The Market Teaches Contact A Lesson After Director’s Fees Fiasco

April 29th, 2009

• Customer numbers at 7 year low.
• Disgruntled customers easy to shift.
• Improving marketing crucial.

The key distinguishing feature of Contact Energy’s spectacular collapse in customer numbers over the last six months is the rapid and successful deployment of customer acquisition campaigns targeted at disgruntled customers by Contact’s competitors. Power companies have blundered before, but none has been so comprehensively punished by its customers, in large part because electricity retailers have been slow to develop effective retail marketing arms. This has changed now. More than 42,000 Contact Energy electricity customers – close to 10% – have walked away from the company since last October’s pre-election directors fees and tariff hikes debacle.

The loss of almost 10% of its electricity customers in the six months to March leaves Contact with a headache and a potential hit to its earnings, assuming it wasn’t intentionally trying to shed customers in South Island strongholds and the valuable Wellington dual energy (gas and electricity) market. In its regular reporting to the NZX, Contact has revealed it lost the best part of seven years’ customer growth in the six months to March 31, with the bleed continuing, albeit more slowly, well into the New Year.
Contact ceded 12,000 electricity customers in the first three months of this year, as competitor raids continued. Total electricity customer losses are running at close to 8%, measured against a record high-point reported by the Electricity Commission late last year of 529,106 customers.

The latest numbers show the size of the setback to Contact’s efforts to entrench itself as a leading retail electricity brand. Total electricity customers now stand at 489,000. The last time a Contact annual report showed a lower total was in 2002, when the total stood at 449,000. At an assumed average cost per customer acquisition of around $150, Contact would incur additional marketing costs of $6m-plus to re-acquire the customers lost in the period – a massive marketing spend in NZ electricity retail market terms. Contact spokesman Jonathan Hill says the figures show “it’s an extremely competitive retail market out there.”

Mercury, Meridian, Genesis and its offshoot Energy On-line, Todd Energy’s Nova Gas, and TrustPower all mobilised customer acquisition campaigns in valuable Contact customer bases including Wellington, Christchurch and Dunedin. All three were targeted for Contact’s pre-election 12% tariff increase, which also coincided with the emergence of the global financial crisis.
Mercury – previously an Auckland brand – took the opportunity to launch in Dunedin, a traditionally high value market where Contact remains the dominant supplier. The lesson appears to be a well-targeted offer to disgruntled customers is an easy sell, especially with one-off $70 to $100 first bill reduction enticements.

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