Energy prices? Epic fail on pricing strategy!

Pic By Thomas (ARRG.ch photostream Flikr)

This morning it’s become clear that the government intends to push ahead with forcing the energy companies to reform their tariff structures to help people ensure they are on the cheapest possible rate.

This is a major blow for the companies, a huge embarrassment and a counter intuitive PR victory for a governing party that is otherwise wedded to free market principles. Consumers will no doubt say this is long overdue, and for many this will be a relief.

For the energy companies this represents many things. But above all else for those that provide electricity and gas to our homes this will come to be viewed as a failure of pricing strategy.

Indeed for pricing experts, and this is turning into something of an industry here and in the US, the energy debacle will become a case study of a how the approach to pricing went disastrously wrong - so wrong in fact that a national government felt it had to intervene. Ouch!

It doesn’t help that the energy companies are selling an essential commodity. It didn’t help that on the back of constant price hikes, the companies kept making decent profits (they should, shouldn’t they?). It didn’t help that they became bogeymen for the media and consumer groups. But it would be a mistake for the energy providers to sit back and complain they are victims and that this was all out of their control. They and many other companies should take a long hard look at what happened with energy pricing and ask: why did it all go wrong?

It may be that the sector is poorly structured, and that’s a fundamental that may need addressing in some way. But my guess is that it will all come down to the way energy suppliers priced their products.

What happened? In short tariffs multiplied beyond most peoples’ understanding and ability to understand why gas and electricity was being priced the way it was. Consumers, I suspect, find the structure of the sector hard to grasp and their hold on why all the prices are the way they are is even less secure. That led to a widespread perception that people did not know exactly what they were paying for and if they don’t know that they simply couldn’t grasp the “value” they were receiving in return for hard earned money.

This haziness over the value was exacerbated even more when energy companies announced that prices had to rise (mostly across the board) because of rising wholesale prices, and yet continued to make big profits. Public perception inevitably gravitated toward the idea that something was wrong.

Executives, Patraeus their halos and indiscretion

“Who the fuck does Cox think he is? I never made a dime from public office! I’m honest.”

“They can’t impeach me for bombing Cambodia. The president can bomb anybody he wants.”

These are obviously the words of a leader concerned that his reputation should not be impugned. You will have guessed that the President concerned is Richard Nixon. These phrases though are taken from the Oliver Stone movie about the former president starring Anthony Hopkins in the title role. Though the film was extensively researched for reasons of legality and authenticity, I can’t tell you that they are actually Nixon’s words. But I think Stone was trying to capture something of the man.

The lines in the film come long after the Watergate scandal had broken and Nixon had devoted considerable effort to covering up. What do we understand from these quotes?

The first tells us that despite everything that went into the most notorious burglary of US political history, Nixon still saw himself as essentially an upright man doing right and serving the interests of the state. His exhortation that he was "honest" comes as something of a shock. The second gives us an idea of his warped sense of what the presidency and its powers meant - the president can literally do anything he wishes. Power is unlimited.

This week astonishing events saw General David Patraeus (pictured) resign his position as head of the Central Intelligence Agency following revelations of his affair with his official biographer Paula Broadwell. The affair has also raised questions of whether she had inappropriate access to state intelligence.

Coverage of whether he did or did not share sensitive information with Broadwell will rumble on for some time. But one of the first questions tackled by press, public, former soldiers and politicians alike is why a man vaunted for what are clearly considerable skills and intelligence should risk it all on an act of adultery.

Put aside the question whether he should have resigned. Patraeus obviously thought it was a resigning matter. The issue is why take the risk of embarking on what has turned out to be a catastrophic piece of behaviour? After all, this is a highly talented man who had achieved great success who potentially saw even more success out there in the future.