New pricing product design for competitive advantage

Abstract

<p>Electricity is the last of the major utility sectors to be deregulated in North America. One of the key challenges for the electric industry is shifting from making electric service universally available in a monopoly-dominated market to a competitive market focusing on improving market efficiencies and providing meaningful customer choices. In this transition, the pricing approach is changing from the sterile rate "engineering" approach to the development of pricing products designed to retain existing customers and to acquire new customers. The current customers of monopolies are not willing to wait for change - they are demanding meaningful alternatives to the way they purchase electricity.</p> <p>Early efforts to respond the challenge of developing new pricing products for deregulated markets have focused on the high-risk/high-yield customers that are likely to be targets of new competitors. The responses of utilities have been focused on making "special contract" agreements with large industrial customers. More progressive utilities have offered Real Time Pricing as a transition product and are using it as a platform for other pricing products. Primarily, utilities are studying the results of competitive markets abroad and using the open access pilots in the northeast and California to test new pricing products.</p> <p>Being proactive and preparing to respond to changing market conditions during this time of transition is the key driver for forward thinking utilities that want to be dominant players in the new markets. Conducting research targeted toward gaining insight on customers' preferences for a variety of new pricing features became the purpose of this study. This paper presents the results of research conducted to assist with the design of a new pricing product, SelectChoice .. , that will allow commercial and industrial customers to buy electricity today in forms fo und in current competitive markets. The research was designed as a conjoint analysis study of the sensitivity of small commercial to light industrial customers to pricing and contract options. The results will be used to shape not only the SelectChoice"' pricing product, but also will provide information to be utilized in the development of other pricing and service products.</p>