After market liberalization caused its procurement costs to fluctuate, electricity provider AKEDAŞ aimed to protect its profit margins by making sound pricing decisions for each customer tariff.
AKEDAŞ replaced cumbersome manual analysis with a powerful solution from IBM Analytics, enabling instant insight into the profitability of each account, and how to boost it.
70% ROIachieved even before go-live
Acceleratesinsight into profitability per customer from a day to milliseconds
Guideswhich tenders to participate in by revealing likely contract profitability
Business challenge story
A shakeup of the market
Traditionally, Turkish electricity provider AKEDAŞ set customer tariffs an average of 2 percent higher than its own purchasing cost, in accordance with pricing guidelines set by the national Energy Market Regulatory Authority (EMRA). However, the ongoing liberalization of Turkey’s energy sector is sparking increased competition in the electricity industry. The first element of the market to be struck by the change was electricity procurement.
As its procurement costs changed, AKEDAŞ found it increasingly difficult to determine the level of profit it was making on each customer account, and which activity was driving that profit. Since the time and effort involved in gaining the information was too high, the company abandoned analysis of customer profitability, and instead left pricing decisions to the discretion of individual staff members.
That was a risky strategy, because since the liberalization of the energy market, procurement prices fluctuated on an hourly basis. As a result, an average tariff price could generate a profit in some months and cause a loss in others. AKEDAŞ lacked sufficient time and resources to generate even basic reports on these shifts in profitability, let alone analyze them rapidly and seamlessly.
To develop an accurate understanding of profitability, the company needed to consider other factors besides tariff price and procurement cost. For example, if customers do not pay their bills on time and AKEDAŞ has to chase for payment, it must take into account the hours spent following up.
To protect its narrow profit margins, the company aimed to perform rapid, detailed analysis of profitability per customer to determine the appropriate tariff price for each account. In particular, AKEDAŞ wanted to use its experience from previous customer acquisitions and contract renewals to guide future pricing decisions for customers with similar electricity usage. By defining customer segments and assessing their profitability, the company would be able to see where it should focus its efforts.
Finding the key to successAKEDAŞ teamed up with an IBM Business Partner AIMS to analyze the individual added value created by each of its 600,000 customers, and to rapidly determine the steps required to enhance profitability where required. Ultimately, the company wanted to build a deeper understanding of its customers, and to be able to develop bespoke action plans and management strategies for them. Furthermore, by defining customer segments, the company would be able to develop medium- and long-term estimated tariffs for customers based on their usage patterns.
AKEDAŞ provided its employees with in-depth training on statistics and data mining, then installed IBM® SPSS® solutions and integrated them with other systems. Next, the company cleaned up its data and built analytical models to obtain a detailed breakdown of profitability per customer.
AKEDAŞ enlisted AIMS for help during the project due to the company’s experience and knowledge in the field of analytics. AIMS introduced AKEDAŞ to the SPSS solutions and helped to make the project a success by applying its more than 16 years’ worth of experience in analytics solutions, and by demonstrating a strong vision.
Both AIMS and AKEDAŞ worked hard to complete the ‘Analytics Profitability Project’—the first of its kind in the energy industry in Turkey. Involvement from many levels of AKEDAŞ and AIMS—including the general managers of both companies—contributed to the project’s success.
Powering deep insightAKEDAŞ has transformed its pricing decisions—replacing employees’ gut feeling with systematic, data-driven insight that shows which price to give to each customer. Previously, it took a day to retrospectively analyze the profitability of any given customer account; now, the company can see up-to-date profitability per customer in milliseconds. With these time savings, it has become feasible for AKEDAŞ to calculate the profitability of all customer accounts, and take measures to boost profitability where necessary.
Digging deeper, AKEDAŞ can see which items and activities are driving revenues and expenses on each account, unearthing insight into how to enhance profitability on each individual account.
Whenever it wins a new contract, AKEDAŞ can provide high-quality service without worrying whether it over-compromised on price to win the business. Furthermore, it can assess which contracts would be profitable and merit participation in the tender, and which would generate a loss and should be avoided.
At the project outset, AKEDAŞ was keen to ensure that it would receive a return on its investment in analytics. In fact, even before go-live, the solution enabled the company to avoid a project that would have sparked a significant loss—yielding the company a 70-percent return on its investment in IBM SPSS software even before project completion.
During the project, AKEDAŞ also established procedures for ensuring higher data quality and greater standardization, driving easier reporting.
A spokesperson for AKEDAŞ concludes: “IBM Analytics is helping us make smarter pricing decisions and protect our profitability, even in a volatile market.”
AKEDAŞ Elektrik Dağıtım distributes electricity to more than 600,000 customers in the Kahramanmaraş and Adıyaman provinces of Turkey.
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AIMS Analytics Information Management Solutions is an IBM Business Partner focusing on analytics deployments in Turkey. To learn more about AIMS, please visit: spss.com.tr
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