The energy sector, like the telco industry before it, is learning that in order to create long term customer value, the focus must now be on building both profitability and loyalty.  Gentrack Market Consultant, Siobhan Boyle, blogs about leveraging specialist CRM systems in the energy sector to create compelling offers that will appeal to customers and encourage them to remain loyal to your brand. 

I had a doorstep visit from a telco provider last week. I hadn’t really thought of changing provider before - the hassle just didn’t seem to be worth it. But here was someone offering me something that suited my circumstances perfectly and was likely to save me money, or so I hoped. All I had to do was stay with them for two years. It looked like a good deal. 

It got me thinking about the other utility services I am currently signed up for, in particular the relationship with my energy provider.  I realised - I’ve never had a visit from an energy retailer or even a call from my provider for that matter. Not even when they had scheduled to turn my power off. 

You see, a growing number of us now work at least some of the time from home. But then neither my energy retailer nor distributor knows that - they’ve never asked.  I’m a model customer, I have never had to call them (except to enquire when the power might come back on), and I pay on time via direct debit.  I am therefore probably quite a profitable account and I haven’t switched…yet. But am I loyal? 

If a retailer phoned me tomorrow with a compelling offer I just might change. But what is that compelling offer? A bundled service offering? Sorry, don’t have gas. A discounted rate? If it was big enough. A discounted or free home energy audit? Looking good. What about a finance deal to help me upgrade the insulation on my rental property, accessing all government rebates of course? Now you’re talking. 

Oh? You didn’t know I was the same S. Boyle who had the rental property at the beach? 

The energy sector, like the telco industry before it, is learning that in order to create long term customer value, the focus must now be on building both profitability and loyalty. 

Churn and eroding retail margins are the two biggest challenges facing energy retailers in competitive markets, even for relatively new entrants. Switching rates of 25% in Australia and over 35% in the UK are still common and in New Zealand churn rates are picking up again after a relatively flat period. 

Great service was a primary differentiator amongst utilities, but is no longer enough. Energy retailers need to create compelling offers that will not only help them to win new customers but, more importantly, cement what is often a fairly tenuous relationship with their existing customers. 

As an energy retailer, you probably already segment your customer for profitability, looking at the revenue versus the cost to serve factors, billing costs, call centre contacts, arrears levels and so on. But how much easier would it be to create strategies to improve long term customer value if you segmented for both profitability and loyalty? 

You will already have a lot of data to help you determine relative loyalty. How long has she been a customer, how many times has she switched before, does she pay via direct debit, does she use on-line services, how many products does she purchase, how many complaints has she made, is she registered for and does she make the most of particular affinity programs? 

More granular segmentation facilitates a more personal approach. Combine this type of internal transactional and behavioural data with demographics and you can quickly start to build up more accurate profiles and more granular segments. Now instead of treating all of your customers the same, you have the means to develop a unique customer experience strategy and drive specific actions to increase each customer’s value rating. 

So instead of promoting costly loyalty programs to an already very unprofitable customer, your strategy might be to make a proactive recommendation such as ‘bill smoothing’ to help reduce their high numbers of bill disputes or payment defaults during winter. 

And for me, the not so loyal but fairly profitable account? Well, you know I have opted for e-billing and I have completed an online carbon footprint analysis.  So, I may well be interested in a green energy product or a demand response program. And would the fact that I opt to donate to a children’s charity via my bill mean that I might be more interested in an affinity program that benefits my local school or charity? Probably. Or could you retain my loyalty by working with my distributor to contact me before the lights went out next time? That would be great.

Regular switchers, always chasing the lowest plan, might be tempted to tie into an extended period if the deal was good enough. They may well be willing to move to e-billing, sign up for direct debit and ditch the loyalty points to qualify. Simply Energy, an Australian energy retailer has decided to tackle churn by sending out a small number of golden bills, the recipient of which gets their bill cancelled for that quarter. 

Of course, none of these concepts are new. The difficulty in the utility sector has been personalising these offers or marketing messages and thus making them compelling enough to benefit all parties. 

A survey by GI Insight in the UK, http://www.thewisemarketer.com/news/read.asp?lc=t80828cx2339zg found that organisations that implemented relevant and targeted customer communication achieved the highest levels of customer satisfaction. Utilities, many of whom still run account centric billing and customer care systems, ranked bottom of the 10 sectors surveyed. 

Driving customer value up also means keeping the cost to serve low. The industry knows it needs to shift to a more customer centric business model. But thus far, the licensing, implementation and configuration costs associated with generic CRM systems required to enable that shift have proved prohibitive for many. It simply makes no business sense to significantly push up the cost to serve when the pressures on profit margins are already so intense. 

With the cost barrier to true customer centricity now removed by specialist bilking and CRM systems, utilities may find that the age old challenge of balancing operational cost efficiency with a personalised, proactive service has become a whole lot easier. 

I look forward to your call.