region, especially at today’s low premiums. The second reason many marketers have had difficulty with cappedprice plans is the complexity of hedging a capped-price plan versus hedging a fixed-price plan. Without a doubt, a fixed-price plan is easier to hedge – however, a capped-price plan, with the right tools and a little bit of training, is not difficult to manage and, in fact, often positions a marketer with substantially less risk. So, what about today’s market? Despite low prices such as we haven’t seen in years, there’s no telling where the bottom may be, so my recommendation for every energy marketer is that now is as good a time as any to promote a capped-price program. With premiums for capped-price protection now at their lowest in years, it’s easy to get a customer to understand capped-price program benefits. Moreover, when considering which type of program to offer customers, the energy marketer is encouraged to use automation to add value bundling. For example, automated price protection systems often easily entice customers into additional value-added programs such as e-statements, auto bill pay, budget plans and HVAC service plans which can be added to the price protection enrollment and checkout process. By following a theme of “contractually obligated automatic service” (COAS), good customers become great customers. Determine Program Season and Term Today, the cutting edge of energy programs and hedging methodologies is incremental price protection, which I strongly recommend to any marketer interested in an automated price protection and risk management program. Incremental price protection simply means that a marketer can sell price protection throughout the year with contracts that begin and end at different times. Overall, I believe implementing incremental price protection has the greatest potential for positive impact on an energy marketer’s business. The first significant benefit of incremental price protection revolves around staff management and customer demand. When a program is relegated to a one-day launch, in the traditional fashion, or is only available for a short enrollment period, providing great customer service is very difficult due to heavy calling volume. It is also during this time where customer defections and negotiations will be at their highest. In contrast, by providing incremental price protection, customer demand is spread throughout the year, empowering customer service agents to spend more quality time with customers explaining the features and benefits of complex programs, such as a cappedprice program with a budget. Furthermore, incremental price protection is much less risky to hedge than traditional fixed-price programs, because the program can hedge in lockstep with sales, consequently eliminating hedging risk. Incremental price protection is also very controllable – if a marketer sees his or her margin slipping, it can be quickly adjusted to get back on course. Incremental price protection also provides protection against competition as programs remain somewhat opaque to the outside world. An incremental price protection program would not reveal expiration dates nor prices to your competitors. Implement Indexed Pricing One of the most important aspects of automating a price protection and risk management program is to apply automatic indexed pricing. Hedging best practices requires applied sales volumes and hedges are closely aligned, which is facilitated by market index pricing based upon the CME, ULSD, or Mount Bellevue propane index. With index pricing, as these markets increase, the selling price of an energy marketer’s price protection program will increase in lockstep, and when the market falls, a marketer can either lower their program price manually or allow it to fall competitively with the marketplace. This ensures that the program will always be competitive and your business’ margin protected. Again, with indexed pricing, no matter how much the market rises or falls (and how quickly), margins are safely and automatically protected. Optimize the Marketing Presentation & Enrollment Process Energy marketers often ask how to automate the marketing presentation of a price protection and enrollment system. One easy example is an email marketing campaign, which can direct customers to a price protection landing page, which in turn sells the features and benefits of the various programs and provides a direct link to sign up. Many websites include tracking mechanisms to monitor the traffic of customers who visit the sign-up pages and to take note of those customers who visit the page but do not commit. These customers can be solicited by CSR agents at a later date. Of course, customers who don’t use email will need to remain on a printed mailer notification system. One of the most impactful methods for automating a price protection program is to provide Internet-based enrollment. This essentially turns a burdensome manual process into a process of customer self-service, with just a few caveats. An important consideration here revolves around price discovery. Prices for price protection programs should only be revealed to customers who authenticate into a customer web portal, so they are validated as legitimate customers with a proper account as opposed to sneaky competition, etc. It is also recommended that prices fluctuate with the Example of an online enrollment system. Continued on p. 26 ICM/March/April 2016 13
ICM March-April 2016
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