks in the future. In addition, we also work with product marketing and sales to develop selling stories that can also help sales prepare for sales calls.
Prof. Roll & Pastuch – Management Consultants has extensive experience in pricing and sales in the energy industry.
- Development of pricing models and value pricing
- Innovation pricing and go-to-market strategies
- Preparation of business plans
- Market segmentation, VoC studies and customer loyalty programs
- Sales training and negotiation training
- Sales strategy and process optimization in sales
- Realignment of the marketing and sales strategy
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