What Consumer Want !

There is a 2000 American romantic fantasy comedy film with lead role of Mel Gibson named “What Women Wants”.

One must be wondering why I am writing about movie and this surely is not expected from a 17 years of experience professional leading the electricity business with portfolio of > 900 Crore. Many would stop reading this now but those, who may continue, will surely get some insights, I earned and learned during course of my career so far.?

The protagonist in the movie is the senior advertising executive and is the chauvinist skilled selling products to men and seducing women. He consider himself as the most eligible for promotion at higher level, however, management decided to hire some external- a central lead female actor. The new boss tasks the staff to develop innovative advertising ideas to enhance interest of women audience. In order to impress his new boss and of course to survive in the organization, the protagonist, tries the products meant for women at home, but meets an accident and become unconscious due to electric shock while using hair dryer. Next morning when he awakens, he discovers a gift, he can hear women’s thoughts whenever one passes nearby. This makes him win heart of his boss, devise some innovative advertising ideas and surprising everyone around and also helps mending his relationship with his daughter and estranged wife. The central idea is you need to understand the Party you are dealing with to convince, cajole or persuade.

I have been working in the electricity sector and one thing for sure I observed that many, in the business development role, have limited understanding of WHAT A CONSUMER WANT and thus thought of writing this article.

The notion of sales or persuasion has seen dramatic shift in past 10 years that it had not witnessed in past 100 or 1000 years even. Historically the sales/persuasion framework has been dependent on information asymmetry, meaning the person holding more information have more persuasion or influence over party during transaction. However, our world, is fast moving from Information Asymmetry to Information Parity and this is true for every realm of life so the traditional sales framework need a shift. The traditional way of sales and marketing has witnessed the dramatic shift from caveat emptor[1] to caveat venditor[2], meaning thereby the buyers now have more power than the seller, the buyers are more informed, skilled to negotiate with sellers and they have platform to voice their concern.

Though many progressive organization has slowly and steadily adopted in their business operations and rather than pushing sales to the consumer has engaged into a consultative sales framework with the consumer to ensure and grow their market presence. Social media platforms are now being monitored with way higher sensitivities and there has been tremendous investment in increasing the pre and post sales experience for the consumer in normal product and services market. Though we are yet not heading towards customized manufacturing, however, there is increasing trend towards the same and I wouldn’t wonder, if commercial deployment of 3D manufacturing will enable companies to offer customized products meeting exact client requirements and will introduce a new era of competition.

In my career I crossed roads with BD/Sales professionals who solely think from selling perspective, had limited insights of what a consumer really want and hardly empathize the pain of the consumer while taking buying decision, making a BD kill was the sole objective, same as Mel Gibson in the movie. To large extent I was also the same, however, one thing I was always firm and pursued relentlessly that unless you know your product, you can’t sell your product. This was the key reason why I engrossed myself to learn the whole ecosystem in which buying and selling decision takes place. I found most of the business development people playing with traditional skill of relying on information asymmetry, as there still is lack of information parity at buyer end w.r.t. contractual and regulatory framework, implementation of contract etc.?

Once the buyer get into the contract, they are exposed to ground realities and implications of contractual provisions and there comes a heart burn and this tarnishes the amicability of the relationship between buyer and seller. Such uninformed and ignorant buyer often faces criticism internally as well (though I must tell you that telling all this also attracts criticism). However, there is no single party to blame with but both parties. While working as procurer, I experienced the epiphany of how critical it is to understand what a consumer want. This combined with the understanding of contractual ecosystem has shifted me from the landscape of caveat emptor to caveat venditor. This also help me realize how critical it is for the buyer to be informed, have understanding of the sector, regulations, and competency to analyze the impact on the buying decision during procurement. One wrong decision and one can get stuck with legacy contract with cost burden to exit, similar to what DISCOMs are troubled with. I truly sympathize with DISCOM for their legacy contracts, but still they have option to recover the stranded cost of legacy contract as part of additional surcharge and/or under the Annual Revenue Requirement periodically filed. Unlike them C&I consumer’s don’t have any option other than continue paying up as the financial and regulatory framework are supportive of sellers primarily. Therefore it is pertinent, for the consumer to not only be regulatory vigilant, contractually competent but must also be able to aware insights of the electricity sector they deal in.

Now this must be feeling condescending and criticizing to my own clan of electricity sector, but believe me intention is not such. This article is all about sharing insights on What Consumer Wants when it comes to electricity transactions. As an individual in either as buyer or seller, we must be aware and cognizant to make a sales kill.

1. Load profile understanding of Consumer

• The seller/buyer must have detailed understanding of the load profile, business cycle of the buyer.
• W.r.t. renewable procurement enabled with banked energy adjustment, the energy mapping with the supply source during matching hours of energy proposed during contract execution.
• For instance, the RE sellers takes aggregate consumption over a year and factor the same for proposing the contracted energy, however, they fail to understand that each business have its own business cycle over months in a year and with regulatory risk associated with banking, it buyer may end up having surplus energy to be unutilised. In such cases they will pay for the surplus energy and may get reimbursement at significantly reduced rate from DISCOM.

2. Power Mix Cost Impact on Consumer

• Consumer depending upon its energy need must be utilising various sources of energy with varying cost of sources. Both seller/buyer must be aware of which source need to be replaced.
• While proposing for the tariff and contracted energy, the sellers must have positive cost impact on the aggregate power mix benefitting buyer from the perspective of energy saving and renewable target.
• For instance, most RE sellers focus on sharing the saving from DISCOM variable tariff, however, there is impact due to increase in fixed charges with increased Contract demand possibilities, the fact that Renewable is variable and either the DISCOM or CPP support is mandatory for transactions during peak hours or when RE source is not available.

3. Regulatory and Implementation Ecosystem

• The seller must have detailed understanding of the ecosystem in which the electricity transaction between the buyer and seller is scheduled to be operating
• The seller must be knowing and educating not only the regulatory framework of the host state wherein the buyer is located but also the energy accounting and implementation framework
• The sellers must let buyer acknowledge the fact that transaction happening under the LTA/MTA/STOA have its own pros-cons and help them factor into as risk and its mitigation mechanism
• The seller must be educating, assisting the buyer till atleast 2-3 energy transaction
• For instance, the sellers pitch for the RE sourcing to any buyer, however, they don’t mention the risks associated with variability and intermittency and how it will be taken care of. Sellers don’t explain the risk of LTA relinquishment or risk of going into STOA

Illustration:

In aforementioned illustration, the objective with the buyer was to reduce its power mix cost from existing actual, through renewable and he had different options as:

1. Intra-State Offsite Solar (i.e. Solar with CUF <20%)
2. Intra-State Hybrid (i.e. Solar & Wind with CUF > 50%)
3. Inter-State Hybrid (i.e. Solar & Wind with CUF > 50%)

The usual point of contract negotiation between buyer and seller is of Tariff and the Landed cost for the buyer and seller. However, many times we failed to hypothesize the contract in operation before entering into it, which matters more than the Tariff. Now evaluate the options from the following input:

• There is annual banking with min banking charge for solar and banked energy adjustment allowed throughout the TOD hours but waivers w.r.t. charges and losses will not be there for useful life.
• There is no banking available for intra-state or inter-state hybrid, however, the charges and losses are waived off for entire lifetime of the project

Do you think the choice is easy? I bet No. One should be undertaking following while evaluating the options:

• Undertake detailed analysis of energy mapping with load of the buyer during the TOD hours for the year and arriving at the contracted capacity
• The fact that year around banking is there, it helps offsetting the higher cost source even with marginally higher solar tariff
• The fact that >50% of the CUF is available will help offsetting higher cost source significantly even without banking is soothing one however, just imagine factoring the business cycle variation during months of year, intermittency of RE sources specially wind
• The fact that the charges and losses for intra-state solar increases every year and may alter the present saving offering
• What if there is no need to increase the contract demand for hybrid but offsite solar may require increase in contract demand or vice-versa.

I can bet for sure, person dealing on either side must be scratching their heads. If anyone still had patience and has gone through above must be imagining me as Anti-Renewable (if not anti-national), however, my intention is that these are the challenges faced by the buyer and sellers must be ready with responses to it before reaching out to buyers for any offering.

There is no ready reckoner for RE procurement, it all depends upon the state you are dealing with, contractual framework under which offerings are made, regulatory and implementation practice for such transactions, whether there is ambiguity in regulations/procedures etc. Taking decision ex-ante is toughest and easiest one is to do the autopsy of the transaction, thus the only thing we can be sure of applying your learning in ethical and with integrity to your profession.

By now some friends in BD role must be saying “Itna bata diya to Client Bhag Jayega” but we must be aware that a transaction only happens if there is a need so as a seller if you are desperate to sell, there is always a matching need at buyer end also. As Parties of the Contract, one must be aware of aforementioned to make a fruitful transactions as nothing matters more than TRUST OF PARTIES in transaction and detailed understanding helps building TRUST.

[1] Caveat emptor – Let the buyer beware i.e., Let a purchaser beware, for he ought not to be ignorant of the nature of the property which he is buying from another party

[2] Caveat venditor – Let the seller beware i.e., Let a seller, for he ought not to be ignoring that the buyer might be having access of information about product/services and have multiple suppliers to let buyer have dominant buyer power.?