Relationship marketing: a strategy for consumer-owned utilities in a restructured industry.

• Author: DuPont, Randall

INTRODUCTION

With restructuring ahead, utilities may soon find themselves doing something they have not had to do on a broad scale in over 70 years - competing for customers. Power marketers are set to flex their muscles in the industry. They view their core competency as acquiring customers, regardless of the industry - telecommunications, natural gas, or electricity. On the other hand, utilities have had little reason to develop customer acquisition skills except to secure large power users.

Consumer-owned utilities (COUs) may be particularly vulnerable in a restructured industry, especially to price competition. Two surveys by Mississippi cooperatives revealed customer propensity to switch on the basis of price. One survey in late 1996 found that 31% of respondents would switch to another electric utility for 10% lower rates. Fifty-six percent would switch for 20% lower rates. A mid-1997 survey by another cooperative showed 27% would switch for a 5% rate reduction, 42% for a 10% rate reduction, and 51% for a 15% rate reduction. With such propensity to switch, can COUs compete on price alone or are other factors available to retain the consumer base? Does relationship marketing hold the answer for COUs sustaining an advantage in a restructured, competitive environment?

PARADIGM SHIFT IN MARKETING

Relationship marketing is one of the newest schools of marketing thought. Unlike the customer-acquisition focus on traditional marketing, relationship marketing focuses on retaining existing customers (Berry 1995). It concentrates on the long-term, ongoing relational exchange so vital to service firms today (Dwyer, Schurr, and Oh 1987) and represents a genuine paradigm shift in marketing theory (Morgan and Hunt 1994).

The recent work of the Electric Cooperatives Brand Identity Steering Committee of the National Rural Electric Cooperative Association (NRECA) underscores the importance of relationship marketing as a tool for long-term competitive advantage. The 42-member committee introduced Touchstone Energy to symbolize the various elements that "represent the relationship between COUs and their consumer-members and the communities they serve," said Glenn English, NRECA chief executive officer. "The brand identity embodied in Touchstone Energy is an important development in helping electric co-ops retain their current customer base and prepare for increasing competition in the industry" (Miller 1997).

As shown in Figure 1, trust and commitment are key elements for retaining customers. Trust is particularly critical for service related firms since the product - a service - is intangible and difficult to evaluate before or after a purchase. Trust exists when one party has confidence in the reliability and integrity of the exchange partner. Commitment refers to the belief by both parties that the relationship is worth working on to ensure it endures indefinitely. However, commitment cannot exist without trust first being established (Morgan and Hunt 1994).

But how can COUs build trust and commitment? Research indicates that trust is built through customer communications and low opportunistic behavior. In other words, communications should be meaningful and provide timely information to customers (Anderson and Narus 1991). Furthermore, trust is lowered when customers perceive that a firm acts opportunistically.

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