Raising doubts about ROI on fuel conversion is the key
There is a lot of interest among heating oil customers in replacing their home heating fuel. Homeowners in many areas seem to think that they can switch their fuel to natural gas and lock themselves into long-term savings while gaining some nice green side benefits.
As heating oil insiders, we know that fuel conversion is a fool’s errand, because we understand the nuances that consumers overlook. We know that fuel conversion is expensive and disruptive; that advanced heating oil blends actually burn cleaner than natural gas; and that natural gas price increases are virtually inevitable.
For all our knowledge, however, we have been largely ineffective in swaying public opinion regarding heating oil and natural gas. Can we do better? Yes, we can. In this column, I will be looking specifically at how an energy marketer can reduce losses to fuel conversion by influencing their own customers.
Before getting into specifics, let’s think for a minute about self-interest, which is the key motivating factor for your customers. Any homeowner who is considering fuel conversion is going to make their decision based almost entirely on their own self interest, which translates roughly to cost.
To influence them effectively, you have to appeal to those same interests, which is to say you have to make them doubt that they will achieve a good return on investment if they switch to natural gas.
Other factors enter into the decision process, such as when consumers seek to replace fossil fuels with renewable energy for reasons or personal preference. Even when consumers’ motivation goes beyond price, however, economic concerns will likely still loom very large, because no one wants to spend a lot of money only to get little or nothing in return.
Bad Press for Gas
As recently as one year ago, it was difficult to make a good case that natural gas prices were bound to rise, because there was very little skepticism about natural gas anywhere in the media. In the last 12 months, however, reporters have begun looking more closely and asking questions. This means that we have a much better selection of credible sources to quote, including members of Congress, energy supply experts and major manufacturers.
An energy marketer can now make a powerful case that long-term stability in natural gas prices is unlikely. Low-priced natural gas is very attractive across the economic spectrum, and many potential users are flocking to it, which is likely to send demand soaring. Consider some of the potential growth areas.
- Power generation. The power generation industry is moving away from nuclear and coal and becoming increasingly reliant on natural gas, especially in the Northeast, where natural gas pipeline capacity is limited. Bloomberg New Energy Finance recently predicted that power generators will invest $314 billion in new natural gas-fired generation capacity in the next 16 years, and that natural gas prices will “rise sharply” after 2024 due to “depletion of some of the main gas plays.” And President Obama’s recent order on emissions reductions is expected to accelerate the transition to natural gas power generation.
- LNG Exports. The U.S. Department of Energy has approved six facilities that would export U.S.-produced natural gas into international markets, where prices are up to six times higher than current U.S. prices. Once exports commence, U.S. prices could also rise, with utilities – and ultimately homeowners – forced to compete on price against hungry overseas markets.
- Manufacturing and Chemicals. As natural gas supplies increased in recent years and prices fell, manufacturers and chemical companies began expanding facilities to take advantage of low-cost energy. Expanded factories and chemical plants create additional demand that could drive up natural gas prices.Transportation. Navigant Research predicts that sale of natural gas-fueled vehicles will increase from 2.3 million a year now to 3.8 million in 2023. UPS recently announced the addition of 700 new natural-gas powered tractor-trailers to its fleet, and other companies are expected to follow.
Together, these factors could generate enough additional demand for natural gas to push the prices back to competitive levels. And there’s more: Methane emissions from leaking natural gas distribution pipelines have lately become a popular public topic, and some lawmakers are considering regulations that would require natural gas utilities to fix their leaks, instead of ignoring most of them. If utilities are required to accelerate their pipeline replacement programs, ratepayers could face substantial rate increases to cover the cost.
Similarly, there has been a lot of publicity about excessive methane emissions and other environmental problems at natural gas fracking sites. If state or federal regulators impose tougher standards, production costs could increase, which would cause consumer prices to rise.
Plant Seeds of Doubt
This evaluation of natural gas cost factors contains some maybes and what-ifs, and that could be a problem if you were trying to win the pro-heating oil side of a high school debate. Luckily, though, you’re not in a debate, and all you need is to create reasonable doubt. Your goal is to knock customers off the idea that converting natural gas will assure them of lower heating costs in the future. Dash their irrational exuberance and make them ask themselves whether switching to gas would, in fact, save them money. If you can cause a customer to think seriously that conversion could be a costly investment without a return, you’ve given them a good reason to think about staying with oil.
Once a customer feels a gnawing doubt in the pit of their stomach about the idea of disrupting their lives and spending their hard-earned money on fuel conversion, they are much more likely to entertain positive thoughts about you and your fuel. At that point, you’ll want them to start thinking of all the reasons they appreciate being your customer and heating with oil.
If you can neutralize the price issue, the rest of the oil vs. gas comparison points break in your favor. Heating oil is, of course, better for customer service, but it is also on the verge of winning the environment argument, because a B20 blend that uses ultra low sulfur heating oil burns cleaner than natural gas and does not have the methane emissions baggage. Also, an energy marketer who is diversified into multiple home services has a lot more to offer the customer than any utility ever could.
Focus on Intelligent Solutions
No matter how many excellent points you make, however, there is still some consumer angst around oil. Many consumers associate oil with the Middle East and conflict, and there is nothing you can say to cure their restlessness. To help customers in that mindset get comfortable with Oilheat, talk to them about conservation and flexibility. Tell customers that using energy wisely is the ultimate objective, and that your company is here to help them be smart energy consumers. If they have reservations about Oilheat, they might be more comfortable with it when they believe they are minimizing their usage.
The power of this last point is its accuracy. Many consumers have reservations about fossil fuels, and yet they go ahead and drive gasoline-powered cars. Why? Because they prefer having a car to not having a car, and they do the best they can by choosing high-mileage or hybrid vehicles. Similarly, when customers gain a realistic understanding of their home heating options, the combination of Oilheat and conservation becomes a happier choice.
While you are setting customers straight about natural gas, be sure that your company has the look of a smart, forward-thinking provider. Convey a vision of leadership, conservation and intelligent home comfort solutions, and you’ll lend credibility to your analysis of the competing fuels.
Spread the Word
To influence your customers’ thinking, you need an effective outreach campaign that will put your message in front of them several times. Use our website as the informational hub where you build a section dedicated to fuel choice and efficiency, featuring a series of articles, videos and/or podcasts that are easy to read and digest. Draw on the resources of the American Energy Coalition, which is dedicated to helping heating oil marketers compete against natural gas, and hire outside help as needed.
Once your materials are published, communicate directly with your customers about fuel choice and smart energy consumption using newsletters, e-mails, postcards and customer letters. Each piece should discuss the same issues in less detail and urge the customers to visit your website for more information.
Plan to use social media to amplify the message, but don’t rely on Facebook, Twitter or a blog alone to disseminate your message. Oilheat accounts are too valuable for shortcuts. You need to touch every customer directly several times on this issue to ensure that the message gets through.
As you launch your retention campaign, plan a parallel equipment sales campaign with a goal of selling customers new oil-fired equipment, because nothing protects an account better than a new boiler or furnace. Maintain enough separation between the two campaigns to keep your fuel conversion message from looking like part of a sales campaign, but be prepared with attractive special offers that help get new equipment into customer’s homes.
As always, the team at PriMedia stands ready to help. Please call me at 800-796-3342 or e-mail me at rrutigliano@primediany.com to discuss your customer retention.
