DONG Energy, a state-owned utility in Denmark, was facing a liberalized energy market in which distributors and retailers could purchase their energy on the stock market and sell it to private consumers. The company—a large-scale producer of natural gas, electricity, and wind power—needed a compelling way to position itself so that it could continue selling its own energy directly to consumers.
Because they were eager to differentiate themselves to consumers by expanding their offerings, ReD took a close look at Danish consumers and their relationship to their homes by conducting several weeks of extensive in-home interviews with consumers.
Drawing from those interviews, we were able to divide the marketplace into four segments—DIY enthusiasts, pragmatic and price-focused types, identity-focused people eager to hire others to do home improvements, and young apartment dwellers keener on collective initiatives like local windmills or solar parks. We noted distinctions in income and spending and recommended targeting the first two segments for energy-conservation investments of US $25,000 or more, such as geothermal heat pumps. Such investments would allow DONG Energy to offer a very different business model than that of competing energy retailers, and to establish its position, we recommended two courses of action: Help people produce their own energy and encourage people to adopt conservation measures.
But there was one significant hurdle to such an approach. A US$25,000 investment is substantial, and we knew that the people we met would have difficulty believing there would be payback down the road. In other words, while an upfront investment would guarantee homeowners long-term savings in their energy bills, they still needed convincing—and they needed help with financing. So we advised DONG Energy to create digital apps for their website that would enable people to calculate their cost savings and recommended that they work with banks to simplify the lending process.
We also emphasized that each segment should be approached with different offers. For customers focused on DIY improvements, DONG Energy would provide the elements necessary for families to make the upgrades on their own. For homeowners who wanted to improve their homes and to be environmentally responsible—but who felt nervous about managing contractors and taking measurements—we recommended an A to Z approach where DONG Energy would handle everything, from hiring local contractors to paying bills. DONG Energy would make money not only by providing the products but also by serving as project manager. To build the market, we suggested adding an energy service check-up—a visit from an expert that tells you how you can make your home more energy-efficient.
DONG Energy has taken all of our recommendations, focusing intently on the A to Z solutions and upfront financing, and is rolling out their green solutions in stages during 2009-2010. It promises a big impact both for revenues and for the environment. If just 10% of all Danish households transitioned to heat pumps, says Bo Lundberg, VP at DONG Energy, the market potential is $300B—that would shave 40% from residents’ heat bills and co2 emissions would decline 30%.