Profit Potential In Small and Medium Commercial Customer Markets Large commercial customers are getting close scrutiny as state markets open to competition.What about the rest of the commercial sector? How much marketing effort should be devoted to those customers? This article develops a summary overview of the small and medium commercial markets as a first step in answering this question. For our evaluation, we define large commercial customer customers as those using more than 1 million kWh/year. The table below shows that the small-medium commercial customer market is only slightly less important than the large customer market in terms of electricity sales; however, there are nearly 5 million of these customers compared to 144,000 large commercial customers. Clearly the customers in the $31 billion small-medium market will soon be getting the strategic marketing attention that they deserve. Market Segment Number of Customers Annual GWH Large Commercial Customers 143,989 438,548 Small and Medium Commercial Customers 4,831,035 414,783 The table below shows additional detail on several small-medium commercial customer market segments. Retail, the largest of the small-medium segments accounts for 18 % of all small-medium customers and 20% of total energy use. Business Segment Customers (Thousands) Annual Gwh (Thousands) Retail 1,370 88 Grocery 183 29 Schools 294 34 Nursing Home 20 6 While their smaller size means smaller per-customer sales of core energy services, many of these customers will generate greater profits than large customers. This outcome is likely for several reasons: Large customers will use knowledge of onsite building engineers/energy managers, market leverage and negotiating skills to drive profit margins for core energy services close to zero; large customers who do not have these inhouse capabilities will use an energy broker to achieve the same result. Small customers will not have this market power or as much market information . The market for bundled ancillary services such as security, telecommunications, equipment lease/maintenance and others is much larger in the small-to-medium size market segment. The first proposition above is borne out by experience in other competitive markets. The second proposition is supported by data from the MAISY Commercial State-Level Energy Marketing databases. A few items related to energy service offerings are presented in the following table: Customer Characteristics % Small-Medium Segment % Large customer Segment Energy Audited 16 86 Engineer Responsible for HVAC 34 67 The table illustrates two areas where the potential for ancillary services is significantly greater with small-medium customers than with large customers. Nearly all large customers have already undergone an energy audit to identify energy-savings measures while only one-in-six of the smaller customers have. Two-thirds of large customers use an HVAC professional to maintain their HVAC (heating, ventilation and air conditioning system) while building owners usually fill that function in the small-medium customer segment. While this article hardly scratches the surface of marketing issues related to small-medium commercial customers, information provided here from the MAISY State-Level Energy Marketing Databases verifies the importance of this market segment and the competitive advantage that can be gained by serving ancillary needs of these customers. MAISY databases support development of competitive strategies and programs required by utilities, power marketers and energy service companies. The databases contain over 300 customer variables for commercial and over 500 for residential customers. Over 100,000 records provide an accurate representation of individual state markets and customers in those markets. MAISY Hourly Loads Databases, available November 1, will provide hourly load data for three day-types in each of twelve months for electric gas and oil for every customer record for 1997 customer databases. (c) 1997-1998, Jerry Jackson Associates, Ltd. All rights reserved. This article may be reproduced for non-commercial purposes as long as this copyright notice is included.

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