Energy giants desperate to come in from the cold
Can sports sponsorship help firms win customers even as bills soar? Richard Gillis reports
Saturday 15 January 2011
Since 2008 price rises have added £560m to energy bills in the UK, according to the price comparison website uSwitch. This week E.on became the latest utility to raise prices on domestic bills. The average annual gas and electricity bill now stands at £1,250. This all makes it a very good time to shop around, say consumer groups, who point out customers can save up to a third by moving their accounts.
This in turn presents a marketing challenge to the utilities, and to a large extent the battle for customers is taking place on the sports field, where energy firms have been among the largest corporate sponsors in the past five years.
Most notably, the French-owned EDF Energy paid about £40m to be a top-tier sponsor of the London 2012 Olympic Games. This week it bought the rights to be the title sponsor of the London Eye. EDF agreed to pay about £8m over three years in a deal with Merlin Entertainment, which owns the commercial rights to the famous landmark.
Last year, British Gas entered a £15m, five-year deal to support British Swimming, the sport's governing body. The company says the money is to be shared equally between elite athletes and grass-roots swimming clubs.
E.on is currently in its fourth year as presenting sponsor of the FA Cup after extending the relationship with the Football Association for a further year. Meanwhile, Npower took the title rights to the Football League, in a deal worth £7m a year, and remains in negotiations with the England and Wales Cricket Board over its sponsorship of domestic Test cricket.
"Utilities are not the most exciting thing in people's lives and it's quite hard to use advertising to make people shift into new products," says Kevin Peake, the head of marketing at Npower. He says his company is "using football to drive new customer business and sales. It's not a brand awareness campaign, it is very much a commercial buy and is a self-financing sponsorship."
Mr Peake is dismissive of his rival's FA Cup deal, believing that E.on overpaid. "The FA Cup was valued at £9m for the first three years of their contract with the FA, but the problem is, it is not called the 'E.on FA Cup', it is called 'the FA Cup sponsored by E.on'. In reality, they made a bad buy because they've not been able to brand it effectively. They were paying a massive premium, and it hasn't worked for them."
E.on's decision to renew this season was all about price, says Mr Peake. "We were offered the FA Cup and said no. It went round and round, and the reason E.on picked it up again was that the FA came back offering it at half the price. They got it for about £4.5m in the end."
Not so, says Phil Boas of E.on, who says the company's sponsorship of The FA Cup has played a key role in establishing the E.on brand in the UK. "Before 2006, the brand did not exist in the UK and in just over four years we have become a household name in a very competitive market."
However, the energy sector's use of sports sponsorship so far has been underwhelming, according to some observers. "Today's utilities inherited a culture of traditional sponsorship from the time of public ownership," says Shaun Whatling, of sponsorship consultancy Redmandarin, "and by and large, they've stuck to it. Utility says it all really – it's hard to marry the standard of customer relationship we've come to expect from an Apple or a McDonalds, with a business model of commodity supply and mass distribution."
But Gavin Hayes, of the left-wing think-tank Compass, voiced a more fundamental criticism, which is that energy companies should not be spending such large sums on sport when "they are not investing enough in our future energy needs and are over-charging customers. It is profoundly wrong when you consider the millions of people who are now in fuel poverty in this country as a direct consequence of higher energy bills, and that the UK has one of the highest cold weather death rates. Surely they should be investing any spare cash in helping their most vulnerable customers?"
'A Notts County football game gets more viewers than the Ashes since Sky took over'
*England's Ashes victory in Australia came at the perfect time for the commercial team of the game's governing body, the England and Wales Cricket Board (ECB).
The new year marked the end of Npower's contract as title sponsor of domestic Test match cricket, a role the energy company has played since 2001. The contract is a key part of the board's sponsorship inventory and the success of Andrew Strauss's team has encouraged the ECB to raise its prices by around 50 per cent. But is it worth it?
This question was posed by Kevin Peake, Npower's head of marketing, who took the brand into cricket and says he remains interested in renewing the deal. "We are paying around £3m a year for a four-year deal and we pay a premium for an Ashes series, so we're looking at a £13m-£14m project over four years," he said. "The ECB is saying they want £20m, a 50 per cent increase."
The company measures the value of its sponsorship in terms of the media coverage it generates. But according to Mr Peake, this has fallen considerably since the ECB sold its television rights to Sky Sports in 2006.
"The average Test match audience on Sky in 2010 was 208,000," Mr Peake said. "The average on Channel 4 [the previous broadcaster] would have been something like half a million, but peaked at far more than that. Compare that to our Football League sponsorship: half a million people are watching Notts County on a weekday evening."
Mr Peake said the London Olympic Games in 2012 would further reduce cricket coverage. "Our view is that in 2012, the media value of the property could be as low as £1m."
But John Perera, the ECB's commercial director, said: "From 2012 to 2015, the England cricket team is scheduled play 26 Test matches across England and Wales, including two home Ashes Series and a five-match Test Series against India. This presents a fantastic opportunity for a major brand not only to be at the heart of the UK's top summer sport, but also to capitalise on the huge media exposure English Test cricket receives domestically, internationally and across the digital landscape."
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