Energy Price Based Promotion and Price Tactics Essay

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TOPIC 1 - Question 1

With reference to the marketing concept, critically assess the reasons why Mr Buchanan might believe that energy companies need to give greater recognition to their consumers.

Introduction

The price based promotion offered by British Gas (herein BG) during winter 2009/10 brought significant results in term of profits and market share.

Hereafter are analysed the reasons for BG success as well as discussed the possible price strategies for gas retail sales.

This analysis is based on the following points:

* Analysis of consumers behaviour vs product/offer/pricing strategy * Competitors analysis * Identification of strategic and pricing objectives * Marketing Concept and Consumers’ recognition * Long term price strategies

Consumers and contest

Success in the B2C energy market, especially within an economic crisis contest, requires understanding of consumer motivation. Price is a key driver in a marketing strategy, in fact: * Energy is perceived as a primary necessity good (re Maslow’s Hierarchy); within this category, consumers are mostly, if not entirely, driven by price. * The economic recession plays a role in defining consumer’s emotive responses to price.

Competitors

During 2009/10, following recession within the western economies, natural gas prices had globally a relative reduction (re Today in Energy, US Energy Information Administration, Sept 2011).

However, players in the UK gas retail market did not provide price adjustments (few followed BG), although the recession scenario and the corresponding reduced natural gas demand/cost might have suggested some reduction of the price to consumer.

The above elements have probably suggested to BG an opportunity for an improvement of their market position.

Market Penetration and Pricing Strategy

An effective penetration strategy should, in this contest, be based on a price based promotion and a promotion, however, to bring benefits within the shortest time, must be supported by a significant promotional effort.

The reduction of commodities cost following the recession of western economies would contribute in maintaining the profit margins while expanding the market share.

At the same time, reduction of the price to consumers would bring the advantage of differentiating BG from the competitors and significant returns on corporate image.

The dramatic profit improvement is also due to other factors as hereafter discussed.

Recognition to Consumers and Improved Profitability

The marketing concept is at the basis of modern marketing strategies and it is about creating value to the customer. Focus on customers’, for primary goods and in an economic recession contest, unavoidably brings to policies of price competitivity.

However, the marketing concept, on top of a target market and customer needs, also rests on integrated marketing and profitability.

Integrating marketing requires coordinating all the functions within a corporate to create and provide a more satisfactory offer to the customer.

In this respect BG has developed an integrated offer to the consumers and included a comprehensive range of services aiming at an overall reduction of the energy costs. BG offer includes “installation of energy efficient boilers, loft and cavity wall installations, free cavity wall insulation to customers over 60 years, online EnergySmart™ service…” (source BG website).

Creating added value through an integrated service brings also the competitive advantages of diversification as well as new product/sales lines.

Conclusions

A well conceived price-based promotion, based on recognition of consumers’ needs in a particular economic contest and appreciation of the competitors’ price strategies brought BG to achieve significant short term results on improved market position and profits.

Maximisation of customers’ value also brought to development of an integrated
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