In one of the most competitive energy markets in Europe, the UK, Capgemini, a global advisory firm, reported that the market share of Big 6 companies such as EDF and British Gas was reduced to 70% from 2005. The current customer churn rate in the UK energy retail market is approximately 20% – with Ofgem2 reporting that in the 12 months up to July 2020, there were 5.9 million switches in electricity. Of these, 22% were customers switching away from the six largest suppliers. Although the UK might be the first to experience the challenges of increased competition, they are certainly not alone in Europe. Our customers from countries such as Spain, Belgium, Netherlands, and Italy report high churn levels of up to 25%.
Imagine the impact that this can have on an energy supplier. If you are an energy supplier with two million customers that are having to renew its total customer base in 4-5 years! That means finding 30.000-40.000 new customers every month, just to defend market share.
Market dynamics suggest that churn is here to stay or even increase. We see competition increase in the coming years with disruptive “tech” energy suppliers like Bulb, Tibber, and Octopus gaining impressive market share in their home base and expanding their home base across Europe and beyond. They made good use of technology creating a streamlined process, a much lower cost base, and a far better customer experience.
So how can churn-ridden energy providers stand their ground? The quickest way to do that is by using aggressive sales channels like price comparison sites and door-to-door. They are also the most expensive ones and oftentimes it takes 3 years or more to earn back the cost to acquire these customers while the majority of the customers you attract will be shopping around after the first year. So it might be a quick fix, but it’s not a sustainable solution to churn.
So how to become competitive and regain profitability? Bold claims won’t help, yet an intelligent use of smart meter data across the retail business can contribute to your strategy by reducing the cost base and improving the customer experience. This requires an integrated view of the business where benefits on the one side result in boosting benefits on the other.
What pushes your customers away?
The factors that are causing your customers to churn are well known but they also hold the key for improvement. These might include:
A non-distinctive offer that confirms the customer's belief of energy being just a commodity that you can buy everywhere with price as the only discriminating factor. Although this statement might be justified because of market reality, with price comparison sites fueling the race to the bottom, yet it is not essentially true, with renewables on the rise and customers electrifying their energy usage and wondering how to make their homes more energy-efficient. As energy is becoming more complex and more top of mind day by day, that’s good stuff for building your company’s profile.
A flawed customer journey - complex processes. Discarding the growing group of deliberate price shoppers for a minute, most customers churn because of having disappointing experiences. There are a few critical customer processes that trigger higher than usual churn and it is important to make these processes an easy, fast, and flawless experience. Sometimes moving houses can lead customers to complete up to 20 steps. Needless to say that you lose most of them in the process. Another practice that can foster disappointment is transferring customers to a more expensive tariff after their current one expires. The same is obviously true for surprising customers with an end-of-year bill that is higher than expected.
Price vs cost base. Escaping the commodity trap of ever declining margins should include cost reductions. Reducing the cost base is about streamlining processes and operational excellence. Simplifying processes with a lean approach and with the customer experience center stage, works as a double-edged sword, reducing cost and improving the customer experience as discussed above. It is not only about customer processes. With the influx of solar PV and the increased use of EVs, power markets are getting more and more volatile and as a result, forecasting is getting more difficult and imbalance costs increase. These risks in turn find their way in a risk surcharge on the tariffs charged to customers.
Inferior customer service. Inadequate customer service is the end station of a bad customer experience, leaving nothing but a reactive response, apologizing for why things went wrong and allowing limited means to resolve the situation. In comparison, customer service should work as an opportunity to understand the customers’ personal situation, have a meaningful conversation and be able to help and make proactive suggestions that might be helpful or interesting.
How can smart meter data can help?
In a nutshell, combating churn effectively cannot be a one size fits all solution; one needs to work towards a flawless customer journey, a competitive price, personalized customer service and as a result a great brand image. Let’s have a closer look at what smart meter data and analytics can bring to the table.
A flawless customer journey- becoming proactive
Most people have a limited understanding of what drives their energy consumption. In most households, energy is one of the highest expenses. Although often interested in reducing it, most people don’t understand what is their next best action to save on energy and cost.
It helps a lot if you can show the largest energy guzzlers in the household and determine whether a washing machine, dishwasher, or dryer is inefficient or whether you just need to use a lower temperature program. At NET2GRID, we have developed churn reduction solutions for utilities and energy suppliers like our Engage and InControl services as well as Ynni, a white-label mobile app. All of these solutions empower our clients to offer their consumers a service to understand how much energy they consume and what it costs them in real-time. We provide bill itemization coupled with personalized advice, which allows them to understand where exactly costs arose and how high they were. This helps them to understand their energy bill and monitor and just their consumption to avoid high energy bills.
We use gamification to improve engagement. We believe it is important to alert customers to their next best step to become energy efficient and acknowledge their achievements. In our app, we offer "Personalized challenges" that are triggered by an opportunity to reduce costs. For example, when computing devices are detected to be on during the night an alert comes up informing on what you can save by switching them off. If a customer accepts the challenge, we continue to monitor progress and display a celebration message after they succeed to change their behavior. We start with easy-to-change behaviors and later on will advise about new appliances and home improvements.
Another example is the moving house process. As explained above, this process can be lengthy, time-consuming and a source of disappointment to customers. Process optimization on Lean and Service design principles is required to improve the customer experience. However, you can very simply obtain data on the customers that are likely to move soon. How? Simply by including a “tips on moving house” button in the app. You can identify your customers planning to move, just by recording their’ clicks. On top of that, this allows you to help customers proactively in making the moving house a flawless experience. That would put you in a good position to reduce churn.
With an energy insights service, you can offer clear and concise information on energy consumption, reduce drastically call center customer complaints, minimize serving costs and overdue debts and improve your customer retention.
A competitive price
On top of creating operational excellence in customer service processes, energy data helps to reduce costs and realize competitive pricing without sacrificing profitability. One way is to understand your customers better, so you can better focus your efforts on where it is needed. The moving house example mentioned above can illustrate that. In combination with self-service options in the app, this will reduce calls to service agents and associated costs.
Effective use of energy consumption data can also help other parts of the business reducing the energy price. An accurate forecast of energy demand can help to reduce imbalance risks and costs for energy trading. Achieving accuracy is however getting more difficult because of increased volatility on the power markets, caused by the influx of solar and wind power and the increased use of high electricity load events like EV charging.
Based on historic energy consumption data and Artificial Intelligence we’re able to account for this volatility and help to boost regular forecasting accuracy to 98%. That in turn will reduce imbalance costs and make it possible to reduce the risk surcharges component in energy tariffs, thus increasing competitiveness.
A personalized service
Customers now have a fully personalized experience through various channels and expect the same from their energy providers as well. Transforming the energy consumption data into valuable information really fuels a personalised experience.
Gamification nudges customers to make small improvements to reduce their energy consumption, moving on later to home improvements. Customer profile and energy consumption data make a strong combination to give personalised advice on what their next best action is to become more energy efficient. That includes nudging customers to change behaviors (regular defrosting of their fridge saves 30% on its consumption) or make smart investments like replacing the old and inefficient washing machine or dryer or opt for home insulation to reduce heating costs.
Imagine you can offer a customer a special EV tariff because you just found out that he or she is charging the car at home; given that the electricity bill would be higher now, notifying him or her of the benefits of solar power that can be leveraged, would be powerful.
Customers don’t like to pay for energy insights alone, but they are very open to tailored suggestions that will help them to save on energy and costs. It goes without saying that these types of services should all be provided while preserving customer privacy. It is therefore of strategic importance to educate customers about these benefits and obtain proper consent.
Next steps?
The combination of energy data and the use of artificial intelligence will help energy suppliers to transition from a low-cost commodity provider to a trusted advisor on energy services while playing a pivotal role in the energy transition. It will also help to create a distinctive offer in the market.
If you are working on a strategy to simplify your customer journey, reduce your cost base across the business and are aiming for loyal high-value customers or want to expand your energy services business, we’d love to discuss how we can contribute to your strategy with our data analytics and AI.