Contact Energy deploys SAP to escape price war

Contact Energy deploys SAP to escape price war

Summary: Electricity generator and retailer rolls out SAP-based retail and billing systems and a new customer segmentation model.


Contact Energy is relying on software smarts to help it avoid a profit-damaging electricity price war.

Contact Energy's Clyde hydro dam.

The New Zealand-based energy generator and retailer reported to shareholders this week that alongside the April rollout of SAP-based billing and retail systems it had built what it describes as an advanced segmentation model to help it lower costs and move away from the current industry model of "deep discounting".

Contact Energy plans to use segmentation to deliver bundled products with customer-centric payment plans.

The company reported stabilisation of the new SAP system in finance, procurement, asset management and retail proceeded better than planned. However, the SAP project was delivered a few months late.

Contact also wants to use its new smarts to become New Zealand's leading online energy provider by leading in search marketing and digital customer acquisition.

The company warns, however, it will take time to fully realise the benefits of the new systems and for them to pay back more than increased interest and depreciation costs.

"With intense retail competition Contact needs to find ways to reduce the cost to acquire and serve customers with the SAP customer billing and service system expected to provide an advantage," it reported.

"Process efficiency, mass market segmentation, revised pricing models and improved digital capability will all provide opportunities to leverage the new system to reduce cost to serve at the same time as enhancing customer experience."

In its 2013 report, Contact said the retail transformation project was expected to take three years to complete and aimed to reduce technology costs by around NZ$5.5 million a year.

Once completed the core SAP system was to replace 35 legacy applications. It would also complement earlier SAP implementations in finance and operations. 

The exact cost of the multi-year overhaul is not known, but one news report in 2010 speculated it was over NZ$100 million. That report also said Contact Energy's board was understood to have approved NZ$60 million in spending to replace its core systems, plus NZ$20 million to cover overruns.

While listed on the New Zealand Stock Exchange, 52% of Contact's shares are owned by Australia's Origin Energy. 

Topics: Enterprise Software, SAP, New Zealand

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  • Deep Discounting?

    Given that demand is dropping, and prices are still rising, there is little evidence to support the mantra that there is an effective electricity market in New Zealand. Far from it, in fact - the various energy companies are all siphoning money from consumer pockets, they're certainly not engaged in real competition.
  • Your own personal Tui moment...

    If you actually paid attention to the industry, you would understand that it has come a long way in the deregulated environment, and has a far better model than many in the world (by most metrics). Leaving the stupidity of a "single buyer model" that Labour proposed 6-months ago (and has since disappeared without trace), where the industry HAS struggled is in getting Retail right. Primarily because the utilities are all engineering-led cultures, and retail is a different game.

    Btw, NZ energy use overall has been declining for the last few years. If you factor Manapouri futures, you might get an idea of why competitive retail is essential...
  • SAP?

    I have never seen a successful implementation of SAP, even after millions of dollars of budget blowouts and increased staffing. Not great news for stock holders.