Energy retail: three trends that are sweeping the energy market

Recent trends in energy retail have the potential to radically change utility business models. Utilities can utilise them to diversify revenue streams and improve customer retention.
Published: Fri 27 Jul 2018

The change in utility business models is more perceptible than ever.

Utilities are now facing demand to provide energy as a service and not only as a commodity to meet the needs of increasingly involved consumers. For instance, many residential and commercial customers now demand that their energy supplier provide them with renewable energy.

In addition, market competition to provide renewable energy and good customer services is increasing, with other industries placing themselves as new market entrants that can provide rise to the challenge of customer engagement and an attractive renewables offering.

Lifestyle service companies, for example, are well positioned to place themselves as competitors to traditional energy suppliers, and they may become customer favourites. Tech giants such as Apple and Amazon can also join the competition in the near future.

With the landscape of the energy retail market and customer demands changing significantly, what should utilities keep an eye on to upgrade their business models, improve customer retention and create new revenue streams?

Ahead of European Utility Week, Engerati explores three trends that are sweeping the energy retail market: customer switching, customer engagement and customer expectations. We discuss how utilities can take advantage of such innovations to draw value out of them.

1. Customer switching

Customer switching is on the rise, and it is being steadily pushed onwards by regulatory bodies as well as innovative technologies.

Energy regulators, such as British organisation Ofgem, are proposing active initiatives to encourage consumers to switch. Ofgem has launched several trials this year aimed at encouraging tens of thousands of consumers to switch to better energy deals, for example.

In addition, new technologies are being introduced to the customer switching space, making it more hands-free and easier to use. Novelty service Labrador, for example, is a third-party platform that finds cheaper tariffs for consumers and switches them automatically.

With such initiatives now entering the market, customer switching can become part of the norm for energy consumers. As such, it is essential for utilities to keep in mind that a significant way to drive value out of collective switching is by improving their offer by increasing customer engagement and services and encouraging them to switch tariffs within their own portfolio of deals, for example. With millions of customers switching every year, utilities would probably prefer to be on the receiving end of transfers.

According to the 2017 report New Energy Consumer - Switch the Switchers prepared by Accenture, customers who switch bring a high revenue potential for utilities as they are more interested in products and services, such as connected home services and storage solutions.

The report also states that switchers are more likely to share personal and energy usage data with their supplier to receive personalised offers, and are more likely to sign up for a digital-only customer service program in exchange for a discount. Thus, according to Accenture, the best way for utilities to drive value out of the customer switching trend is by identifying customers who are more value-driven than price-driven. The ultimate goal is to build a relationship that is not purely price-based, and instead offer differentiated and value-added energy tariffs, products and services to increase customer loyalty.

PwC lays out key traits that will be apparent in the future energy consumer and how utilities can engage with them.

2. Customer engagement

Customer switching is directly connected to rising levels of consumer engagement in the energy market. According to a 2017 report by Ofgem and market research company GfK, levels of consumer engagement in the energy market have increased significantly between 2016 and 2017. In that time period, 41% of consumers have engaged in the energy market, compared to 37% between 2015 and 2016. The report defines this type of engagement as having switched supplier, changed tariff or compared tariff with their own or other suppliers in the past 12 months.

As such, catering to the new engaged consumer is a good idea for utilities to drive in new value and revenue. Customers are also engaging much more with their own energy consumption and management; and the introduction of technologies such as smart meters, home automation and smartphone apps for energy management makes it far easier for them to do so.

Providing customers with the means and technologies to follow their own consumption patterns and to manage this consumption could be an effective way to improve utilities' offer and attract more consumers, especially those who are digitally engaged and who are more watchful towards new tariffs and package deals in the market.

The profile of the consumer is changing to being more engaged, digitally-oriented and sustainable, and so the landscape of behind-the-meter offerings from utilities to customers is also evolving. A 2017 report prepared by PricewaterhouseCoopers (PwC) highlights that this customer transformation means that utilities must now incorporate a whole range of new demands into their offering, and give customers the visibility and agency over their own energy in order to cater to them.

Another tool that can be employed to this end is gamification, where energy management apps can take the form of games. For example, the EnerGAware project has developed a game, named EnergyCat, aimed towards improving energy efficiency for consumers, whereby consumption recorded by smart meters in homes is gamified on the app to reduce energy use.

Another example is Smartn, a virtual showcase platform which was developed by Fremen, the same app developer that delivered EnergyCat. It is aimed to utilities or companies to offer to their customers, and utilities can include its logo or their own products in the app.

3. Customer expectations

Finally, another trend detected in the energy market is that customer expectations are getting higher and higher. The PwC report also underscores that the modern digital ecosystem means that organisations are highly connected to customers. These customers, in turn, expect to have almost real-time information from their utility, digital connectivity and fast customer services.

According to PwC, "customer expectations are based on their experience of the ease of interaction with other organisations and they expect to be able to have an effective and efficient digital platform at their fingertips. Being able to get information and manage their account online is now a minimum expectation for most customers."

In addition to providing responsive and digital customer services, it is important that they are also unique and personalised, according to Accenture. Customer expectations also revolve largely around having relevant experiences from their utilities, with products, offers and services that are tailor-made for them according to their needs and expectations.

There are multiple customised services utilities can offer to meet this demand, such as personalised recommendations, targeted digital marketing, geolocational selling and VIP treatment, the report says. Utilities can even use artificial intelligence (AI) and big data to better predict customer behaviours, preferences and needs in order to provide personalised services, and such practices can significantly help improve customer loyalty and satisfaction.

Watch the webinar

To find out more about how utilities can create revenue streams and drive value out of these three trends in the energy market, register for our Engerati webinar 'Building long term value: Improving customer retention and revenue', featuring speakers from the upcoming European Utility Week.