A Texas energy company uses direct mail to "brand" eco-friendly electricity.
The Memo Two years ago, when California led the nation in deregulating its utility market, the entrepreneurs at Green Mountain Energy smelled opportunity.
This Austin, Texas-based company is the nation's largest renewable energy services provider, favoring wind and solar power generators over coal or nuclear power to generate electricity. Green Mountain executives believed that the deregulation trend would spread to other states, and when it did, the prize would be radiant: consumers spend about $200 billion on electricity each year. By 2002, retail energy sales in deregulated states are estimated to reach at least $12 billion annually, according to Xenergy, a Massachusetts-based energy consulting firm.
Trouble is, deregulation and consumer choice of utility providers are still new concepts. Executives at Green Mountain realized they would have to provide more than just electrons to California consumers if they hoped to crack the market. They figured that the best way to enter California's new deregulated market was to appeal to consumers' environmental conscience. They'd offer a cleaner, earth-friendly brand of electricity, and leverage the efficiencies of the Internet at the same time. Green Mountain customers can sign up for services, as well as pay bills, online. Currently, about 10 percent of its business is over the Net.
The Green Mountain team had its work cut out. First, "green" power can be more expensive for consumers. Depending on where you live, alternative energy sources can cost about 5 percent to 6 percent above the standard rate, according to Ethan Cohen, an energy analyst with the Aberdeen Group, a research firm based in Boston. Second, consumers would have to trust a dot-com to provide their home utilities - something that hasn't exactly caught on, according to The Yankee Group. Less than 1 percent of all households with Internet connections in deregulated states now buy power online. Third, the energy service provider would need to generate excitement about an ephemeral commodity like electricity, while convincing consumers that they could save the planet by using renewable energy sources. But how would they do it?
The Discovery Green Mountain needed to convince consumers that buying green power would be beneficial. Even in California, long known for its environmental activism, eco-friendly energy accounts for just 12 percent of the overall mix. And less than 2 percent of customers have opted to switch to green-only providers. The company also faced stiff competition: There are more than 25 providers of "renewable" energy in California. Relying on a series of its own in-house focus groups, as well as secondary source research, the marketing team believed they'd be able to convince a substantial share of Californians to choose Green Mountain as their provider. For example, in a survey conducted by PricewaterhouseCoopers, two-thirds of respondents in Ohio said they would be willing to pay $5 more per month to reap the environmental benefits of green power. And, in one Massachusetts pilot program, 31 percent of residential customers picked the green-power option.
Customer surveys conducted by Green Mountain prior to its California launch, revealed that an environmentally-conscious electricity provider would have to motivate people to leave their current utility provider. In fact, only saving on costs was given as a compelling reason to switch. Believing that competing on price alone was not a sustainable model, the marketing team decided to focus on building the leading brand of clean electricity, with a mission to change the way power is made.
Green Mountain also had reason to believe that consumers would become more open to buying their power online. The Yankee Group projects that by 2005, 28 percent of online households will be using the Net to find alternative energy sources, spending an estimated $10 billion.
Further, the execs gathered information that convinced them that consumers were ready to embrace companies that demonstrate an intense and abiding commitment to worthy causes. This is still the case today, and the trend is expected to continue. A 1999 Cone/Roper Cause-Related Trends Report reveals that more than 80 percent of adults have a more positive image of a company that supports a cause they care about. Two-thirds place greater trust in companies aligned with social issues. And, three-fourths say it is acceptable for companies to link causes with their marketing efforts, up from two-thirds in 1993.
The biggest challenge, Green Mountain figured, was to let California consumers know that the company was a player amid the numerous choices which were available to them. To that end, the marketing crew kicked off a slate of different activities aimed at building brand awareness. In an attempt to capture a share of Sonoma County residents, the company sponsored festivals such as the Health & Harmony Festival in Santa Rosa, California, which attracts 15,000 to 20,000 Sonoma County residents. Company representatives distributed literature, and spread the green message in on-site booths. Additional marketing efforts, to target Californians, as well as consumers in other deregulated states, included partnerships with Web-based providers of green products and rotating banner advertisements on various Internet search engines.
But those activities alone didn't bring enough green consumer recruits. "We needed to concentrate our efforts in smaller regions where each dollar spent would have a greater chance for customer acquisition," says John Savage, Green Mountain's chief marketing officer. According to Savage, the company's customers are typically well-educated, many are parents or grandparents, and they see Green Mountain as a way to align their values with their consumer choices. "These are people who love brands such as Saturn, Apple, and Ben & Jerry's," says Savage. "They place a high value on quality of life, and love the outdoors."
The Tactics Green Mountain's most successful tactic to date has been a 1999 regional direct mail campaign, targeting nine California communities: Arcata, Eureka, Humbolt, Monterey, Santa Cruz, Salinas, Santa Barbara, San Luis Obispo, and Santa Maria. In fact, surveys had revealed that residents of these communities placed a high value on quality of life, community, and the environment.
The Cullinan Group, which is based in Minneapolis, designed the direct mail package that was sent to 1 million households. It was a colorful, classic, 6 inches by 9 inches format. The front of the envelope - with a visual of a wind turbine - lured consumers with the tag: "Choose cleaner electricity and pay less than you're paying now." The back of the envelope had a customized community message: In Arcata, "Switch to Green Mountain Energy and we'll donate $25 to Redwood Alliance," which is a grassroots organization dedicated to saving California's redwood trees. In Santa Cruz, where the message was, "Save Our Shores," a community-based organization was the affinity partner, and a personalized letter from Green Mountain was enclosed.
In addition, the nine-community package included the following: a lift note with offer; and a four-color brochure with easy-to-understand information about "clean" energy. The brochure explains the types of environmentally-friendly energy Green Mountain offers, including wind and solar power.
Although direct mail may not seem to be the most environmentally-friendly marketing tactic - all of that paper, all those acres of downed trees - Green Mountain made an effort to make their direct mail as eco-friendly as possible. The entire marketing package was printed on recycled, chlorine-free, unbleached paper (100 percent post-consumer waste), using soy-based inks.
The direct mail campaign was complemented by radio and newspaper advertising. A combination of full- and half-page, black-and-white ads were placed in community newspapers in April, May, and June of 1999 in concert with the mailing. The ad urged consumers to: "Stop supporting nuclear power and start paying less for electricity." The subhead reiterated one of the messages in the direct mail campaign: "Sign up today and we'll donate $25 to Redwood Alliance." Radio ads also ran at the same time in support of the direct mail and print advertising.
The Payoff This direct mail campaign resulted in 20,000 new customers, swelling the Green Mountain Energy ranks to more than 100,000. Customer phone surveys found that more than 80 percent of the company's customers say that they're "proud to be part of Green Mountain's mission." Another 80 percent say that they trust the company. Band awareness has also improved. Green Mountain is now associated with "clean energy" by a factor of 4-to-1 over existing utilities or other electricity providers. "The [direct mail] campaigns were successful because of one fundamental factor - integrated communications," explains Savage. "Each outbound marketing initiative resonated a consistent message using a consistent look and feel."
What The Critics Say Margo DeBoer, an Internet utility analyst with The Yankee Group, believes that Green Mountain's strong branding effort is unusual among smaller utilities, and has served them well in local markets. But, she believes it will be a challenge for the company to carry that success into an increasingly competitive national market. "They have a vision to be a national energy provider, and to include not only the people who identify themselves as green, but also those who wish to switch providers," says DeBoer. Although the "brand name" will help Green Mountain, they will be challenged when competing with other regional providers, as deregulation continues. Thus, DeBoer believes direct mail is a great choice, since not only will green households be targeted in a campaign, but so will other consumers who are looking for an energy alternative.
Sean Barry, director of PricewaterhouseCooper's Assurance and Business Advisory Services, says that while Green Mountain appears to have hit on a good strategy in current energy market conditions, that could change as the wholesale price of energy continues to rise. This means that the added cost of buying eco-friendly power may become less attractive to consumers, if the trend continues. What's the price that consumers are willing to pay to "do the right thing" for the environment? "Time will tell," he says.
And for a small utility that has a compost bin in office kitchens, recycles, and installs sensors to automatically turn off the lights when a room is empty, time may be on its side.