Table of Contents
- DATAMONITOR VIEW
- ANALYSIS
- Though at a market level energy demand is relatively price inelastic, in
competitive markets the pricing function is revolutionised
- Total demand in energy markets is largely price insensitive
- Historically, with a captive customer base, utilities set prices to
cover costs
- In competitive markets, individual utilities' pricing decisions are
fundamental to the overall success of the business
- The pricing challenge for utilities is in keeping margin high while
maintaining a customer base
- Despite the presence of competition, outside influences can still
impact upon retail price formation
- Wholesale price is the largest and most volatile component of end user
price and heavily influences retail strategies
- Wholesale costs are the largest and most volatile component of retail
prices
- The wholesale division must manage the balancing challenge, buying
according to their customers demand
- Trends in the wholesale market can deeply affect the retail landscape
- Price is a strong lever for managing the Industrial and Commercial
portfolio
- Price is the most important aspect of service to I&C energy buyers
- The I&C market features a range of product options reflecting
usage profile and risk appetite
- Competitive tendering removes hidden margin and introduces a role for
intermediaries in demand management
- Pricing strategies for smaller businesses consider willingness to
switch and cost of acquisition when offering renewals
- Upon market liberalisation customers are divided along arbitrary lines
- Specialisations develop as markets mature and new entrants target
specific buyer segments
- In competitive markets B2C customers are less sensitive to price than
B2B customers, and utilities strategies reflect this fact, but it is still
the most important factor
- In B2C retail, products tend to be more standardized and offer less
scope for influencing consumer behaviour via price differentials
- Customer inertia remains dominant and therefore legacy customer power
is a key opportunity
- Cross selling may be a way of retaining customers on high margin
products
- APPENDIX
- Ask the analyst
- Datamonitor consulting
- Disclaimer
- List of Figures
- Figure 1: US electricity demand and price index 1994-2005
- Figure 2: Price setting in a captive market
- Figure 3: The evolution of absolute margin under competition
- Figure 4: UK wholesale power and gas prices
- Figure 5: Potential exposure to the balancing market
- Figure 6: Margins and costs under a theoretical falling wholesale
market scenario
- Figure 7: Industrial buyer research, importance of various influencing
factors upon choice of supplier
- Figure 8: I&C contract types
- Figure 9: The influence of TPIs under competition
- Figure 10: Pricing matrix applied to Small Business customers
- Figure 11: Market shares within buyer segments with regional
segmentation
- Figure 12: Market shares within buyer segments after supplier
specialisation
- Figure 13: B2C Market Churn rate UK 2002-2006
- Figure 14: Indicative annual dual fuel bill (excluding DUoS), 2004 to
date
- Figure 15: Customer wins and losses and price relative to market
- Figure 16: Margin tactics when cross selling dual fuel
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