Digital Platform Strategies

Toon: Eneco Case Study Analysis

Dheepika C | IMB1 Red

1. What is the value that Eneco plans to deliver to the energy consumer with the Toon
platform? Analyze it using the Digital Value Drivers model that we saw on the first day,
that is, assess what type of value is delivered along Cost, Experience and Platform.

Cost - Lowered cost for end
consumer
Pay as you go
Monthly Subscription based
service
Discounts and rewards
Free Toon and installation if Information aggregation -
bought with energy contract Give consumers insight into
Price transparency
In real-time energy
consumption, paving way to
plan and consume as per
their benchmark
Experience - Better offering
for end consumer
Right here right now
Delivering services in real-
time
Non-friction
the efficiency of their
electrical appliances and
facilitate proactive
maintenance
Just 4 you (Personalisation)
Display’s home tab of Toon
showed the actual energy
and gas consumed;
additional tabs provided
detailed information on
electricity and gas
consumption insight into
energy use and lowering
energy costs by up to 10 per
cent through smarter
energy consumption
Platform - Increased
potential scope for end
consumer
Data orchestrator
Toon collects data on 200
variables from which it can
learn a lot
Connect the dots
Connects individuals and
product partners like Philips
Hue - making it possible for
users to control their Philips
Hue personalized lighting
system through the Toon
display and mobile
applications
Crowded House
Crowdsource input from
ecosystem of contributors
to capture unique
information on customers’
utilisation activities across
different appliances

Robo-tasking (Automation)
of functionalities of
electrical appliances

2. What is Customer Lifetime Value for Eneco in this future platform vs in their current
model? Create a simple model with a 3-year calculation of said value. This implies using a
simple formula in which you use a Net yearly Profit per customer to account for margin
including Acquisition costs (as we do not have information about those), Retention rate
 and Interest rate to calculate the yearly expected profit per customer so you can at the
end add up the three years into a CLTV. You need to do this for both the traditional model
and the platform model using the information in the case. Which model is more
profitable?

Traditional Model:
Assumption:
1. Decrease in churn rate by 10% year-on-year
Calculation:
• Monthly Average Purchase Value = Total Revenue/(Market Size*Market Share*12)
= 2.75 billion/(7.7 million * 25% *12) = 119.04 Euros
• Profit Margin = Income / Total Revenue
= 103 million / 2.75 billion = ~ 3.75%
• Average Customer Lifespan = 1/ (1 - Retention Rate)
= 1/(1-0.66) = 2.94 years = 35.29 months
• Average Gross Margin Per Customer Lifespan (AGMPCL) = Monthly Average Purchase
Value * Profit Margin * Average Customer Lifespan
= 119.04 * 3.75% * 35.29 = 157.55 Euros

Year 1 Year 2 Year 3

Retention Rate 66% 69.4% 72.46%
Churn Rate = 1 - Retention Rate 34% 30.6% 27.54%
Average Customer Lifespan 35.29 39.22 43.57

=119.04*35.29*3.75% =119.04*39.22*3.75% =119.04*43.57*3.75%

AGMPCL
=157.55 =175.06 =194.51

Discount Rate 10% 10% 10%

=157.55*(0.66/(1+0.1-0.66)) =175.06*(0.694/(1+0.1-0.694)) =194.51*(0.7246/(1+0.1-0.7246))

CLTV
=236.33 =299.24 =375.44

=(236.33+299.24+375.44)/3
ACLTV
=303.67

Platform Model:
Assumptions:
1. Increasing market share by 2% through first mover advantage in offering higher value
integration of several services at same cost
2. Increasing profit by 2% due to economies of scale
3. Decrease in churn rate by 15% year-on-year due to value addition of non-Eneco
customers also through third-party integration like Philips Hue.
Calculation:
• Monthly Average Purchase Value = Total Revenue / (Market Size*Market Share*12)
= 2.75 billion / (7.7 million * 27% *12) = 110.22 Euros
• Profit Margin = Income / Total Revenue
= 103 million * 1.02 / 2.75 billion = ~ 3.82%
• Average Customer Lifespan = 1/ (1 - Retention Rate)
= 1 / (1-0.66) = 2.94 years = 35.29 months
• Average Gross Margin Per Customer Lifespan (AGMPCL) = Monthly Average Purchase
Value * Profit Margin * Average Customer Lifespan
 = 110.22 * 3.82% * 35.29 = 148.60 Euros

Year 1 Year 2 Year 3

Retention Rate 66% 71.1% 75.5%
Churn Rate = 1 - Retention Rate 34% 28.9% 24.5%
Average Customer Lifespan 35.29 41.52 48.98
=110.22*35.29*3.82% =110.22*41.52*3.82% =110.22*48.98*3.82%
AGMPCL
=148.60 =174.83 =206.22
Discount Rate 10% 10% 10%

=148.60*(0.66/(1+0.1-0.66)) =174.83*(0.711/(1+0.1-0.711)) =206.22*(0.755/(1+0.1-0.755))

CLTV
=222.90 =319.54 =451.30

=(222.90+319.54+451.30)/3
ACLTV
=331.25

As per the assumptions taken to calculate CLTV, platform model is profitable than traditional
model due to its higher value addition and churn rate reduction.

3. What is your assessment of the future of this platform domestically and abroad given the
steady entry of powerful competitors in the same markets? Is this platform defensible?
And how scalable is it?

Domestic Market:
As per my analysis, the future of this platform has better potential opportunities in domestic
market due to the Network effects whereby an increase in the number of participants
(consumers or providers) increases the value of a product or service. Because, Eneco has
made it easy for the different sides to join the platform. How? Pull: Eneco acquires customers
to its platform through incentives to customer side by providing free Toon and installation
services for its existing customers. Also, the increases could be justified by the additional
value provided. Being a first mover in domestic market, it has advantage in supply-side
economies of scale, high switching and multi-homing costs. This could aid Eneco to be
Winner Take all market.

International Market:
In International market, Eneco has both opportunities and threats depending upon the
strategic decisions it would take.

Eneco can expand into other markets through its previous experience, as well as through
partnerships and contracts with other agents and parties. It can also develop subsidiaries, as
well as licensing. The geographical expansion is suggested into emerging economies because
of the favourable income levels of the consumers, as well as the growing infrastructure.

Threats could be a strong barrier to enter as existing players in the international market
operate with high economies of scale, which Eneco as new entrant will take time to achieve.
Also, as a new entrant Eneco will require strong financial and resource cushioning for
operations to take off and be sustained in the international market. Another strong barrier
would be the customer loyalty to established international players since customer loyalties
and perceptions are emotionally built and strongly enforced.
However, Eneco has opportunities if it focuses on areas like research and development to
identify market niche as well as to be able to add differentiating factors to its products. This
will increase its shield in the international market against influence from competitive forces
and their actions. Additionally, Eneco needs to build a strong and loyal consumer base by
focusing on quality and marketing strategies for the international market.