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New ways of buying

Crystal ball or balls of steel?

Aaron Carson November 2009
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Power To The People

By Hayden Vink

Powershop, the world's first online energy store, gives us greater savings, control and transparency around how much power they buy and use. It also enables us to choose from a range of electricity products. In less than a year Powershop has changed the way many of us think about buying and using electricity.

The results just in from Consumer's 2009 online survey also show Powershop has the highest rating recorded in five years of surveying members' satisfaction with their electricity supplier. This has come in at an impressive 92% satisfaction rating. DNA's Hayden Vink talked to Simon Coley about how they've done it.

Where did the Powershop idea come from?The thing that kicked Powershop off was a project that former Meridian CEO Keith Turner championed. He was interested in seeing what would happen to the power industry in the future and wanted to make sure Meridian would be prepared for change. 

He tasked the senior management team with going away and thinking about what would help future-proof Meridian. They came back with three ideas. One was called Move which is still going. It’s about understanding and generating demand for electric vehicles in the future, and working out how Meridian, which generates sustainable energy, can position itself as a key player in that market. Another idea was about efficiencies and the technology that serves the existing customer base.

The third, the one that begat Powershop, was a thing called free agent. The idea there was to understand if electricity could be considered as a FMCG good as opposed to a utility service. And if it could, would it be possible to have customers more engaged in the consumption and management of their energy. This wasn’t something that had really been possible for electricity consumers traditionally.

What were the main challenges you faced in developing the idea?The project started around the idea of selling energy like you would cornflakes in the supermarket – and would it be possible to make the idea of purchasing ‘power’ tangible? We originally thought it could be as simple as selling things like cards that would be similar to mobile phone top-up cards, or prepay charge cards, in a supermarket or shopping environment. 

However, when we started modelling that it quickly came to us that retail space is expensive, and the margins in electricity are quite low. Also to manage what we were considering you’d be differentiating pricing types of energy supply between, say, wholly renewable carbon offset and traditional energy that has a component of carbon in it. There would also be the various specials we might offer, along with the different brand associations. So you’d have a large range of dynamic products in an environment that’s not actually that dynamic. 

Also, the cost of managing dynamic pricing in a supermarket is high and isn’t something that’s ever been done that successfully on an hourly basis, so we thought the best place for this would be online.

What were the next challenges having decided to take Powershop online?

The next issue was how do you make electricity noticeable? You only really notice power when you don’t have it – when you have a power cut - or when you get your winter bill and it just seems too much.

And in presenting a customer with what we call an energy product there’s a whole lot of dynamics. There’s the wholesale price of the energy, the metering configuration they have, and the difference between us offsetting the carbon and the energy they’re buying. There’s also seasonal price variation. 

Most people haven’t ever been exposed to this before. One would think there’s a paradox in being able to get more information around a commodity like this and making it a very simple engagement for the customer. So our biggest challenge has been simplifying the proposition, namely buying power online, in a way that’s tangible, useful and desirable.

A key challenge was designing a way of showing how much electricity you might need to buy, what it’s worth, and when you’d need it. The current relationship most people have with their power company is that at the end of the month you’re billed for the power you’ve used already. You’re not really aware of the price of that energy until you are billed for it, or how much you’re using. 

But in the modern environment where you have access to information about most things you consume in real time there seems to be bit of a lag between consumption and paying. It seems a simple concept that we should be aware of the price of something prior to purchase.

Energy is also becoming a more contentious issue in that there’s less of it and it’s getting more expensive. Then there’s the cost other than the financial one, in terms of carbon creation through generation. Surely it’s good for a power company to be seen to be giving consumers a much clearer understanding of the energy they are purchasing in all of those contexts. 

So the design challenge was to make those intangible things more tangible, and make them relevant prior to purchase or use, so consumers have more control over their energy consumption. Interestingly, one of the hypotheses that’s been playing out to be reasonably true is that the more engaged people are, or the more they know about their electricity consumption, the more they can conserve if that’s of interest.

Where did you go from there?

We started looking for people to help us. The first developers we talked to were called YouDo who had worked with emco, the power industry reconciliation organisation. They know a lot about managing complex transactions in the power industry and have great experience using open source code. That and their experience with other development tools provided us two really good foundations for the business.

One was that we could use code we’d own and not pay large amounts for. Another was that we didn’t have to get a huge legacy system that we then had to integrate with. We could just start from scratch.

YouDo also have a lot of experience in the industry. Through them we were introduced to you and your expertise in user interface design, and development and usability. And as you know our initial conversation about how we might go about doing this has turned into a very long and successful relationship.

Isn’t it fair to say that the existing way we buy power is actually quite simple and works because of that?It’s born off electricity being considered as a kind of basic right like water.  Electricity is a commodity.  We used to have a totally state owned and regulated industry where people had no choice, they just got given power and they paid the price that was set for it. 

When the industry was deregulated they had an amount of choice and there were a number of different companies delivering power. People could choose which one they wanted, but the only real difference, price, was not really that visible to anyone. I think people are still unsure about the price they pay for energy from different suppliers and it’s hard for someone to make that comparison like they would with a mortgage.

However, things are changing and now our electricity comes with other costs.  We know that generating sustainable energy is arguably more expensive and establishing new generation costs more money. But we do have generation capability in our hydro lakes which has meant New Zealand is quite fortunate and does have a lot of renewable energy. 

The cost of using non renewable energy is higher now, or will become higher when taxes and mission trading schemes around carbon and those sorts of dynamics start affecting the market. We believe people ought to be given the choice between different suppliers and that they shouldn’t be locked into one of them. What we’re offering is that you can make those choices on a daily basis if you wish.  Any modern market operates that way so why should we be disadvantaged by not being given those choices?

The notion of buying power as a consumer good is interesting. You talk about the challenge of making the intangible tangible.We knew it would be a challenge to present electricity as a consumer good when it’s largely undifferentiated to the buyer. So Powershop has been set up as a ‘market place’. The dynamics of the market place should allow different suppliers to competitively price their products to make them look more attractive. For example if you have two or three energy companies in a market you should have some dynamic pricing that affects consumption. 

We also believe we can use the shop as a way of promoting other interests.  There are other products in there at the moment. One is called project crimson. If you purchase this package some of the money goes to planting native trees in New Zealand. It’s both a charity to protect native trees and a way of offsetting carbon. 

We can also offer discounts for dynamic pricing. We’ve had products in the shop when the lakes have been full because that has an affect on the price of energy.  We’ve had products that allow you to buy forward, so you can be buying power for next winter now, which allows you to manage your costs over time and budget ahead. Naturally people spend more power in the winter. So we can let you squirrel away some of the energy in summer so it’s in the bank for the winter.

The design challenge here was to present these products in a way that described the offer without too much extra information. The model we’ve got isn’t that different to something like itunes, where you have a certain amount of space allocated to each product and explain what they do in those 130 x 130 pixels.

We also have what we call ‘everyday products’.  You buy power now and it’s shown on a calendar that gives you an indication of how much power you have and how long it will take to consume it. You can also look back on what you’ve been consuming. If you’re not interested in logging in to do it we can analyse this for you, or automate the process. If you visit frequently, or up to once a fortnight, you can take advantage of specials on products we’ve priced competitively because of the lakes being full, or some other reason that’s allowed us to get you a better deal. 

You talked about YouDo and open source, and the advantages they offer.  What other sorts of technology-based challenges have you had to overcome to bring the proposition to life?

From my perspective, being mostly concerned with the customer experience, simplifying the interface has been a technical challenge. We’ve made quite a few improvements since we’ve launched and I think we’re still refining the experience. 

To start with the very obvious thing was having a great user experience at relatively low bandwidth, through delivering what is essentially two screens – showing customers how much power they have and what they need to buy to meet their needs. 

I think that the challenge we’ve met there, is that like most sites that have a relatively complex user interface, it’s an application not just a website. There are a few technical constraints around delivering an experience like that. I think we have balanced that quite well. We’ve had very few complaints around speed or other browser or connectivity related issues. So we’re pretty comfortable and proud that we’ve got to a point where it’s working well. 

Admittedly our target audience is people who are reasonably technically literate and we understand the need for them to have reasonably good connections and equipment. But that doesn’t rule anyone out. We’ve looked to serve as broad a customer base as possible. 

We’ve also successfully improved the way we present the proposition on the public website and we’re gradually improving the user experience on the applications in the logged-in side of the site. And now that we have opened the business channels up we’ll be making developments to deliver an experience tailored for business owners that allows people with multiple addresses to manage those addresses through one screen. 

So there’s still quite a lot of development to do and those are technical challenges.

What about the tools you’ve developed to help customers make decisions about whether they buy now or later? What thinking has gone into making that possible?

The key to the experience is that we need people to know how much power they have. The big breakthrough in the design for that was thinking of depicting the amount of power you might need to buy, or that you might need to purchase retrospectively, in the context of a calendar.

We’ve developed a thing called the Power Organiser which shows green for the days you’ve got power for and red for the ones you’ve used power on but still might owe money on. It also allows you to see how much you bought in advance, so if I’ve bought power for say next June it will block out the amount of days that that power will serve me for. 

We also needed to allow people to input their own meter readings so we’re able to have a very accurate reading of how much anyone would need, or exactly what their power usage is without having to have a smart meter or technology that measures power consumption. We think our users are the smartest metering services we’ve got, so we’ve allowed them to update their own details as they like and that’s been very successful. We’ve simply tried to replicate the look of a traditional meter on the website and if you roll over that you can input your reading. 

The third thing is the shop itself, where we present the range of ‘electricity products’, as we call them. They’re available and priced dynamically for where you live and the type of connection you’re on - this is another technical challenge for us. You may have multiple meters in a day/night meter, in which case we take that into consideration too. And in Christchurch, where we have a relationship with the lights company, we’re trying to encourage consumers to use power in the weekend by offering a discounted rate for weekend consumption in much the same way you’re encouraged to use more power at night because of the day/night metering pricing. 

We’ve been able to use our Smart meter partner’s installations there to offer people in that region a better deal in the weekends, which is a really tangible example of how there’s a more dynamic way of thinking about customers and how we deliver their electricity - working to the customers advantage. 

Tell me about the process of getting a customer to switch from where they currently are to Powershop. What are some of the challenges there?

One of the greatest challenges for us was to make it incredibly simple for people to sign up online, so we gave ourselves the challenge of enabling people to do it in under five minutes, and then making the switch happen as quickly as possible. 

Given the way that we’ve designed and built this, and with permission of the company the customer is switching from, we can move them in as little as a day, which is unheard of in this industry. Legally, the maximum amount of time to do a switch is 28 days and many companies wait. Our average is under two weeks now, so we’re doing quite well, but the fastest case I think of to date is three hours. 

We spent a lot of time developing the switching process and we’ve got the interface as smooth and as fast as we can. We ask for the least amount of information you need to get someone on board. This includes ‘do you have a power bill’ and ‘can you read your meter’? It means we can switch you faster because we can activate the process then and there.

One of the things we thought would be a great customer experience from the outset was to make it feel like you’d signed up and you’d switched, and that you would be able to start buying power then and there. We’re still working towards that – it’s kind of our holy grail. 

How have you promoted Powershop?

We weren’t naïve enough to think that people were very excited about electricity.  It’s what they call a low engagement category. But we still believe we’ve got something pretty good to offer and given the feedback we’ve got to date we’re delivering that. Customers seem pretty happy and excited about it. 

I think the big thing for us was to differentiate our brand from all the other power companies. We needed to show people that at last someone was on their side and truly thinking from the customer’s perspective.

We made the decision to use Doublefish to do our brand communications and advertising. We’ve produced a number of ads on television and posters and things that really delighted us and our customers when we launched. Our ‘power to the people’ campaign which launched last February got us a good amount of publicity. 

We are still refining our marketing materials. Now that we’ve been running for 10 months we’ve got plenty of evidence of the savings and the control we’ve been able to give customers. So we’re looking at making this more visible to people so they know it’s not just us saying these things, that there are a number of Kiwis that have benefited from this service. That if you’re not with Powershop you’re definitely missing out because of the savings and the other benefits like being able to reduce your carbon consumption and have a lot more control over the power you use, or conserving the energy you use. And that this service doesn’t cost you anything to switch to.

How do you rate your success so far?

Well we are very ambitious and we like to be seen as the major player in the electricity industry. The most interesting thing for us at the moment, and this is a very disruptive proposition, is that we are changing the way people think about buying and using electricity.

We’ve had some interesting feedback from international companies and we think we’ve done something that’s a world first. No one’s been able to provide this level of information around power supply and purchase before.

There’s the smart grid, and the question of how more intelligent things can get around consumption and supply is a hot topic internationally at the moment. But we would say we’re probably the only demand side innovation product that’s being deployed on a large scale like this, that’s as advanced in the world. 

Google has a programme with a consortium of energy companies in California to try and organise the energy information around households there, but it’s still in trial and they aren’t selling any power they’re just measuring it. Microsoft has launched a product called Om which endeavours to do the same by polling information from users. They get a profile of your kind of consumption and help you manage it.

IDEO, from what we know, has worked with a German power company, Yellow, to deliver a metering solution that uses the real estate on a screen on a PC to help people manage that stuff. We’re not that familiar with that product, but these are all large research or product deployment development type projects with power companies that are endeavouring to improve the customer experience around energy. But I think to our knowledge, no one’s helping people manage and purchase to the same degree that we are, so we are pretty proud of that.

 

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