For the first time in 100 years, utilities are faced with a number of disruptive challenges that are forcing their business models to evolve, with changing consumer expectations and adapting regulatory models.
Today, utilities must respond quickly to the limited insight into customer needs and competition from new entrants.
As markets unbundle and become more competitive, energy retailers are needing to focus more on their retail strategy when it comes to acquiring and retaining customers.
This higher level of competitiveness can lead to an escalation in customer churn, giving utilities sleepless nights. However, the threat of churn is also forcing utilities to become more focused on their customers’ needs when making business decisions.
While it is true that customers will always search for low energy prices, it is imperative that customers develop a relationship of trust with their utility. To get this right, utilities need to strike a healthy balance between excellent customer service and competitive pricing.
In order to do this, utilities can no longer rely on a role as the ultimate commodity provider. They have to now become a trusted energy partner, a full-service provider, to the residential customer. There is a definite need for energy retailers to evolve - from shifting electrons and sending bills to a more technology-savvy consumer-centric model.
Where churn starts and how to spot it
Opower’s white paper, Moments that Matter: Maximizing the value of customer engagement in Europe, brings the root causes of customer churn to life.
The study shows that customers’ service expectations are highest around alerts for unusual spikes in bills, notices of service problems and requests for information about tariff changes. It is in these areas that customers feel their utilities have performed poorly.
The white paper points to a survey of thousands of consumers who revealed that it is their perception of how their utilities performed at critical moments that was the number one factor driving propensity to switch suppliers.
Those who said their bill was easy to understand, received helpful advice from a call centre representative or felt that arranging a connection was easy were less than half as likely to consider switching providers.
A single negative experience — which, over time, leads to further interactions that frustrate customers — predisposes them to switch, and ultimately leads them to leave their service providers. While many customers claim that a price increase or a move of home was the cause for the switch, deeper research reveals that in reality there are usually a number of negative experiences leading up to that final switching event.
Avoiding the tipping point
Within utility service companies, the path to switching starts with negative experiences like poorly set expectations during the sales process, poor customer service or a latent installation problem (pre-churn stage).
Root causes involve a number of interactions that build frustration and then finally, after a number of aggravating experiences, the customer reaches a tipping point and churns.
There are many existing touchpoints where utilities can make a significant difference. But it’s not just about fixing the basics and building on those alone. It is more complex than that.
New and exciting technology and promotional tariff offers will get customers to join or stay initially, but in the end, it's the ability to exceed service expectations that will determine whether they stay or not. Basic customer service is no longer enough. While it is critical to get the basics right, utilities need to go further than that and exceed expectations in order to keep the customer.
For instance, many bills are paid late, not because people don’t have the money, but because they have changed their bank accounts or have simply forgotten to pay. Instead of sending threatening letters right away, the utility should remind the customer, extend the collection process slightly and offer easy methods of payment including online. This will earn the goodwill of customers, especially those who have always paid on time in the past.
Utilities should be finding innovative ways in which to surprise and impress their customers. For instance, UK’s E.ON offered customers the chance to pay their energy bills with loyalty points from the supermarket chain Tesco with a 50% bonus.
Many companies invest in better customer relationship management capabilities and billing software, but that is expensive and takes time. Utilities have legacy systems with industry interfaces that cost hundreds of millions to change. However, separate from any legacy system upgrade programme, utilities now have the option to deploy cloud-based customer insight and engagement capabilities so that existing data can be leveraged, segmented and mapped to obtain valuable customer perspectives that can be used to drive more personalised customer experiences.
Often, the main causes for churn such as poor customer service and billing issues start long before the actual switch. Thus, utilities must ensure that every service interaction is a personalised, proactive and positive one for the consumer in order to avoid the final trigger — an event that triggers the decision to defect, such as a move within a service area, a competitive marketing brochure or a recommendation from a friend.
Customer switching – the dam that is about to burst
Although switching may prove to be an onerous process for customers in most countries (and churn is lower as a result), studies prove that there is a pent up desire to do so. For instance, customers in the UK reported marginally better customer service experiences — but the graph shown indicates that almost a third intend to change energy providers within the next year.
In fact, if the barriers to switching were to fall in the energy retail market due to regulation and commercial forces, it could pose a major challenge to energy retailers.
Jason Wakeford, energy expert at UK comparison website uSwitch.com, supports a faster and easier switching process to help more people engage with the market. The Secretary of State for Energy and Climate Change Amber Rudd is also giving the green light for energy switching and lower tariffs. Time will tell whether the switching time period will be shortened to 24 hours, however.
We discuss the UK’s switching (and saving) plan “Power To Switch” in more detail in our article ‘Power To Switch’ -Will It Overcome UK Market Stagnation?
With faster switching times on the cards, Ann Robinson, director of consumer policy at uSwitch.com, says the energy market will experience much needed competitiveness. She explains, “Competition is vital if we are to see fair prices, better service and inefficiencies and costs being driven down. To get competition working, we need the public to start behaving like consumers. They need to shop around, and choose the suppliers and deals that meet their needs.”
It is clear that retailers ought to take a proactive stance. While they can’t influence barriers to switch directly, they can influence customers’ intention to do so.
Focus on key moments creates exponential return
The customer satisfaction impact of an optimized billing experience is too important to ignore. Opower’s Consumer Insights team found that customers who receive proactive alerts for high bills — and who are not surprised — are two and a half times more likely to be loyal
Improving the billing and call centre experience are not solely matters that have implications for customer satisfaction and customer energy savings. They are also fundamental areas for utilities to rein in operational costs.
Using insights from this research, Opower’s customer care solution recently helped an energy retailer in a deregulated market reduce its high bill call volume by 19% — giving it a dramatic advantage over its competitors. In a previous analysis, Opower Consumer Insights found that systematically improving each of the key moments identified in the research could unlock up to €110 per home annually in net benefits to the utility.
Research shows that high customer engagement leads to a lower churn rate. Therefore, by improving customer engagement, a higher level of customer loyalty will be achieved. For instance, compelling smart meter experiences helped to reduce churn substantially in the case of the case of utility Mercury Energy in New Zealand, which took part in our webinar, How Energy Consumer Engagement Builds Competitive Advantage.
By engaging more with the customer, the utility brought call volumes down year on year by almost 10% since the launch of its customer engagement programme and churn has also reduced. Customers are saving on average 3% to 6% on energy consumption when compared to the previous year. Mercury Energy also wins since the savings from cost-to-serve and cost of recruiting and maintaining consumers are offsetting the reduction in revenue. [Reducing Churn by Engaging More with the Customer.]
Figures show that customers view Mercury Energy as more innovative, easier to deal with and more caring, amongst other positive attributes. This is exactly the kind of relationship that will yield long-term benefits and reduce churn for the utility.
The next article in this series will explore, in more detail, the energy billing experiences that matter.