Utilities find their niche in niche-marketing

N at u r a l G a s M a r k e t i N G Building a Blue Utilities find their niche in niche-marketing by Karen ryan H ere is the good news: The number of newly constructed single-family homes hooked up to the natural gas system remains near record levels, coming in at 952,000 in 2005 and 922,000 last year. but the not-so-good news is that the home-heating market share for natural gas in newly constructed homes has eroded since the turn of the millennium, dropping from 64 percent in 2000 to 56 percent in 2006, according to U.S. census data. At the same time, the home-heating share for electricity increased by 9 percentage points to 35 percent in 2006. The market-share downturn is being felt in most areas of the country. As a result, some gas utility marketing professionals are pursuing niche markets, such as propane to natural gas conversions, with renewed vigor. Other industry marketers see huge potential in the previously unexplored high-rise condominium market. Running gas service mains internally and up a number of floors is a unique concept, according to Gene Rogers, Piedmont Natural Gas director of marketing. “We got the buy-in from our local fire marshal and code officials and are going after this market,” he says. “Meanwhile, we are working with our operations team and with other gas utilities to examine code and other restrictions, while  AmericAn GAs | developing solutions that satisfy local officials.” Utility marketers also are excited about the natural gas tankless water heater, which is not a new technology in Japan and Europe, but was introduced only recently in the United States. This water heater can be mounted on an interior or exterior wall and produces hot water on demand. “Tankless water heaters are huge for us in the homebuilder market, and we’re doing an incredible amount of retrofit business, too,” says Donna Peeples, AGL Resources vice president of sales and marketing.“About 30 percent of the rebates we offer on water heaters are used for the tankless models.” November 2007  Tomorrow Besides discussing the potential offered by the high-rise condo market and tankless water heaters, marketing executives from four natural gas utilities talk about what else they’re doing to retain existing customers and add new ones. AGL resources When Georgia’s natural gas market was deregulated in the late 1990s, gas retailers focused their advertising on pricing as they competed for customers. AGL Resources’ (AGL) Georgia utility, Atlanta Gas Light, soon realized that new customers were not being added to its system and that current ones often were enticed to go electric. The utility saw that net growth was not meeting expectations and changed course, recharging its marketing effort in late 2004, according to Peeples, who will chair AGA’s Marketing Communications Committee next year. “We had reduced our emphasis on marketing since Atlanta Gas Light was now just a pipes company,” says Hank Linginfelter, AGL Resources Executive Vice President of Utility Operations. “We were delivering gas in Georgia, not selling it. Although our five other gas utility units, which serve portions of Virginia, Florida, Tennessee, Maryland and New Jersey, remain in the gas sales and delivery business, we recognized that it was time to tell consumers throughout our territory about why they should choose natural gas.” When it re-entered the marketing business, AGL initiated the ongoing “Dump the Pump” campaign, designed to entice existing customers into converting from total electric or an electric heat pump to a new natural gas furnace.The enticement is a $1,000 rebate. Moreover, customers who have a gas furnace but need to replace an air conditioner may apply the rebate to the cooling equipment.“It’s not about encouraging customers to buy an air conditioner, it’s about providing an incentive to not buy a heat pump,” says Peeples. Historically, the gas industry heavily promoted gas furnaces around the start of Househeating market share in newly Built U.s. single-Family Houses by energy source 100% Natural Gas 80% 64.2 63.4 58.2 55.7 electricity oil Propane other 60% 40% 25.9 27.5 6.1 5.4 32.7 35.3 20% 3.1 0% 2000 0.7 2.8 0.9 1.8 6.4 0.9 1.5 6.2 1.1 2002 2005 2006 SoUrce: U.S. ceNSUS bUreAU November 2007 | AmericAn GAs  [ BLU e Tomorrow ] You need to break through the advertising clutter that bombards consumers, find the right media mix to reach the targeted audience and then deliver compelling messages that resonate with consumers. What was once a mass market is now becoming a mass market of niches. —DoNNa PeePles, aGl resources, Vice PresiDeNt of sales aND MarketiNG the heating season.“This means that the industry is spending advertising dollars when it’s least at risk for losing customers,” says Peeples. “We’ve learned from experience and hard data that we’re most vulnerable to customers switching from gas to electric heating during the second quarter of the year, because this is when a homeowner replacing an air conditioner might decide to install an electric heating system, too.” Consequently, AGL pushes its “Dump the Pump” program in the spring and summer. This timing coincides with the period in which heating and air-conditioning manufacturers run their major promotions, including rebates, and their dealers are encouraged to sell a heating and air-conditioning package, not just one component. “Dump the Pump” is one of a series of rebate offers AGL promotes seasonally, depending on the type of natural gas product. AGL also is tapping into the infill and conversion market. This effort to add customers is aimed at homeowners who live within 100 feet of the company’s mains but don’t use natural gas. Last year, AGL tested the program in Virginia. “We sent out 25,000 promotional postcards to eligible customers,” reports Peeples. “As a result, we added 667 new meters. One of our selling points was up to a $500 rebate Atmos energy Launches cooking website As part of Atmos energy corp.’s marketing strategy, the utility launched a cooking website this August. The website initiated with more than 120 tested recipes and a featured entrée. “We post a new feature every two weeks about a chef from our service area and a recipe from that chef,” says Gerald Hunter, Atmos energy director of corporate communications, adding that the idea is not only to draw customers to the corporate website but also to demonstrate the benefits of using natural gas appliances and equipment. The featured recipes are presented with step-by-step preparation instructions, along with a nutritional information chart and shopping list. The site also contains detailed general cooking information, including instructions on how to grill, broil, sauté, stir fry, roast and braise; explains common cooking terms; and discusses herbs and spices, kitchen utensils and food safety. Another section provides information about natural gas-fueled products, along with tips on keeping them clean. “each featured recipe is tested by a professional food stylist, and the other recipes are tested and prepared a number of times before they are posted,” says Hunter. He adds that the utility also is inviting its employees and customers to share their favorite recipes on the site. www.atmosenergycooks.com. on gas appliances and furnaces; 751 rebates were redeemed.” In addition, AGL is focused on the mid- and high-rise condo market, particularly in Atlanta and high-growth areas in New Jersey and Virginia. “We worked with our codes and standards team to find a way to run gas service mains vertically inside high-rise buildings, and to group electronic meters on each floor for individual metering of condo units, says Peeples. “It’s worked beautifully. The condos in Atlanta are pricey, and potential buyers are demanding amenities such as natural gas cooking.” Speaking of cooking, a 2005 survey found that AGL customers most likely to leave the gas system have only one burner tip, usually a furnace or water heater, but not a stove or cooktop. With that in mind, AGL’s Atlanta Gas Light unit launched “Cook It Right,” a fully integrated, multifranchise marketing and advertising blitz that included programs such as free cooking classes for customers who do not cook with natural gas and were most at risk of leaving the system. Customers who attended the classes, which in the trial run were held twice a week for six months in Atlanta, were offered a $200 rebate if they bought and installed a natural gas range. “In most cases,” says Peeples, “the rebate covered most, if not all, of the cost of adding interior gas piping for the range. Nearly 50 percent of the people attending the trial classes took us up on the rebate offer, and 99 percent are still on the gas system.” The classes proved so successful that AGL plans to offer them in its other service areas. “Basically, ‘Cook It Right’ provides a platform for starting a conversation with customers,” Peeples explains, adding that AGL research shows that customers who cook with gas are reasonably open to converting other appliances to natural gas. “The three anchor burner tips most likely to keep customers from defecting to electricity are water heating, home heating and cooking, in that order,” she says. “We used to think two burner tips were enough to keep a customer long term, but it turns out that three burner tips are the key.” To help homeowners acquire gas ap- 10 AmericAn GAs | November 2007 pliances, AGL also has an from each utility unit plus mortgage payment that’s close to what they online store. “We ship the communication, opera- were paying in rent,” says Grimes. “Consemerchandise all over the tions and technical services quently, first-time homebuyers have been a country and do this through professionals. void for the gas industry and for our compartnerships with dealers “Because we don’t pany. I don’t have the answers on how to and retailers,” says Peeples. have a formal enterpriseaddress this, but I believe it’s going to re“What began as an online wide method for tracking quire some type of targeted marketing to informational opportunity how well we’re doing in that particular demographic.” wound up being an easy and attaching new customers, seamless way for consumers one of the council’s first Piedmont natural Gas to buy gas equipment, as acts will be development well as arrange installation of a reporting process “We continue to have strong market in areas we serve.” covering market saturashare in residential new construction with Peeples urges gas utilities tion, customer accounts natural gas heating and other gas applicato appear to be everywhere and capital projects such tions,” says Ranelle all the time “with clear, conas main extensions,” says Warfield, Piedmont sistent and clever messages. Grimes. The group also Natural Gas vice president of sales and You need to break through will concentrate on remarketing. “But we’ve seen some erosion the advertising clutter that tention of residential in our residential water heating market, bombards consumers, find and business customers. particularly in the first-time homebuyer Tankless Water Heater the right media mix to reach “We’ve lost existing cussector. One of our bigger challenges is the targeted audience and then deliver tomers, primarily as a result of escalating convincing homebuilders to install gas incompelling messages that resonate with gas prices. Many of them replaced their stead of electric water heaters.” consumers.What was once a mass market is gas heating with electric heating.” Warfield notes that some builders are now becoming a mass market of niches.” Grimes also notes that there’s been some starting “to feel the pinch” in the starterBecause the audience is becoming inmarket-share erosion in the new housing home market. “So they’ve been cutting creasingly fragmented, AGL is investigatsector because various large-volume naback in areas in which they perceive upfront ing the use of emerging media, such as tional homebuilders who are recent arrivinstallation costs to be greater, or in which blogs, podcasts and interactive television, als in Atmos’ service areas favor all-electric they may have to give up some floor space. to augment more traditional methods of houses.“Getting these large-volume build- By working closely with builders, we’ve reaching consumers. ers to install gas service is really difficult,” been able to recapture some of that marshe says.“Their process is so structured that ket with gas-fueled tankless water heaters. they don’t want to run a gas main through The tankless equipment takes up no floor Atmos energy the alley because it’s just another step that space and, depending on where it’s installed, In the mid-1990s, Atmos Energy Corp. costs money and raises the house price.” minimal to no wall space.” (See pic.) had a corporate marketing department, Atmos Energy has taken steps to enPiedmont’s strategy is to show builders but as the utility acquired other gas dis- courage these builders to install gas service. the benefits of installing energy-efficient tribution companies, it “For instance,” says Grimes, “we found that serving its vast don’t make it so expensive to lay territory from a central- pipe that cost deters builders from ized department was difficult, according hooking their developments to the to Kelley Grimes, vice president of mar- system.” Atmos also works closely keting for Atmos Energy’s West Texas Di- with other utilities to encourage vision. Atmos Energy provides natural gas joint trenching; that is, grouping service in a dozen states, and today each of the utilities’ underground infraits six gas utility divisions has a marketing structure in the same trench. vice president and its own group of sales The large-volume builders’ reprofessionals. luctance to install gas is coupled This decentralization prompted Atmos with another stumbling block—the Energy to revitalize its Utility Marketing attitude of first-time homebuyers. Council, which Grimes leads. The group “[First-time homebuyers] are much Employees of several natural gas utilities participate in focuses on marketing issues common to less concerned about the benefits a test of commercial fryers at the Gas Technology Center every division and is composed of some of a natural gas over electricity than operated by Piedmont Natural Gas. Photo courtesy of 20 employees, including marketing leaders they are with having a monthly Piedmont Natural Gas PHoTo coUrTeSy of riNNAi November 2007 | AmericAn GAs 11 [ BLU e Tomorrow ] 200 international Builders’ show set for Feb 13–16 Next year, AGA once again will participate in a major exhibit at the National Association of Home builders (NAHb) international builders’ Show. in fact, with 60-plus years of participation under its belt, AGA is the second longest tenured exhibitor at NAHb’s annual trade show, according to Tom moskitis, AGA managing director of external affairs and a board member of the National council of the Housing industry, a division of NAHb. “because NAHb allocates exhibit space based on seniority, the gas industry’s 60- by 30-foot booth will be located in a prime spot in the main exhibition hall.” The 2008 show runs feb. 13-16 in orlando, fla. The gas industry exhibit, called “America’s Natural Gas and Propane industries,” is cosponsored by AGA, the Propane education and research council, Southern Gas Association, Gas Appliance and manufacturers Association, American Public Gas Association and several AGA member companies. “our exhibit will showcase two dozen gas-fueled appliances and pieces of equipment, making it like one-stop shopping for builders,” says moskitis. Some 1,600 exhibitors will be promoting their products and services at the NAHb event, which is the largest light-construction trade show in the world, according to moskitis. “This show attracts more than 100,000 attendees—about half of those are builders; and another third are developers, architects and other building industry allies. We encourage AGA member companies to attend the event and bring builders from their service territories.” For more on NAHB, see “Alphabet Soup” on pg. 24. www.nahb.org (click on “Builders’ show”) natural gas burner tips in each house and to explain why high-efficiency gas heating, water heating, appliances and fireplace logs are considered “added value” for home sales and to customers, according to Warfield. “We have shifted more of our focus to energy conservation initiatives and to marketing natural gas as an environmentally friendly source of energy,” she adds. On Piedmont’s success in retaining market share, Warfield credits “our strong relationships with builders across our threestate service area; active involvement in local, state and regional homebuilders associations; and customer service initiatives.” In revamping its processes related to homebuilders, Piedmont set up a “virtual builder resource center” that permits builders to contact the utility by phone, fax or email without having to get into the queue with the utility’s other customers. “We’ve also reduced paperwork by putting on our website the form for requesting service hookups at new houses,” says Gene Rogers. “Last year, in its first full year of operation, the center handled 30,000 builder transactions, from phone calls to the completed online service request forms.” Like some other gas utilities, Piedmont is edging into the residential high-rise condominium market. Noting that high-rise condo construction is booming in Piedmont’s home town of Charlotte, N.C., Warfield reports that the city’s Chamber of Commerce estimates that in 20 years the number of people living in high-rises in and around the city will increase tenfold to 100,000. “We’re very excited because we are beginning to get some gas load in a market that historically has been electric,” she says. On the commercial side, Piedmont continues its efforts to convince chain operators to use natural gas rather than electric equipment. The utility invites managers of chain businesses to its Gas Technology Center to learn about and test gas appliances. “You can’t expect a company to specify or convert to gas-fueled equipment if it doesn’t fully understand everything about the equipment,” says Rogers. Turning to energy conservation, Rogers reports that Piedmont received regulatory approval to spend $1.25 million on a pilot weatherization program. “We’re in the sec- ond year of this three-year program,” he says. “Right now, we’re training contractors in two North Carolina cities to perform energy audits.When that’s done, we’ll offer Piedmont customers in those cities an energy audit and a no-interest loan of up to $5,000 to implement the recommended energy conservation measures, such as installing attic insulation. The loan, however, cannot be used to replace appliances or a furnace. The cost of an energy audit is only included in the program if the customer follows through on the conservation suggestions.” michigan consolidated “After not doing much marketing since the mid-1990s, we recently realized this had been a mistake, particularly in light of the serious downturn in new home starts and the movement of manufacturing jobs out of Michigan, says Christine Cole, manager of gas marketing at Michigan Consolidated Gas Co. (MichCon), a subsidiary of DTE Energy in Detroit. “Typically, MichCon had added between 18,000 and 21,000 customers annually over the past decade. We’ll be lucky to add 7,000 new customers this year. Clearly, we had to come up with ways to increase revenue.” One strategy involves encouraging propane to natural gas conversions. “We began the year by commissioning a study to determine which propane users in rural towns live within 500 feet of our natural gas mains but are not hooked to our system,” says Cole. “We’ve identified 58,000 such homeowners and we can market directly to them.” The biggest hurdle in switching from propane to natural gas is the initial cost. “Usually stoves, dryers, furnaces and fireplace inserts can be converted by simply changing an orifice,” explains Cole. “Most older water heaters, however, cannot be converted and must be replaced with a natural gas water heater. On average, a basic natural gas water heater costs about $400. This is on top of cost to get a gas service line installed. So we’re working on ways to address those costs, such as identifying existing or upcoming manufacturer and dealer rebates.” 12 AmericAn GAs | November 2007 MichCon is encouraging builders to rent or buy natural gas construction heaters, which may operate for half of what it costs to run propane heaters. —christiNe cole, MichcoN Gas co., MaNaGer of Gas MarketiNG MichCon began its propane conversion effort late last year by sweeping through neighborhoods to hang promotional tags over door knobs. “I estimate that for every 100 door-hangers we distributed, we had about a 10 percent response.” The next conversion campaign will involve direct mail and possibly telemarketing,” Cole says. Currently, MichCon is exploring the possibilities of offering customers interestfree financing for the expenses related to converting to natural gas, creating a water heater leasing program that includes maintenance for the equipment’s life and pursuing the mid- and high-rise condo market. Then there’s the construction heat market. “Builders need to heat houses under construction during the winter while interior work is being completed,” says Cole. “If a furnace has already been installed, it shouldn’t be used during the construction process because the drywall dust will clog the heat exchanger.” In a program launched this year, MichCon is encouraging builders to rent or buy natural gas construction heaters, which, according to Cole, may operate for half of what it costs to run propane heaters. “With the gas mains already in place in these developments, the key to success in this market niche is to install the service lines and meters in time for builders to take advantage of natural gas for construction heat.” In the ongoing effort to convince gas customers to add burner tips, Cole is distributing a new magazine titled Natural Living, which was developed by the Energy Solutions Center’s Residential Burner Tips Consortium. The first issue, just off the press, promotes various ways in which natural gas may be used inside the home. (for more on Natural Living, see pg. xxx). Among other things, Cole plans to give Natural Living to homeowners who’ve switched from propane to natural gas and to place copies in the houses featured in the builder community’s 2008 Parade of Homes. For that event, Cole says she hopes to enlist key builders in Detroit, Grand Rapids and Traverse City to create in each city what she terms “an all natural gas wonder house” that shows off every type of natural gas product “known to man.” AGA www.aglresources.com aGl store: www.buygasappliances.com. www.piedmontng.com www.dteenergy.com www.atmosenergy.com November 2007 | AmericAn GAs 13