A recent article in the Toronto Star titled: Top 10 mistakes, courtesy of Direct Energy  described how a Utility company made 10 deadly mistakes when trying to change some terms and conditions for its rental water heater business. Don’t make these in your business.


1. Negative option marketing

This is very unpopular with consumers. Effectively the company tells you that your terms and conditions are changed UNLESS you do something to stop them. In this case, the customer had to phone Direct Energy to tell them they did not want the new terms and conditions applied.

2. Possibly running afoul of the Law

In some jurisdictions, Negative option marketing is against the law.  In Ontario, Canada, the provincial government had banned negative option billing and this is a political issue at the Federal government level as well. Companies who implement new terms and conditions need to ensure that they are following local laws.

3. Hiding Important Information.

The communication with customers was not clear. The change in the water heater contract terms was hidden. Instead of providing information about the old terms and what’s changed in the new ones, they focused on the new ones only.  Often, organizations fail to communicate with customer fairly. Even if the change is unpopular, it should be addressed with a rationale for the new terms and conditions.

In addition, Direct Energy would not define when a water heater’s useful life is over. They alone determined when that might be and gave no  guideline to consumers. In effect, the terms and conditions were vague by intention, making the company look sneaky and underhanded.

4.  Dealing with the customer impersonally

Direct Energy knows exactly what water heater is installed in each home but rather than personalizing the communication to say..’here’s what you have now and here is how the terms it will impact you’, they just gave a list of their water heaters and a general idea of how much it would cost for a consumer to get out of their contract, depending on how old the water heater was.  So each consumer was left to contact the company to find out their particular situation and how these new terms would affect them. A simple computer program could have determined which information to send to each consumer. It’s not that hard. We do have computers now.

5. Offering incentives to accept the new terms.

An interesting twist in customer service was introduced with the new terms. If  a consumer accepted the new terms, the company would guarantee to restore hot water within 24 hours. That left those who didn’t want to accept the new terms with the idea that their customer service would be relegated to a ‘slower’ service model. The customer still paid the same amount for the water heater but the company would provide inferior service. It was not an overt statement, it was an implicit threat. Consumers don’t like implied threats.

6. Imposing a tight deadline.

I received my notice 15 days before the decision was final.  Normally terms and conditions changes are effective 30, 60 or 90 days after notification. Direct Energy should have provided for a longer period before its new terms and conditions came into effect.

7. Phone line unable to handle the traffic

The only way the company offered to communicate with consumers was through a phone line. The phone system couldn’t handle the traffic. Consumers were dropped after waiting on hold for long periods of time.

8. Not offering alternative methods to communicate with customers.

When the phone line was overwhelmed, there was no alternative for consumers to use.  So if the consumer couldn’t get through they would be forced to accept the new terms and conditions.  Failure to provide quick and effective customer support further deteriorates confidence that the company is deal with consumers honestly.

9. Not working well with the Media

We are fortunate in Toronto to have a consumer advocate working for one of our daily newspapers, The Toronto Star. She was bombarded with complaints from consumers. But when the press in Toronto contacted Public Relations at the company, Direct Energy only had a media contact in Houston, Texas, dealing with an issue in Ontario, Canada. Bad Publicity!

10. Failure to offer Real Value

The real problem that Direct Energy was trying to avoid is that their rental rates on water heaters are exceptionally high compared to the purchase alternative and competitors were eating into their profitable business. So they tried to make it financially harder for consumers to leave. Ellen Roseman, the consumer advocate, advised her readers that she had now purchased her water heater and when it fails, she would not go back to Direct Energy for a new one.


We can all learn from these mistakes. Customers are not dissatisfied for no reason. And customer service is not always the place where these issues can be resolved. Customer service was totally unequipped to handle the change imposed on them by senior management. In this case, senior management was the cause of the problems and did not put in place the proper processes and communication with customers to avoid dissatisfaction.

The result of this fiasco

Direct Energy was forced to withdraw their new terms and conditions before they were to take effect. We will see if they come back with another implementation of terms and conditions changes but with a better approach.


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Adele Berenstein

Adele Berenstein is an Experienced Customer Satisfaction Executive, recently retired from a Large Global IT Organization after a long productive management career including Sales, Marketing, Services, teaching and education center management and most recently, 19 years in customer satisfaction management. She turned around divisions with customer satisfaction problems, implemented measurable improvements and management systems, and implemented programs to prevent problems from ever affecting customers.

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