The Polar Vortex of 2014 still sends chills down the spines of energy retailers. The epic event caused a disruption across all spectrums of power generation from coal, to gas, and even nuclear power. Caught with inflexible pricing strategies and a huge spike in demand during last winter’s epic cold wave, many energy retailers found themselves upside-down.
In order to combat a repeat of the Polar Vortex, energy retailers need to be armed with the right pricing strategy to balance the demand of its consumers. To make certain they are prepared, it’s essential for organizations to follow these tried-and-true Pricing and Revenue Management steps:
- Understand Your Demand Forecast: By analyzing historical customer data, energy retailers can better forecast future customer demand. What happens to energy demand when temperatures fall 5 degrees below normal? 10 degrees? Or stay below freezing for more than two weeks? It is critical for energy retailers to gauge, as best as possible, what happens when demand spikes – or plunges – so that they can create an appropriate pricing strategy.
- Segment By Key Factors: Energy retailers shouldn’t assume that a one-size price strategy fits all. Instead, they should consider a varied approach to their pricing based on, among other things, competitors’ market share, the maturity of the market, and overall demand. Segmentation helps to isolate key factors and uncovers insights that can help to provide impact to your bottom line.
- Measure and Monitor: Energy retailers, by equipping themselves to forecast demand and segment by key factors, can now establish new pricing strategies. But their work isn’t done. They must continue to measure demand response, their competitors’ actions, and market pricing changes to make certain they forecast and set rates accurately.
Armed with a Revenue Management strategy, energy retailers will be better equipped to endure – and remain profitable during – the next unforeseen and uncontrollable circumstance. Click here to read my article that delves into how the industry got into this situation, and re-examines the above strategy.