Part III: GIS Sheds Lights on Changing Utility Industry

By Eric Cohen

Mapping applications are rapidly branching into new areas as businesses of all kinds begin to understand the power of GIS.This article is the third in a three-part series that describes real-life applications of GIS in businesses.

The utility marketplace is rapidly changing and increasingly competitive.Until recently, most utilities operated as monopolies in their business areas.With the advent of deregulation, more and more utilities are waking up to a new era of inevitable competition and essential customer service.

Utilities are responding to this new competitive environment by moving into new communities, searching for partnerships, and offering an expanded range of services.They are also trying to learn more about their customers.

Recently, a large southern electric company decided that it needed to better understand its changing marketplace.Previously, the utility did not need to know about its customers (nor care about them).Today, competitors are moving into this company's territory and they are creating a competitive environment.Company officials decided that they had to become smarter in targeting specific service areas, they had to instill loyalty in current customers, and they had to identify future customers.

Utilities are rich with data, as many industries are.However, unlike many other industries, utilities serve both residential and business customers - with each subset of customers needing different levels of service.This southern utility had a large customer database within which it already knew each customer's level of service, including energy demand statistics so it could forecast loads in both the residential and business arena.In addition, the utility had customer satisfaction surveys which were important tools for understanding where the company had not been adequately servicing its customer base.


Image Courtesy of CACI Marketing Systems

As with most market analysis projects, this project began with the task of geocoding and profiling the utility's customer database.Using a GIS system, the latitude and longitude of each customer was plotted on a map, enabling utility officials to better understand the true service area.During this process, residential and business customers were separated and classified.

Customer satisfaction surveys were researched so that demand indices by demographic lifestyle segments could be created for the survey.For example, the research revealed which customers were interested in energy saver programs and which customers were on monthly budget plans.


Image Courtesy of CACI Marketing Systems

The next type of segmentation involved the business customer database.In this instance, it was important for the utility company to know which were "mom and pop" retailers, which were large factories, and which were shopping centers that included many different businesses.For this exercise, segments by type of business, number of employees and sales volume were created - hand in hand with information about electric utility usage.

The company's consumer data was fed into a GIS application to put the information into a geographic context.That map-based analysis helped the utility understand its current service areas, potential new service areas, areas where new housing starts were appearing, areas with new business parks or office buildings, and other areas of growth.The utility also was able to analyze its penetration in existing markets along with levels of saturation.This data was imperative to understanding where the utility was in danger of losing customers to the new competition.


Image Courtesy of CACI Marketing Systems

Additionally, the utility began to look for lifestyle profiles that were similar to its current customers in new areas covered by competitors.By studying another company's territory, the utility was able to see if these particular service areas matched its own standard consumer profile so it could consider acquisition opportunities that may not have existed previously.

The last step was to do target marketing based on lifestyle segmentation types.Lifestyle segmentation can be very effective at targeting the marketplace for specific advertising messages.For example, a 35-year-old professional earning $50,000 a year in Great Falls, VA (a suburb of Washington D.C.) is very different from the 35-year-old professional earning $50,000 in Great Falls, Montana.It's likely that one may be a "1F" - Semirural Lifestyle - while the other may be a "2B" - Baby Boomer with Children.The individual likes, dislikes, buying habits and interests are different-and so will be the individual's response to marketing messages.

Finally, service areas were mapped in conjunction with a display of lifestyle segments.In this way, the utility could see which segment was most predominant in each of its service areas.Once the marketing messages for each group were tested, direct marketing and advertising campaigns (along with customer care programs) were created for each service area and the related lifestyle segments.By incorporating a more structured one-to-one approach, the utility was able to do a better job of keeping its current customers while bringing new customers into the family.


Published Friday, March 5th, 1999

Written by Eric Cohen



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