Automated Meter Reading (AMR) Market Confusion: Crossed Signals

Tim Smith, PhD, 17 September 2003

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When a utility purchases an Automated Meter Reading (AMR) system, they are making a very significant investment. Because of the size of the investment and the potential sale, one might expect vendors of AMR systems to speak directly to the concerns of the purchasing utilities, but this unfortunately was not the case at the 2003 AMRA International Symposium.

In listening to utility professionals, I heard a long list of concerns with respect to their individual purchasing decision. Personal careers, labor management, regulatory hurdles, and end-customer concerns were at the forefront of the utility professionals’ lists of concerns. However, the vendors of AMR solutions made a number of value claims accompanied by supporting technological facts before addressing a minority of these issues. We should expect better alignment between the vendor sales message and the customer purchasing motives.

Vendors’ claims are made to place themselves as the right solution for all utilities. But, from past deployments and numerous pilot tests, it is clear that no one solution will win the market. In cases like this, market research and segmentation based upon needs instead of industry demographics is required. It will enable the vendors to create sales messages that specifically address the concerns of their most valuable customers.

Customer Considerations
The $150 M expense associated with an AMR deployment could easily be spent elsewhere by a typical utility. Eric Cody of Plexus research suggested the tradeoffs for utilities include investing in a 200 MW power plant, paying 1500 employees salaries, repurchasing 5 million shares at $30 each, and the acquisition of a 100,000 customer base utility.

In addition to the tradeoffs between investing in AMR versus elsewhere, purchasing managers must also make tradeoffs between the various AMR systems. In this smaller decision making space, they expressed concerns with respect to selecting a system that is easy to install, works throughout their service area, minimizes costly systems integration, and deters theft of the AMR devices and utility service.

Accompanying these business decisions are the personal concerns of purchasers. Purchasers expressed concern over the selection of an AMR system that would help their career, not harm it. Some reported fear with respect to an upcoming presentation that their board of directors had demanded while the market has failed to provide clear signals on the appropriate course of action. Given this level of personal career concern coupled with concern for their company’s financial health, it isn’t surprising that purchasing decisions in the AMR industry often go beyond 24 months.

Vendor Hype
In response, many AMR systems providers claimed that their system is suited for all utilities and will satisfy their needs the best, and then quickly began to describe the specific attributes of their solution to support their claims. Unfortunately, the skeptical buyer needs only to look at market dynamics to realize that each solution has its advantages and disadvantages, and that no single solution is the best for all utilities, nor necessarily for all service points within a utility’s service area.

Moreover, the immediate value of AMR for a utility is in the ability to remove workers taking manual meter reads from the field and replace them with a technological solution. Unfortunately, many utilities suffer from poor labor relations with entrenched unions. Offering to save utilities money, while creating the by-product of labor disputes, is hardly a good selling message.

Tense Relations and a Path Out
Perhaps because of the misalignment between market dynamics, vendor claims, and customer concerns, some purchasing agents were noticeably tense at the 2003 AMRA Symposium.

This misalignment between purchaser concerns and vendor statements is resolvable. With a bit of work and the acceptance that the market for AMR is not a single market, but rather a collection of distinct market segments, AMR vendors could tailor their sales pitch and marketing messages to address the concerns of their core market segment while sacrificing non-core segments to competitors. Perhaps this sounds like a radical approach, but it isn’t.

For example, consider the development of the CRM market. Onyx, Sieble, and PeopleSoft began by concentrating on call-centers and help-desks while FrontRange, SalesLogix, and SalesForce.com concentrated on direct sales workforces. The AMR industry, like the CRM industry before it, would benefit from market segmentation.

For the sellers of technology, the key value of market segmentation is in the creation of products and services that capture more profitable customers while leaving tangential customers for alternative offerings. This segmentation has the greatest value when based upon customer demands rather than industry demographics. Segmentation not only enables the company to reap higher profits from their chosen customer segment and reach more customers faster, but also creates defensible market niches.

For the purchasers of technology, solutions targeted to their segment coupled with sales and marketing communications that describe the key value points for that market segment, enable the purchasing decision to be made without the same level of stress.

According to Miller-Heimen, directly addressing customer concerns creates Win-Results from closing the sale. Here, as a result of buying a system that has been specifically designed for customers like the prospect, the prospect has a personal win of job security and career recognition. The haze of market confusion and subsequent slow pace of purchasing decisions can be lessened with demand-oriented segmentation.

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Author
Tim Smith, PhD is a principal at Wiglaf LLC and Adjunct Professor at DePaul’s Kellstadt Graduate School of Business. Wiglaf is a Market Research and Sales and Marketing Strategy consultancy serving tech-driven businesses operating in business markets. www.wiglaf.biz.

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