How Better Consumer Segmenting Can Increase Energy Efficiency

March 13, 2017- Changing consumer behavior is no small task. Despite utility companies’ best efforts to encourage energy efficiency, many consumers resist making changes to reduce their energy consumption. According to the latest research by McKinsey & Company (McKinsey), very modest behavioral changes could lead to significant savings — as much as an additional 20 percent of residential power demands.

The research suggests that utilities should improve their understanding of how consumers behave and look for more effective ways of engaging them. Rather than segmenting the market based simply on age or location, it would help to look at it on a deeper level that includes emotional and attitudinal elements. McKinsey’s research identified five consumer segments that show varying levels of concern about energy use:

  • Green advocates comprise 20 percent of the population. They are motivated by perceived environmental benefits from more-efficient uses of energy. They have an interest in using new technologies.
  • Disengaged energy wasters make up another 20 percent of the population. They do not care about saving energy or saving money and are not interested in new technologies.

The rest of the population is motivated by saving money and is made up of three distinct groups:

  • Traditionalist, cost-focused energy savers who are motivated by saving money
  • Home-focused, selective energy savers who are motivated by home improvement
  • Non-green, selective energy savers who are happy to save energy as long as they don’t have to think about it

McKinsey recommends four approaches to engage more effectively with all types of consumers:

  1. Deploy an integrated segmentation approach

The approach should combine demographic as well as attitudinal and emotional inputs.

  1. Employ emotional motivation and attitudinal drivers

The emotional motivations of the segments offer powerful clues to the best approaches to engage them on energy efficiency initiatives.

  1. Increase the use of rebates and incentives

It’s important to tailor these offerings to each market segment based on what motivates them.

  1. Invest in marketing and research

Ramping up marketing and research will be important to better connect with market segments. Simply administering a brief phone survey could place up to 80 percent of consumers in the appropriate segment.

As McKinsey’s research suggests, customer segmentation can provide a great opportunity for U.S. utility and energy retailers. If they target consumer segments more accurately, they can increase energy efficient activities and lower power demands across the country.