The increased desire to make the deregulated energy retail market work in the UK is creating real challenges for incumbent energy retailers. In fact the Competition and Markets Authority investigation into the energy market is due late 2015 and is seriously looking at the possibility of breaking up big suppliers to further break the stranglehold of certain suppliers in the UK.
Easier switching, a political hobby horse, combined with lower and tighter tariff regulation has brought a new vocabulary to the energy retail market. Words like churn, and loyalty are now as commonplace in energy marketing departments as they are in say mobile telecoms suppliers. With one subtle difference: telecoms operators have their tariff structure controlled by market forces not regulation.
A report published in October of 2014 by the research arm of Citigroup went so far as to predict the possible exit of large retailers from the UK market, concluding: “Due to increasing competition we see the market share of the ‘Big 6’ in energy supply declining from 98% in 2013 to below 70% by 2020. When combined with declining demand and lower margins the total profit pool available to the large energy suppliers could fall 40% from £1.2 billion in 2013 to just £700 million.”
The role of consumer engagement
Against this backdrop the existing retailers are innovating and changing. The announcement by Opower, a cloud-based software company, and E.ON, a UK power and gas company, that more than one million customers have now signed up for E.ON’s Saving Energy Toolkit demonstrates this desire to change and recognizes the need to serve the digitally connected consumer like never before.
In recognition of this milestone in their digital collaboration, Anthony Ainsworth, marketing director at E.ON UK, commented: “By delivering tailored advice and enabling customers to see how their energy use stacks up compared to similar homes in their area, we’re helping customers save energy and money, which in turn is helping us to improve customer satisfaction.” He adds: “Helping customers understand and control their energy use is key to building customer trust and our collaboration with Opower is enabling us to create a better experience for our customers.”
The Saving Energy Toolkit provides customers with personalized insights and tips on the actions they can take to save energy such as unplugging unused devices, setting thermostats more wisely and turning off unused lights. Of those that have signed up for the toolkit, more than 500,000 customers have completed a simple ‘What Uses Most’ online audit to help them understand what drives up energy costs the most.
Managing churn in energy retail
Giving customers what they want makes sense and in addition to providing service innovation there is another benefit to the energy retailer. Customers who are opting into these services are proving to be stickier and churn less, as shared by New Zealand retailer Mercury Energy in a recent webinar [Engerati-How Energy Consumer Engagement Builds Competitive Advantage]
Recent research from Opower indicated an opportunity for utility providers: while reliable service and value remain important, 43% of British respondents said that improvements in customer service would actually have the biggest impact on satisfaction levels with their energy provider.
“Across Europe, utility providers are facing a new set of challenges, including flat energy demand, increased churn, and rising energy costs,” said Daniel Yates, CEO of Opower. “In order to address these challenges, innovative companies such as E.ON are taking advantage of new customer engagement technologies and are looking for additional ways to turn their customers into advocates.”
We at Engerati can see energy retailers making the move to becoming energy services companies. Recognizing the unique position of trust in a consumer household and maximising on this opportunity the energy retailer of the future may have more similarities with companies like Amazon and lose the preconceptions associated with the word ‘utility’.