“Oil companies need holes, not drills” - Old Sales & Marketing Saying

By Andrew Kent

The utilities business faces a looming crisis—if not today, then in the decade or two to come.  Simply put, the industry’s current business model is set up such that smarter use of its product threatens its profits, and this tension between supplier and customer can’t go on forever.

But utilities companies need not view this as a threat.  On the contrary, leading utilities are already capitalizing on one of the biggest megatrends in Sales today: the need to make more money by selling less stuff.

The root of utilities’ problem is this: their ability to grow depends on selling more kilowatt-hours each year, but consumers and society have an urgent need to use less—and are waking up to the fact that they actually can.  Peter Fox-Penner writes in the Harvard Business Review (July-August 2009):

Utilities have always assumed that their output would continue to grow… But electricity and gas customers—aided by the utilities themselves—are reducing consumption.  Sales are already flattening, and they’ll only fall faster as governments put in place more incentives to control greenhouse gas emissions (p. 18).

The U.S. Department of Energy projects U.S. energy demand to grow by only 0.7% a year over the next 25 years, and U.S. energy use per capita will never surpass its 2000 peak.  Indeed, McKinsey estimates that the United States could cut $1.2 trillion off its energy bill over the next ten years.

Source: U.S. Energy Information Administration (EIA) “Annual Energy Outlook – 2011”, released April 26, 2011

This is great news for consumers and the environment, but it’s a lot of revenue for a sales leader to give up.  How do you cope with a world in which policy, consumer needs, and the very planet conspire against your mandate to sell more stuff?

The answer is to stop selling stuff altogether, and start selling outcomes.  In the case of energy, you’re not selling kilowatt-hours, therms, or joules—you’re selling light, heat, and motion.  Fox-Penner explains:

Selling services, not output, is the logical next business model for the industry.  To put it simply, customers would pay for each lumen of light generated [or unit of computer time, heat, cooling, and so forth] rather than each watt of power consumed… Because the use of such energy services will continue to grow for the foreseeable future, utilities could expect rising rather than falling revenues.  Moreover, power companies would have a strong incentive to develop and market new technologies.  Utilities would get into the business of selling or leasing such technologies and persuading customers to use energy-efficient appliances (pp. 18-19).

In other words, utilities’ profits go up when they help customers do the same things without burning costly fuel.

This isn’t as far out as it sounds.  Indeed, one forward-thinking utility recently sent SEC its new Commercial Teaching pitch showing customers how to spend less on energy.

Three factors make the shift to outcomes-based energy sales inevitable (and possible):

1. Energy-Saving Technologies. These are becoming cheaper and more widely available, aggressively marketed by firms like Schneider Electric and GE.  Winning utilities will preserve revenues by partnering to include these technologies in energy services bundles.
2. Smart Grid. Widespread Smart Grid adoption will soon provide utilities and consumers with device-level detail on energy usage.  In the long-term, this will enable utilities to charge customers based on device usage instead of energy usage.
3. Competition and Regulation.  In competitive markets, selling customers better outcomes for fewer units of energy helps utilities win share from competitors and justify higher prices; this helps makes up for lower volumeper customer.   In many regulated markets, utilities face stricter efficiency targets but can’t raise rates; energy services are a primary option for making up lost revenues.

Of course, this is all easier said than done.  Next week, I’ll be back with practical guidance on how to convince customers to come along with you for the journey, and what skills your sales reps need to sell outcomes instead of energy.

In the meantime, please leave your thoughts on whether you see this shift to outcomes-based energy sales coming, and what you’re doing to get ahead of it, in the comments section.

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