Table of Contents
- DATAMONITOR VIEW
- CATALYST
- SUMMARY
- METHODOLOGY
- ANALYSIS
- There are four external factors that should be considered in preparation
for residential market opening
- The first factor that should be considered is EU Directives and National
Legal/Regulatory Frameworks
- Public Service Obligations may be a significant barrier to entry into
power and gas markets
- The effectiveness of the regulator shapes the power and gas competitive
landscape and customer switching/retention rates
- Business processes must change to incorporate retailer obligations set
by the regulator in power and gas markets
- The second factor that should be considered is Organic Market Growth
- Corporate targets and market entry decisions must incorporate exogenous
market data
- The third factor that should be considered is Competitive Intensity
- Detailed competitor profiles allow for specific conclusions to be drawn
from other analytical outputs
- Retail competition can be stifled by lack of access to networks or power
generation/gas assets
- Predatory pricing may emerge as a barrier to new market entry
- Regulated tariffs facilitate retail switching
- The fourth factor that should be considered is the Energy Market
Environment
- Understanding wholesale markets and correctly forecasting volatility is
a foundation for effective retail competition
- Active third party intermediaries can deliver large blocks of customers
with minimal investment, yet also minimize customer contact and commoditize
retail competition
- Effective market research is key to forecasting the price responsiveness
and switching propensity of customers
- There are six internal firm processes that should be recalibrated in
preparation for residential market opening
- Segmentation and margins modelling is the first internal firm process
that should be undertaken in the lead-up to retail market opening
- A model of margins in the B2C market is necessary to inform and validate
segmentation decisions
- Margins analyses and segmentation decisions must be balanced with an
assessment ('reality check') of external factors such as the likelihood of
effective competition
- Product development is the second internal firm process that should be
undertaken in the lead-up to retail market opening
- Successful product development involves mastering four distinct risks.
As competition intensifies and the market environment changes, the balance
between these risks must be re-calibrated
- There are four key success factors for product development
- There are five basic sources of product innovation
- The first phase of retail competition is often a race for scale/critical
mass: but this can have negative implications for successful segmentation,
product development and pricing
- Pricing is the third internal firm process that should be undertaken in
the lead-up to retail market opening
- There is a logical flow to the development of a firm's pricing
structure, without which a firm's products, brand and strategy risks
degenerating into incoherence in the eyes of customers
- The high number of possible pricing structures can wrongly result in
high level segmentation, product and strategic decisions being driven by
pricing decisions
- Applying market development scenarios to revenue projections is the
fourth internal firm process that should be undertaken in the lead-up to
retail market opening
- Selection of distribution channels is the fifth internal firm process
that should be undertaken in the lead-up to retail market opening
- A fundamental distinction between distribution channels is 'in-area'
versus 'out-of-area': targeting customers in one's service area versus those
of a competitor in its incumbent service area
- There are 8 general types of distribution channel
- Effective distribution channel selection takes a realistic view of
likely customer losses in the face of new competition and balances this with
new approaches
- Branding and communication planning is the sixth internal firm process
that should be undertaken in the lead-up to retail market opening
- Customer fixation on price mitigates brand importance, but retailers
still see branding as increasingly important in a competitive marketplace
- Successful marketing campaigns match cost effectiveness with the natural
advantages of the particular retailer
- APPENDIX
- Definitions
- Further reading
- Ask the analyst
- List of Figures
- Figure 1: The first factor that should be considered is EU Directives
and National Legal/Regulatory Frameworks
- Figure 2: There are five main components to the EU Electricity
Directive
- Figure 3: There are three main components to the EU Gas Directive
- Figure 4: The second factor that should be considered is Organic
Market Growth
- Figure 5: The third factor that should be considered is Competitive
Intensity
- Figure 6: The fourth factor that should be considered is the Energy
Market Environment
- Figure 7: There are six internal firm processes that should be
recalibrated in preparation for residential market opening
- Figure 8: Tariffs may be broken down by metering or pricing
characteristics: some examples
- Figure 9: Tariffs may be broken down by bundled product or user
attributes: some examples
- Figure 10: All distribution channels have unique advantages and
disadvantages, with the potential rewards generally being commensurate
with related risks
- Figure 11: All distribution channels have unique advantages and
disadvantages, with the potential rewards generally being commensurate
with related risks
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