AGL and Origin to benefit from cross-selling

Times must be tough for Australia’s premier energy retailers, with the Australian Financial Review reporting that professional services company Accenture expects energy retailers such as AGL Energy (ASX: AGK) and Origin Energy (ASX: ORG) to partner with major retailers, telecom firms and appliance manufacturers to bundle and cross-sell products and services.

According to Accenture such arrangements are common place in North America and Britain and the highly competitive local market will be forced to follow a similar path in a bid to win and to retain customers.

There are obviously a number of companies that could be interested in linking up. Qantas Airways (ASX: QAN) would no doubt be keen to see its frequent flier program rolled out across a major utility, while Telstra (ASX: TLS) and other telcos may be interested in having their services cross-sold with electricity and gas services.

Likewise major retailers from Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) to department stores David Jones (ASX: DJS) and Myer (ASX: MYR) could look at joining forces with an energy retailer. Arguably it would be more likely to be the department stores doing a deal. Wesfarmers and Woolworths command such a large market share of loyal customers that they are likely more inclined to develop their own branded energy services (as they already do with mobile plans) as another way to cross-sell to their customer base.

Foolish takeaway

The discontinuation of door-to-door sales by energy companies coupled with incredibly high rates of churn (running at 30% in Victoria) means energy retailers need to find a way to increase the loyalty of their customers and find a way to more effectively market energy services.

It certainly has the potential to be a win-win for any alliances formed. The marketing aspect for a partner linking with an energy retailer could offer an important new avenue to ‘speak’ to customers. While from the energy retailers’ point of view, if they pick their partners right, customers may be discouraged from shifting (churning) out of fear of losing a partner benefit.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy.

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