Practice Prize Winner—ECO: Entega’s Profitable New Customer Acquisition on Online Price Comparison Sites

It is demonstrated that ECO’s optimization procedure reduces ENTEGA yearly sales costs for new customer business, on average, by 35% relative to previously used pricing heuristics.

Abstract

Market liberalization of the German household electricity market has led to an excessive number of competitors (1,150 electricity providers) and volatile price dynamics on price comparison sites. To date, providers that are struggling to achieve a top ranking on price comparison sites do not appear to implement a consistent or elaborate strategy for attracting customers. We developed a pricing tool, Electricity Contract Optimization (ECO), that addresses this highly competitive market situation by integrating various available data sources, such as data from price comparison sites, demographic data, and regional sales or cost data. ECO sets regionally varying one-time bonuses to attract new customers on price comparison sites with the goal of optimizing sales and profit targets or optimally allocating sales budgets. Based on two field experiments, we demonstrate that ECO’s optimization procedure reduces ENTEGA yearly sales costs for new customer business, on average, by 35% relative to previously used pricing heuristics. ENTEGA uses ECO monthly to analyze different scenarios or to set prices and one-time bonuses on price comparison sites. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mksc.2015.0943 .