Customer Churn in Utilities

Introduction:Until few years ago, utilities didn’t worry much about customers because of their monopoly as Power, Gas or Water supplier. However, due to unbundling of energy markets and increase in competition in many countries, customers got the empowerment to switch from one utility company to another. This paradigm shift resulted in a high customer churn for majority of the utilities across the world. As per an independent research, switching rate is 30-35% in USA, 20-25% in New Zealand and 12-15% in European markets. Broadly speaking, rising energy prices, abysmal customer service, company’s brand image, in-distinctive value proposition, poorly set customer expectations and competition are the root causes for such customer churn in the utility industry. Therefore, it is very important for utilities to address the complete gamut of root causes to stop mass exodus.

Effects of customer churn: Losing customers has many implications for utilities like loss of revenue, loss of market share, decline in brand image and threat of acquisitions to name a few. Moreover, it costs 6-7 times more to acquire a new customer than to retain an existing one.

Churn Solution Framework: The proposed Churn solution framework is not a onetime activity or a single solution but a continuous and repetitive solution framework which should be followed ritually and with utmost importance. One way of executing the framework is through multiple waves of implementation. The churn framework guides the utilities to follow the below mentioned tools to tackle loss of customers:

1. Use of Analytics: Utilities can use the power of analytics in many ways to restrict the increasing customer churn. Firstly, utilities can segment their customers based on simple Pareto principle i.e., identifying the top 20% customers that generate more than 70% of its profit and bottom 30% that erode 50% of the profits that other customers generate. Utilities can then focus on these high value clusters with personalized services, micro campaigns or customized products/services to lure and retain. Utilities can also use analytics to predict the customer propensity to leave their current utilities service provider. A churn prediction model can be built using information such as historical energy consumption, type of property, type of customer (i.e., residential, commercial or industrial), type of contract/ product, customer demography, customer interactions, social media noise, complaints, customer’s sentiment score, etc. The results of churn prediction model can be used to tailor proactive offers and targeted campaigns for customers with high lifetime value. Further, analytics can also be used to recognize customer cluster preferences for customized products and services.

2. Technology: Information technology and business have become inextricably interwoven. This is evident from the fact that for the first time in the history of energy industry, utilities are facing multiple disruptive challenges. Therefore, it is important for utilities to imbibe the disruption and become tech savvy. Use of latest technology will not only make utilities future ready but also assist in providing better service to its customers. In the first wave of technology implementation, Utilities can:

a) Provide front-end team or the CSRs with latest technology, an integrated, multi-channel approach and up to date databases of customer information. Further, the teams should be trained to communicate with customers proactively.

b) Provide customers with digital experience which includes Mobile capabilities, Digital Self-service, Live chat, Utility ecommerce platforms, etc. Few examples of digital experience are Mobile notifications (for bills, abnormal consumption, notices of service problems, information on tariff changes, new products/offers), Capability of bill payments through mobile, Time to resolve an issue through live chat, etc.

c) Provide provision for integration of decentralized energy generation

d) Provide remote energy management facilities

e) Provide smart phone apps to turn-on/off lighting or heating and

f) Integrate IT and Operational technologies like Digital self-service portal with Outage Management System.

3. Service: By enhancing & improving the quality of customer service, utilities would not only stop the bleed due to lost customers but also offset the displeasure caused by rate hikes. Infact, it has been observed that many customers are willing to pay a little extra for a product or a service that comes with guaranteed high quality customer support. Another example of building customer relationship could be instead of sending threatening letters right away for non-payment of bills, 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. Further, Utilities should be finding innovative ways to surprise and amaze their customers. For example, 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.

4. Loyalty & customer advocacy: Loyal customers help build a profitable business because they are more likely to stay with a utility that treats them well and more likely to recommend it to others, becoming a highly credible volunteer salesforce. Also, they are more likely to buy additional services, further boosting their lifetime value. Utilities can come up with different loyalty programs/schemes to lure more customers. For example, E-ON as a package offers easy-to-read bills, locked energy prices for a given period and a personable agent.

5. Setting customer expectations: Utilities should remember that this is not the first-time customers are buying electricity and natural gas. Most probably they would have purchased it from a regulated utility or from a competitor. Therefore, it is important to not to over-commit or promise customers during the sales pitch. Unfilled promises would lead to negativity, disappointment and dissatisfaction. How companies treat customers after the sale is very important.

6.  Communication: Proactive communication with customers is a proven method to build customer relationship and boost utility’s image. Utilities are encouraged to use marketing automation tools for personalized communications to customers based on their interests, historical behavior and other factors. Few examples are as below:

a) Personalized periodic email messages with their name, company name and a url of content of their interest.

b) Empower customers by continuing to provide relevant information and recommendations that will enable them to succeed. For example: If you know a customer’s intention to reduce energy consumption then recommendations on energy saving strategies would help.

c) Provide special discounts for products or services that customers need or want. Ensure incentives are available to them via personalized emails or website pages.

7. Social footprint: As per a Customer Experience Impact (CEI) Report, 16% of consumers said that utilities are not visible on social media. Utilities should embrace social media to engage with their customers because this is one of the cheapest way to address customer issues and promote offerings. Also, this will help build trust with customers. Few of the things which utilities can address via social media are Billing issues, Service outages, provide information about utility service or programs, register complaints, communicate crisis situations, educate customers, etc. For example, AT&T uses social media platforms to generate customer buzz, solve customer service problems in real time. Utilities should not worry about the negativity on the social media platform rather they should use the noise in the social media to track its performance. Only thing utilities should be careful about is Legal and Fraud risks. Few of the social media KPIs that utilities can monitor are:

a) Share of Voice (SOV) = (Number of billing related conversations) / (Total no. of utilities conversations)

b) Sentiment Indicator = (Positive comments or conversations – Negative comments or conversations) / (Total no. of comments or conversations

c) Social Reach = Total number of customers across all social platforms conversing on energy efficiency programs

d) EE Program Launch = (Total number of likes + number of blog comments) / (Number of published posts for utility company)

e) Social campaigns cost / Benefit Analysis = (ROI of social media campaigns) / (ROI of traditional EE marketing campaigns)

f) Complaints visibility & feedback = Ability of marketing department or customer service executives to respond to issues raised by customers in social channels

8. Key Performance Indicators (KPI): Utilities should measure and analyze customer KPIs. While it is important to track marketing metrics such as customer acquisition cost and churn rate, it is also important to measure and analyze customer satisfaction. One simple way to do this is with a customer satisfaction survey. Survey results can be analyzed for trends and followed up when individual concerns are raised. Few of the online survey software can be integrated with contacts and CRM software to provide sales and marketing teams with better insight to manage customer experiences. Further, utilities should also continue to monitor reliability KPIs such as SAIDI (System Average Interruption Duration Index), SAIFI (System Average Interruption Frequency Index), CAIFI (Consumer Average Interruption Frequency Index), CAIDI (Consumer Average Interruption Duration Index) and MAIFI (Momentary Average Interruption Frequency Index). These indexes help utilities track their core operations.

9. Brand Image: On many occasions, new consumers do not come to utilities because of their reputation or beaten brand image. Therefore, it is critical for utilities to maintain its brand image. Utilities should come up with their distinctive value proposition to differentiate itself from the competitors. It may be necessary for the utility to reinvent itself as a consumer centric organization.

Conclusion: Customer churn doesn’t happen overnight but a series of failed interactions & several other aggravating experiences increase the frustration levels in customer and subsequently customer reaches a tipping point to churn. While it is critical to get the basics right, utilities need to go further and exceed the expectations to retain the customer. Holistically speaking, today’s customers no longer aspire for competitive pricing alone but also look for excellent customer service. Therefore, utilities can no longer be mere commodity provider.

Disclaimer: The article is the independent opinion of the author and does not represent any organization