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

4. COMPANY BACKGROUND

a. History

The origin of British gas dates back to the year 1812 when the Light and Coke Company was set up to supply London with gas manufactured by burning coal. The company continued to operate until the year 1948 when the industry was nationalised. The Gas Act of 1948 led to the conversion of 1064 local gas undertakings into 12 autonomous Area Gas Boards. However, in the year 1986, the industry was privatised once again and the British Gas plc shares worth of £ 9 billion were floated. British Gas now had monopoly for the supply of gas the UK. In the year 1992, following an inquiry by the Monopolies and Mergers Commission, decisions were taken to end the monopoly of British Gas by introducing competition in the industry in the interests of the consumers. Hence competitors were introduced in the industrial gas market. A similar inquiry in the 1996 led to the introduction of competition in the domestic market (Source: http://www.britishgasacademy.co.uk/index.asp?pageid=215).

i. Demerger

Following this deregulation of the industry, there was growth of competition in the market. In order to meet the increasing challenges of the new market conditions, on 17 February, 1997, British Gas plc was demerged into two separate listed companies; BG plc and Centrica plc. Centrica plc has the rights to the British Gas brand in the UK and looks after the gas supply business and gas production business of the North and South Morecambe gas fields. BG plc look after the transportation and storage business (Transco) and the international exploration and production business. It has the rights to use the British Gas brand outside the UK (Source: http://www.gasarchive.org/privatisation1.htm).

ii. Expansion of Product Portfolio

The fierce competition within the energy market caused by deregulation led British Gas in widening its product portfolio. In the year 1998, it began its electricity supply business. It also expanded its home service products portfolio by including home security, plumbing, and kitchen appliance care services. In the year 2000, it further expanded its product portfolio by providing telephone services (Source: http://www.britishgasacademy.co.uk/index.asp?pageid=215).

b. Present

Today, British Gas is the biggest energy supplier in Britain’s domestic market and a leading energy supplier to businesses. In the beginning of 2008, it had 16 million gas and electricity accounts. It is also Britain’s largest operator in the installation and maintenance of domestic central heating and gas appliances. Besides supplying gas and electricity and installing and maintaining central heating and gas appliances, it also provides maintenance and breakdown services for electrical white goods, home wiring, drains, plumbing and home security services. British Gas is a part of Centrica group of industries. The Centrica group currently employs 32724 employees around the world. The annual revenue for the group for the year 2007 was £ 16.3 billion and the operating profit was £ 1949 million. The British Gas Residential employs 9200 employees. Its revenue for the year 2007 was £ 6.5 billion and the operating profit for the same year was £ 571 million (Centrica British Gas Annual Report, 2007; p 2).

i. Vision

The company states its vision as follows:

‘We are committed to providing the best value energy and the highest quality services expertise in the country. Our vision is clear and embedded to our management team to help us meet the challenges ahead’ (Source: http://www.britishgas.co.uk/about-british-gas.html).

ii. Corporate responsibility

The corporate responsibility strategies and activities of British Gas are looked after by its Corporate Responsibility Committee. This committee was formed in January 2006, with the objective of increasing time devoted to these matters by the Board and senior management; to enable the Centrica group formulate clear policies on the environmental and social issues: and to control the implementation of these policies and their effects.

The most important Corporate Responsibility areas for the company are climate change and the environment; vulnerable customers; and health and safety.

a. Tackling climate change and caring for the environment.

According to British Gas, tackling climate change and caring for the environment is their top priority. They do so by investing in green energy and developing clear plans to reduce their own impact on the climate and planet.

b. Customer commitment.

British Gas claims that it is committed to providing high levels of customer service at all times especially vulnerable customers such as those on low incomes, older people, and those with a disability.

c. Valuing employees.

British Gas also claims that it values its employees by providing them with training, maintaining health and safety, and encouraging diversity. It also offers career development and progression plans to its employees for their development.

Source: http://www.britishgas.co.uk/about-british-gas.html

c. Future: plans and investments

Increasingly more and more consumers are becoming aware of climate change and global warming. This has led to more demands of green and renewable energy. British Gas is aware of such demands and therefore, in order to become more responsible towards environment, British Gas is planning for future in two ways.

Firstly, by investing in green and renewable energy;

Secondly, by focussing on improving energy efficiency (by helping consumers to reduce their energy consumption and their carbon footprints).

The company plans to increase its electricity from green sources to 10 % by 2011 and more by 15 % by 2016.

In order to implement this plan the company is investing in green energy sources, mainly in offshore wind farms that generate electricity using wind resources. Further, the company is investing in range of micro-generation technologies and futuristic cell powered household boilers as these can help in cutting the carbon emission.

i. Major competitors

Before 1996, British Gas had monopoly over the gas industry and therefore there was no competition. The deregulation of the energy market in the year 1996 opened the gates for other players to enter the market. This paved way for fierce competition within the energy market. There are five major competitors of British Gas. They are EDF Energy, Npower Limited, E-ON, Scottish and Southern Energy and Scottish Power. Although, the customer base for these companies is less than half of that of British Gas, there have been significant rise in the customer base of these companies. These companies have adopted intensive direct marketing and advertising to target the market share of British Gas.

ii. Current trends in energy market

The British energy market is a strong energy industry which is based on a variety of natural reserves. Besides, it also possesses the right environmental conditions required to develop a major and new renewable-energy sector using wind energy and other technologies in the longer term. Moreover, the UK also possesses highly developed expertise required in the nuclear-power sector (source: http://www.researchandmarkets.com/reportinfo.asp?report_id=302044).

a. Mergers and acquisitions

One of the major trends of energy market is the change of ownership among energy supply companies. The mergers and acquisitions within the energy market have been fast and furious over the last few years. This probably shows the pace at which at the British energy market is consolidating. There have been some huge acquisitions from foreign companies especially from US and Europe. This has made the British energy market a much more international market. One such major take over is that of Powergen PLC by E.ON of Germany (source: http://www.researchandmarkets.com/reportinfo.asp?report_id=3874&t=d&cat_id=).

b. Rising wholesale prices

Another major and more recent trend in the energy market is the rising wholesale energy prices. According to the Centrica Annual Report (2008), the wholesale prices remained very volatile during 2006 and 2007. Also the gas prices reflected the rising trend during 2007 and early 2008. These trends are putting pressure on the retail supply margins. One implication of such trends was the increases in the domestic gas and electricity prices in the early 2008 by all the suppliers of gas and electricity in the UK.