3 Steps a Utility Should Take to Tap into a Small Commercial Customer
Tawn Graham
December, 2013
1. Define Your Small Commercial Customers
How does your utility define the Small Commercial Customer? With each of our
utility partners, the answer has been a little different. Some use SIC Codes
(Standard Industrial Classification) , NAICS Codes (North American Industry
Classification System) , kWh’s, billing rate codes, monthly billing amount or a
combination.
Interestingly, the United States Small Business Association defines small
businesses as:
 Having between 1 - 500 employees (in some business categories up to
1,000 employees)
 Plus having receipts of up to $35.5 million a year.
In reality, this definition applies to about 99% of all business in the US.
Try and compare a small business with 3 employees vs. one with 500 or even
1,000 employees. You can’t. Their needs, resources, what’s important to them,
what they care about - even their goals and objectives are vastly different. But
what is common among small businesses is that their time is limited. And one way
to differentiate yourself is to treat their time as valuable - don’t waste it by talking
about topics they don’t care about. It is important to talk to the small business
only about his business type. And how do you do this? By segmenting customers
into groups so you can talk to them about relevant issues and ideas – things that
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matter to them. We discuss segmentation in further detail later in this opinion
paper.
Impact your goals by simply serving this segment. Your goals may be Energy
Efficiency, Customer Satisfaction, Education, or Revenue. Because this customer
segment has been underserved by many utilities, there is a real opportunity to
impact these goals. At a minimum, if you deliver useful, relevant information to
the right customer, you can’t help but impact customer satisfaction.
2. Understand What the Small Commercial Customer Cares About
In our research on small commercial customers, we found the most important
consideration is payback. They want to know if they make an investment, how
long it will be until they recoup that investment. For many of them anything
longer than three years is too long. Note: 44% of all businesses fail by year
three*. They look to you as an expert, so give them advice about immediate
steps they can take now and what they may need to put off until later.
As their expert resource, help them understand:
• What steps can I take now to being more energy efficient?
• If I make changes, what’s the cost now vs. the long-term savings? –
Major/Small
• Can you help me determine what changes I can afford to do now; what may
need to wait until later?
• Is there any help – i.e. financing, rebates?
• What do I do if I don’t qualify for any specific rebate, yet I want to make
changes (custom rebate)
• Can you help me find someone I can trust to do the work?
• If I rent/lease, what changes can I make?
• What’s available for new construction?
• What are my renewable/green energy options?
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Educate these customers about the products and services you provide coupled
with what’s in it for them and make it easy for them. Do you provide financing
and/or rebates? Can you refer them to a qualified contractor(s)? Tell them
what’s available for new construction and even green energy options. Suffice it to
say when we were developing our small commercial program, the small
commercial customers we talked to directly revealed how interested and hungry
they were for information. They self-educate via the internet. Undoubtedly, they
are receptive to the information you provide (make it easy to find). We talked to
small business customers who had estimates to change out their commercial
lighting, but needed help to determine the breakeven timing. We talked to one
small commercial customer who was experimenting with putting timers on his
commercial refrigeration to save money. Again, these customers want energy
education and can really benefit from the information you provide.
3. Understand How to Reach The Small Commercial Customer
If you think you are reaching small businesses with bill inserts, you are wrong.
Most service businesses outsource financial tasks/bookkeeping until revenue rises
above $1 million – or it has 30+ employees**, after which time they hire someone
full-time. People who receive your bills at a small business enterprise (and
subsequently your bill stuffers) are not the decision-makers when it comes to
energy efficiency or customer satisfaction – they simply write the check. Don’t
bother with bill stuffers to reach this group.
Don’t make your direct mail contacts look like a bill. You can try emailing your
small commercial ebill contacts, but understand you probably aren’t reaching the
majority of who you need to reach here either. However, an email is quick and
painless to forward along in small business organizations, so it can’t hurt to
employ this effort- just don’t make it you main effort. In order to increase the
chances of your solicitations being delivered to the correct decision-maker, you
will probably need to buy data. We discuss buying contact names later in this
paper (see append data section).
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SEGMENTATION:
Segmentation is how you divide separate groups of customers that share similar
characteristics. When you properly segment your customers, you can tailor your
products and services to meet their needs and you can further tailor your
messaging. For example, if you are talking to the owner of a restaurant, he is
concerned with information that pertains to refrigeration, commercial cooking
and cleaning. If you are talking to the owner of a hair salon, he will be concerned
with water heater efficiency.
SIC/NAICS SEGMENTATION:
One way to consider segmenting customers is by SIC/NAICS codes. A SIC code is a
4 digit numerical codes assigned by the government to a business to identify the
primary activity of that establishment. The system arrays the economy into 11
divisions that are divided into 83 2-digit major groups that are further subdivided
and then divided again.
In 1997, a new code system was introduced to replace SIC. It is called North
American Industrial Classification System - NAICS. It is similar to the SIC; however,
there are 20 divisions that are divided and subdivided.
In either case, you may want to roll-up some of the industry segments so as not to
slice the customer groups too thin. By rolling-up segments, you take smaller
groups of customers with similar characteristics (i.e. restaurants and hotels use
similar things like commercial refrigeration, ovens, hot water etc.) and make a
larger target group. The number of roll ups you will have depends on the total
number of small commercial customers. You don’t want to have a large number
of segments if you are only talking to a few hundred customers.
Think of it in terms of a pie. When you slice a pie into 20 total pieces, the size of
the slice will be thin. It may make more sense to take that same total pie and only
slice it into 6 pieces.
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You may want to consider another way to segment or to add an additional level of
segmentation that makes sense for you. Why? Because customers in a specific
industry segment tend to act similarly as a group. Individual customer behavior
can often cut across industry segments when viewed from a different metric.
What could this additional level be? Revenue is one idea.
Transportation
/Wholesale
Restaurant/
Retail/Lodging
15%
21%
Services
8%
Unknown
6%
Manufacturing
16%
Agriculture
34%
An example of segmentation and how a more rural area might look when
segmented by “rolled up“ SIC/NAICs segments. This roll-up is just an example.
REVENUE TIERED SEGMENTATION:
Revenue tiered segmentation is similar to the 80-20 rule that I’m sure you are
familiar with. The 10-20-30-40 rule basically states that:
1. Top 10% of customers deliver 40% of revenue
2. The next 20% of customers deliver 30% of revenue
3. The next 30% of customers deliver 20% of revenue
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4. The bottom 40% of customer deliver 10% of revenue
10-20-30-40 Rule
Cummulative Basis
100%
90%
Tier
4
80%
% Revenue
70%
Tier
3
60%
50%
Tier
2
40%
30%
20%
Tier
1
10%
0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% Customers
Essentially, this rule can help organizations focus efforts on their most
productive customers and lessen their efforts on the bottom tiers of customers.
This prioritization can help companies develop marketing campaigns and pricing
strategies to extract maximum value from both high- and low-profit customers. A
utility can use customer segmentation as the principal basis for allocating
resources to product development, marketing, service and delivery programs. For
example, you may want to provide customers with an on-site audit. By
segmenting your customer base, you can easily determine which customers to
offer this expensive marketing effort. The mid or lower-tiered customers could be
offered an online audit only; whereas the high-tiered customer would be offered
an on-site audit. Knowing this is valuable because this allows you to be selective
in who you target and who you don’t. You may want to add yet another layer- for
example, usage. By utilizing additional criteria – or layers you can better
identify the customers that will a) be most likely to respond to your solicitation
and b) benefit from a walk-through audit. It is really just based on your goals and
objectives.
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APPEND DATA:
Why would you purchase data and append it when you know billing information
and SIC/NAICS? So you begin to formulate a more complete picture of your
customers. When you apply purchased data information (which could include sq.
footage, number of years in business, annual sales and even contact names and
email addresses), your messages can be stronger and your responses can be
higher. In a Special Report about small business customers, there is a disconnect
about the products and services the utility is providing: only 35% are specific to
their industry and business type, yet 87% of business customers rank utility
products and services as “very important/somewhat important” to them***.
That spells O-P-P-O-R-T-U-N-I-T-Y. A side note: you may not get great match rates
with appended data, but at a minimum you are beginning to fill the data holes.
Also note, purchased data goes bad at the rate of 36% each year. People change
jobs, companies change and contact detail like email addresses, phone and
mailing addresses also change. However, I am a firm believer the more
information you collect about your customers the better off you are.
USAGE:
When you understand the role usage plays with your customer segments, you can
also use it to further target your marketing. Like the picture in a puzzle, the more
puzzle pieces you have, the more you understand the picture. The more
information you have and apply, the more you can help your small commercial
customers. Usage lets you understand how a particular customer or customer
segment is using electricity. It lets you see how they use electricity historically. It
gives you invaluable insights. You can see if this commercial customer is growing,
shrinking or staying status quo. Let me refer back to the small commercial
customer cited earlier – the one who is planning to switch out his commercial
lighting. He is seriously considering making this investment. As his expert
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resource, you can help him determine when and if it’s the right move for his
business. Using all his information and coupling it with usage, you can help him
determine his payback timing and if it’s in the best interest of his company to do
the entire project at one time or if he should do it in stages. In addition, you can
help your customers identify low cost or no cost fixes to reduce energy waste
(something as simple as caulking drafty office windows), you can suggest
upgrades and improvements to their business and you can help them prioritize
projects for the best ROI. You will make an important difference. Utilities are a
small commercial customer’s most trusted source for information, so provide it to
them. Imagine how satisfied these customers will be with you?
At Direct Options, we saw a need for utilities to engage the small commercial
customer in a meaningful way. That’s why we developed the DirectConnecttm
Business Program. It’s an online survey portal that delivers customized reports
(paper or electronic) to individual businesses. These customized reports provide
small businesses pertinent suggestions, tips and information based on their
business type plus any other information we know about that business. It’s
loosely based on our residential product that has been used for over 7 years by
clients in several markets in the Midwest and the South. One of our clients
launched this program in May, 2013 and is currently seeing a program increase of
over 120% in their key objective. We built this program so that it can help utilities
effectively achieve their individual goals including Customer Satisfaction, Energy
Efficiency, Revenue Generation and Education.
In review:
Online Log-in Portal and
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Customized Reports (Electronic/Paper)
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If you want assistance in reaching the small commercial customer call 513-7794416 or email tgraham@directoptions.com. I’m a DM executive who has been
actively marketing since 1988. I’ve been privileged enough to managed marketing
efforts on behalf of IOU’s across the US. Direct Options has been serving the
Utility Industry for 20+ years: Your Customer. Engaged.
*Statistic Brain.com
Source: University of Tennessee Research
Date Verified: 7.26.2012
**entrepreneur.com/article/219917#
***Special Report: Small and medium
businesses: The untapped energy consumer.
The New Energy Consumer Handbook
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