Consumers shopping for great electricity rates have are faced with many choices. Residential energy consumers must select their electricity provider, contract term, renewable energy content, and other factors. Customers are also likely to encounter offers for value-added services bundled with their electric service.
The logic behind energy service bundling is tied to the increasing cost and difficulty of acquiring customers. Consumers receive a daily barrage of marketing messages via broadcast media, direct mail, online advertising, email, and print media. Cutting through this noisy clutter and capturing a consumer’s attention in no easy feat. When engaging a prospective customer, electricity providers often seek to sell them multiple products and services. Experience has shown that customers buying multiple services are less likely to switch service to competitors.
The bundling strategy works best when the services are complementary or at least perceived by the consumer as generally related. For example, electricity service and central heating system maintenance are more likely to considered complementary than movie streaming or automotive repair. Electricity companies, naturally, are constantly looking for ways to stretch these associations and find new ways of bundling energy and consumer services.
There are a number of successful bundling strategies with residential electricity service. These include natural gas, home warranties, and home services. In some states, customers shopping for electric service also have the ability to choose their gas supplier. If a customer is already considering leaving their utility for a competitive electricity supplier, they are probably open to switching their gas supplier as well. Home warranties, especially those covering appliances, electrical systems, and HVAC equipment, have proven popular with electricity shoppers. The home services market, however, has been the most interesting energy bundling development over the past decade.
Home services is a broad category covering items such as electrical system repair, plumbing repair, energy efficiency home improvements, and HVAC system maintenance and repair. It also includes diverse services such as pest control and home security. The home services industry, however, is highly fragmented. Most service providers are hyper-local small businesses using referrals, mailers, and vehicle advertising for growing their business. Consumers cannot rely on a national or regional brand as a basis for knowing that they will receive quality service. Their recourse when receiving poor service is often limited.
National Electricity Providers
A number of competitive electricity providers have entered the home service market. These are primarily larger companies with regional or national brands. Direct Energy jumped into the home service market in a big way by purchasing and rebranding several of the larger home service providers. In doing so, Direct Energy extended its national branding to home services and provided consumers with an alternative to referrals for selecting a home services contractor.
Constellation, the largest competitive electricity provider in North America, also joined the home services market. For example, their BGE Home subsidiary offers Baltimore-area residents a wide array of heating and air conditioning, water heating, plumbing, electrical, and home improvement services. NRG is also active in the home services market with HVAC services, electrical and plumbing repair services, and pest control.
The big question is whether consumers should consider these service offerings when they shop for electricity plans. The answer depends on several factors. First, if a consumer has a long-standing relationship with a local contractor for one of these services, it is highly unlikely they are looking to make a change. Second, there must be an incentive for the customer to consolidate their energy supply with home services. This could be a financial incentive or simply the advantage of working with an established company passionate about customer service and protective of its brand image.
It is unlikely that local contractors will be completely displaced by branded service providers. However, bundling in other industries like home data and communications indicates that marketing electricity and home services will become more prevalent and innovative.