Perspectives

Case Study

Designing a Purpose-Built Business to Win in the Retail Energy SMB Market

Industry & Client Situation

The deregulated Retail Energy market is a relatively young segment of the broader Energy industry, and one that continues to provide significant opportunities for Retail Energy Providers (REPs). While most REPs have focused their attention on targeting and serving large commercial and industrial accounts, the interest has been rapidly shifting to capturing opportunities downmarket, particularly among small and medium business (SMB) customers, where awareness of existing competitive alternatives is relatively low, where switch rates continue to grow, and where unit margins (per MWH) can be substantial.

But why has it been so difficult for REPs to monetize opportunities in the SMB segment?

The answer lies on a common issue that is observed across a variety of industries, from Technology to Financial Services: SMB customers display significantly different traits, behaviors and attitudes than their large business counterparts, resulting in distinct requirements for companies that wish to acquire and retain those SMB customers successfully. And, as we have seen across industries, very few companies get this right.

Bridge Strategy Group was engaged by a leading North American REP—a unit of one of the largest Energy companies in the world—to design a purpose-built and competitively differentiated business system solely focused on the Retail Energy SMB segment.

approach

We have adopted a customer-centric, market-driven approach where SMB customer characteristics, needs and preferences were combined with industry trends, competitive dynamics and the regulatory landscape in order to guide the business system design.

Primary research, including both one-on-one interviews as well as a quantitative survey, provided in-depth insights into SMB customer segmentation, awareness, energy usage, switching behavior, attitudes towards energy purchase, price sensitivity etc. These insights were fundamental to describe the requirements to compete in the SMB space and to identify areas where the purse-built business system could be differentiated.

That customer-centric perspective was complemented with a broad understanding of Retail Energy industry dynamics, trends and key success factors, and was matched against knowledge of our client’s leverageable strengths and existing capability gaps.

results

The resulting business system is supported by a highly automated and efficient outsourced back-office platform, and grounded on four distinct core capabilities that constitute a source of sustainable competitive advantage, including: a) marketing and customer analytics, b) multi-channel management, c) strategic pricing, and d) supply and risk management.

All elements of the business system were described in detail to support the subsequent build of the SMB business, including: a) customer and channel experiences, b) customer and channel access points, c) key processes and linkages, d) decision-making and information resources, e) organizational skills and structure, and f) business applications and technology. We have also created a robust financial model to estimate capital investment requirements, to simulate expected business performance, and to create a pro-forma P&L to support the business case.

With Bridge Strategy Group’s support and guidance, the SMB initiative successfully received executive approval, including the allocation of the required capital budget and the opening of additional staff positions. A comprehensive implementation plan was developed in order to orchestrate the build efforts leading to the deployment of this new venture.