COLUMBUS, Ohio -- Electric utilities will have to change the way they market themselves to keep pace with deregulation, according to an Ohio State University professor.
A study led by Brian Roe, assistant professor of agricultural, environmental and development economics, found that people want to choose electric utilities the same way they choose food at the supermarket: by comparing standardized labels.
"Aside from a situation like the California energy crisis, only one thing can kill deregulation -- people's unwillingness to shop around for new utilities," Roe said. "We found that people feel more comfortable about trying a new utility if they can base their decision on standardized information."
While the basic result of the study is not surprising, it may hold profound implications for state legislatures contemplating deregulation, Roe said. To enable deregulation, state governments may have to mandate that utilities offer customer service ratings, pricing, and other critical information in a uniform, concise format.
As it stands now, some electric utilities are free to distribute marketing materials in any format; depending on state regulations, they can include or omit any information they see fit. As a result, consumers can become confused when they try to make a comparison, Roe explained.
He likened the utilities' current marketing efforts to those of long distance phone companies -- each company explains its selling points in a different way, so a direct comparison is nearly impossible.
Roe feels that a better solution -- one that enables free market choice -- would be for utilities to emulate food companies instead.
The research stems from work begun during Roe's tenure as a staff fellow at the U.S. Food and Drug Administration (FDA) Consumer Studies Branch. His branch chief at FDA and co-author on the current research was Alan Levy, who earlier in the 1990s tested and developed the standardized nutrition label that is found on nearly all packaged foods.
For this survey on utility deregulation, Roe and Levy collaborated with Mario Teisl, assistant professor, and Huaping Rong, graduate research assistant, both of the University of Maine, Orono. The results appear in the summer issue of the Journal of Consumer Affairs.
The researchers surveyed more than 1,000 adults in eight U.S. cities: Cincinnati, OH; Holyoke, MA; Houston, TX; Jacksonville, FL; Riverside, CA; Philadelphia, PA; Portland, OR; and Salt Lake City, UT.
Researchers visited shopping malls in different socioeconomic areas of these cities, and showed people marketing materials for three hypothetical utilities. Selling points for the hypothetical companies came from bits and pieces of the promotional materials of actual utilities from across the country.
Some people had to choose a utility based only on typical marketing materials, while others were also able to view a standardized chart that plainly outlined several key characteristics of the companies. Key characteristics included average monthly cost per customer, customer service ratings, the percentage of power obtained from environmentally friendly sources, and the amount of air emissions created relative to the national average.
People made more confident choices when they viewed the standardized chart, Roe said. "The chart let consumers zero in on the factor that was most important to them," he said. "Whether they cared more about cost or renewable resources, they felt more confident making a decision when they could clearly see how each company stood on that issue."
For example, a company with a so-so environmental record may decide to omit that information from its marketing materials entirely. Potential customers who read these materials are likely to assume that the company's environmental record is much worse than it actually is.
The survey was partially funded by the U.S. Environmental Protection Agency and the National Science Foundation.
Written by Pam Frost Gorder, 614-292-9475; Gorder.1@osu.edu
Among the implications of the study:
1) Utilities could profit from re-thinking their target markets, and offering specialty products.
Just as standardized nutrition labeling encouraged food companies to offer new low-fat or low-sodium versions of their products, utilities could offer a "green" product to people who want to buy environmentally friendly power, or a low-cost product to people for whom price is the biggest consideration.
2) If utilities are required to provide standardized information, they'd better make sure the information matches their marketing materials.
Participants in the survey noticed when the chart conflicted with the marketing materials, and they were not very forgiving. "For these people, the problem wasn't that the utilities did something bad, but that they tried to cover it up," Roe said.
3) If utilities omit information to improve their marketing position, that strategy could backfire.__pfg
Journal
Journal of Consumer Affairs