So you’ve got a great product that customers want. It’s developed and ready to go.
How do you make sure that the financial returns on the product match what you expected? In a market like energy where margins are low, and risks are high having a clear approach to the commercial optimisation of a product is critical to its success.
No matter how an energy product is packaged, underneath its shell is a complex web of different costs and risks that need to repackaged and dealt with. Like the proverbial swan swimming in the lake, presenting a beautiful product to the customer is underpinned by a business that needs to paddle hard to get to where it wants to go.
Below is our high-level view of retail product optimisation, for more in-depth support please contact us.
- During Development
Setting a clear product expectation up front will provide your business the ability to develop the processes and tools needed when speed is needed once a product is live. This includes all the commercial and risk optimisation frameworks.
Part of the product development needs to be a sound understanding of the terms on which it will be sold to customers. What will be fixed, for how long – and can your business do something to manage any fixed price exposure it is taking?
Maybe the product is simple for the customer, and the contract terms are short. That’s great and really customer friendly, although as a consequence your business will end up holding a large number of complex exposures that you need to understand – and make sure you cover off financially.
There are many important questions to answer including – What price point are you aiming to achieve? Is it competitive with similar products? Is it high enough to cover the costs? How often will the product be repriced as the market price moves?
How are prices fixed, for how long, by whom? If the customer can fix and unfix prices what processes are in place for executing orders?
- At the time of sale
When a sale is made, your customer expects to get what they have signed up for; and your business needs to deliver.
Optimising internal processes
From the time a quote is accepted by the customer your business has a financial exposure to deliver against its promises.
Making sure that your internal processes pick up the sale as swiftly as possible and take the actions expected are key to getting the end result your business expected. If you have internal inefficiencies that lose you money, your customers rightly don’t care, and won’t pay for them.
Your business needs to activate any hedging strategies developed to manage your energy exposure. Where a customer has a complex profile but the energy market offers simple products understanding the risk optimal approach is key.
Managing industry processes
Energy supply contracts only work if they flow through the myriad industry processes. Getting any notices served, and registrations processed in a timely manner provides a customer journey that avoids bumps.
- At the time of delivery
As your contract goes into delivery, no matter how long it is there is an ongoing need to develop and refine your management of it
Forecasting, flexibility and hedging.
Short term energy prices are amongst the most volatile commodity prices in the world, and the only way to minimise exposure is to understand actual customer behaviour. The more real time the link between the customer and your process the better, particularly for any large customers with a fixed price contract.
Although automating a re-hedging strategy to remove volume risks is notionally simple, optimising for risk is more appropriate for some customers (provided your corporate risk appetite allows it). Using flexibility at the appropriate time on contracts that include it will increase the rewards available.
Shocks are normal
Somewhat paradoxically, shock events in energy happen all the time. Its just a different shock each time. Being ready for shocks, and knowing how to deal with them ensures that you take appropriate action rather than leaping to a decision that costs more than it saves.
- After Delivery
Get the invoices out, and the cash in
As an energy supplier, the various companies that are owed money from you will send invoices according to their timetable, whether you have invoiced your customer or not.
Learning for the future
Behaviours change, and any expectation of behaviour patterns at the time of contract signature may not be borne out. This needs to be reflected in future forecasts; taking care to make sure that any changes in forecast are real and not simply the impact of transient weather or similar events.
The opportunities to provide customers with value adding products are many, as are the ways in which things can go in the opposite way to what was expected.
At Cielo Energy, our expertise is in maximising the commercial opportunity, whilst minimising the risks of energy transactions. Whatever you need we can work with you to provide independent expert advice and support.