DIRECT MARKETING STRATEGIES ADOPTED BY THE GAS AND ELECTRICITY SUPPLIERS - A CASE STUDY ON BRITISH GAS - Introduction

1. INTRODUCTION

a. Overview

The chapter begins with the description of the background of research done in this dissertation. Further, the rationale for the research is provided and then the aims and objectives of the research will be outlined. Furthermore, the researcher will set the hypothesis for the research. Lastly, an outline of the structure of this dissertation will be provided.

b. Background of research

Nowadays, increasingly more resources are allocated in the corporate budgets of businesses for direct marketing. In fact, the trend is such that businesses are allocating fewer resources for advertising and more resources towards direct marketing. This is because the traditional mass marketing approaches are becoming less effective in attracting customers due to the resistance offered by the customers. This has led to dramatic growth in the direct marketing industry. This probably explains the increasing level of direct mail through the spam emails, telephone sales calls, and text messages on the cell phones received nowadays by people. Direct marketing has been regarded as the fastest growing sector of marketing communications (Key Note, 1994). This significant development in marketing in recent years has ‘contributed to the paradigm shift from transactional marketing based on the “marketing mix” approach created by Borden (1964) and popularised into the 4Ps by McCarthy (1960), to the notion of retention strategies within a relationship marketing context’ (Evans, 1998; p56). Almost every sector is adopting direct marketing campaigns to reach the consumers and the most active sectors among them to adopt direct marketing are banks, credit card firms, travel/holiday companies, charities, and utilities suppliers.

According to a research study commissioned by a communication company, Pitney Bowes, in the UK, the direct marketing approaches adopted by the charitable companies in fundraising has been very successful compared to other countries in Europe such as Spain and Germany. The study also shows that the direct marketing activities has been more successful for banks, credit card firms, and general insurance in the UK compared to Italy and Germany. However, one of the surprising finding of the study is the low performance of direct marketing activities in the utilities sector in the UK compared to the performance of direct marketing in the France and Spain (Source:http://www.pitneybowes.ie/PDF/ProductionMail/LatestNews/DMChampsandChumps.pdf). In the utility sector in the UK, mainly gas and electricity suppliers and telephone service providers have been actively using direct marketing approaches because of a much more competitive market in the wake of deregulation of these industries in the UK.

Figure 1.1 Index of attitudes towards direct marketing effectiveness

(Source:http://www.pitneybowes.ie/PDF/ProductionMail/LatestNews/DMChampsandChumps.pdf)

The UK Electricity market was deregulated completely by the end of 1998. Deregulation started in stages, from 30 % in 1990 to 100% in 1998. (Source: http://worldenergydiscussion.blogspot.com/2007/09/electricity-deregulation-in-uk.html). Similarly, the gas market in UK also opened by stages of deregulation and by the end of June 1998, the gas market opened completely (Source: http://www.gas-electricity-options.co.uk/about/gas-deregul.shtml). This meant that all the consumers of gas and electricity whether residential or consumers have the freedom of choosing their own suppliers of gas and electricity. This ceased the monopoly of the existing players like British Gas and led the entrance of new players in the energy market. This paved way for competition within the market. All the suppliers started competing for the largest number of customers. All the suppliers started adopting various marketing strategies to maintain their customer base, and target customers of their competitors. Since gas and electricity are products that are regarded as “distress purchase”, a mass marketing approach was less suitable. Therefore direct marketing became the most common strategy adopted by the Gas and Electricity suppliers. The market leader, British Gas also adopted a similar approach.

c. Rationale for research

Despite of the low performance of direct marketing approaches in the utilities sector, gas and electricity suppliers have continued to adopt direct marketing strategies to spread their consumer base. The prime companies among them to adopt such strategies are British Gas, Npower, EDF energy, Southern Electricity, Scottish Power, and E.ON energy. These companies have been using direct marketing activities such as door-to-door sales, telemarketing, sales stalls etc to sell their product to the consumers. In fact, these companies have been competing with each others on this front. In this study, the researcher will analyse the impact and effect of adopting direct marketing strategies by the Gas and Electricity suppliers on their performance and on consumers in the London area. The researcher will use the case of British Gas in the study.

d. Aims and Objectives of research

Aims

The aim of the study is to find out the impact of direct marketing strategies adopted by the Gas & Electricity suppliers, on their performance and on the consumers, in the London area.

Objectives

In order to achieve the aim mentioned above it will be necessary to:

1. Analyse the current direct marketing model of British Gas in the London area to understand its plus points and the negatives.
2. Understand the previous marketing strategies in the same area to find out the reasons of its failure.
3. Analyse published information on direct marketing.
4. Find out and compare the performance of British Gas before and after adoption of direct marketing strategy in the London area.
5. Analyse and measure the contribution of direct marketing strategies to the volume of sales and profit of the British Gas.
6. Study the impact and effect of direct marketing strategies of the Gas and Electricity suppliers on the consumers in the London area.

e. Hypothesis

1. The direct marketing strategies has been the best approach by the British Gas in the London area and this has helped British Gas in increasing and maintaining customer base in the London area.
2. The direct marketing strategies by the company have actually benefited the consumers.
3. The direct marketing activities by various companies have raised many concerns regarding information protection among consumers.

f. Structure of the Dissertation

The structure of the dissertation is as follows:

Chapter 1 gives an introduction of the dissertation.

Chapter 2 will describe the published literature on the direct marketing by several authors. The various aspects of direct marketing such as its origin, definitions and their criticisms, advantages and benefits, the various components of direct marketing, and other concepts associated and relevant will be discussed under this chapter.

Chapter 3 will discuss the various research methodologies and the research methodologies that will be used in this study by the researcher. This chapter would also comprise the reasoning behind the selection of those methods and limitations of the research methodologies.

Chapter 4 will provide the background of the company that will be used in the dissertation to study the topic.

Chapter 5 will report on an empirical study about the data collected. Further, the data collected for the study by using the methods, will be presented and analysed in this chapter.

Chapter 6 will then draw the conclusions, make recommendations to British Gas regarding their marketing approaches in London and provide the basis for further research. The limitations of the study will also be given.