In the old days before deregulation, energy utilities had clearly defined market shares and customer bases. Then, on deregulation day, the cloak of protection disappears and these utilities have to face the challenge of a competitive marketplace. For the first time, they have to win customers and provide stellar service to keep them. To make matters even more daunting, few of these utilities had any sales and marketing personnel who could jump into the breach.
This was the sales challenge the Atlanta office of Shell Energy faced when the state of Georgia decided to deregulate its natural gas industry in the fall of 1998. Shell Energy, which had been providing natural gas to Georgia since 1950, was one of 18 natural gas marketers ready to enter the fray for commercial customers.
The state laid down specific ground rules for this new competition. The gun would go off on October 15 and would continue until 33 percent of the state’s consumers selected their energy providers. One hundred days after the regulators closed the gates, the state would begin allocating gas users to energy marketers on a random basis.
The clock was ticking. Shell Energy, a wholly owned subsidiary of Houston-based Shell Oil Company, wanted to enroll as many customers as possible before the window closed. “We wanted to be seen on the street on day one because the potential for capturing a significant share of the market was great,” says John Sadowski, Shell Energy marketing manager.
However, Shell Energy had never faced sales challenges in a deregulated energy market. “The fixed cost of trying to assemble an indigenous sales force precluded us from doing it,” says Sadowski.
Outsourcing Mitigates Risk
Shell Energy also wanted to outsource the sale function to mitigate the risk involved. Sadowski says at the outset Shell Energy didn’t know which if any of the various markets would be profitable for the energy company. Outsourcing allowed Shell Energy to enter and exit the market with the least outlay of cash.
Shell Energy decided to keep the marketing strategy section of the sales process in-house. The company wanted to determine what to sell. The managers made general assumptions about the target markets’ reaction to Shell Energy’s marketing efforts, believing outside sales professionals would be needed for face-to-face contact. Its sales strategy teamed an inside sales force of lead generators with outside sales professionals.
The energy company hired Salience, an Andover, Massachusettes outsourcing supplier that specializes in deploying sales staffs. To meet the November 11 start date, Salience dispatched its recruiting team into all corners of Georgia’s business community to find the sales professionals it needed. Salience built a sales staff of 26 field reps and two sales managers.
Managing The Customer Acquisition Cost
Salience segmented the market and determined the correct sales channel for each grouping. It also rank ordered the customers; a bakery was a better candidate because it would use more natural gas than a nail salon. Sadowski says Salience designed an efficient sales process that in the end increased the percentage of closed sales.
The outsourcer also provided the reports Shell Energy needed to monitor the program. This included watching the cost; Shell Energy had a specific acquisition cost per customer in mind and Salience had to work within this budget. “We chose Salience because we knew they could get us to market quickly. But the ability to prudently manage the costs was equally important,” says Sadowski.
Salience also put together the sales compensation package. It had three parts. First, each representative received a base salary that included monthly expenses. Next, the supplier paid its sales staff a commission on a per contract basis. Then, each month it organized a sales contest. The contest focused on a specific slice of the market that needed extra attention.
Training was a joint effort between the buyer and supplier. Although Shell Energy conducted the monthly sales meetings, Salience executives attended every one.
Now that the initial land grab for customers is over, the dynamics of the market has changed. Shell Energy, however, renewed its contract with Salience last December. Today the sales force is concentrating on renewals and upsells. As for attracting new customers, the sales effort is targeting customers that meet a size criterion.
Sadowski says the sales results “have surpassed everyone’s expectations.” He was particularly relieved not to have to hassle with the administrative part of the selling process. “As it stands, the end of the engagement is not in sight,” says Sadowski.
Lessons From the Outsourcing Primer:
- When deregulation arrives, companies not used to competition would benefit from outsourcing the sales function.
- If a company has a deadline to sign up customers, an outsourcing provider can supply a sales force faster than the company could build one.
- Buyers tend to keep sales strategy in-house while outsourcing the other sales functions.
- Sales training needs to be a joint effort.
- Compensation works when it is tiered: The foundation is a base salary including expenses. Next come commissions based on sales. A third source of income comes from winning sales contests.