Customer churn

Until a few years ago, utilities didn’t worry much about customers because of their monopoly as power, gas or water supplier. However, due to the unbundling of energy markets and increased competition in many countries, customers are now empowered to switch from one utility company to another. This paradigm shift has resulted in high customer churn for the majority of utilities across the world. As per independent research, switching rates differ across geographies, ranging from 20-25% in New Zealand to 12-15% in European markets. Broadly speaking, rising energy prices, abysmal customer service, a company’s brand image, indistinct value propositions, poorly set customer expectations and competition are the root causes for such high levels of customer churn in the utility industry.

It is very important for utilities to address the complete gamut of root causes in order to stop a mass exodus of customers.

Effects of customer churn

Losing customers has many implications for utilities including loss of revenue, loss of market share, decline in brand image and threat of acquisitions, to name a few.

Moreover, it costs six to seven 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 ritualistically and with the utmost importance. One way of executing the framework is through multiple waves of implementation. The churn framework guides a utility to utilize the tools below to tackle loss of customers:

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 the simple Pareto principle: namely identifying the top 20% of customers that generate more than 80% of its profit and the bottom 30% that erode 50% of the profits that other customers generate.

Utilities can then focus on these high value clusters with personalised services, micro campaigns or customised products/services to lure and retain. Utilities can also use analytics to predict the customer’s propensity to leave their current utilities service provider. A churn prediction model can be built utilising information such as historical energy consumption, type of property, type of customer (i.e.  residential, commercial or industrial), type of contract/product, customer demographic, customer interactions, social media noise, complaints, customer’s sentiment score, etc.

The results of the 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 recognise customer cluster preferences for customised products and services.

Technology: Information technology and business have become inextricably interwoven. This is evident from the fact that for the first time in the history of the energy industry, utilities are facing multiple disruptive challenges. Therefore, it is important for utilities to embrace the disruption and become tech savvy.

Use of the latest technology like advanced analytics (propensity models, scoring systems, machine learning), neural networks and deep learning techniques, artificial intelligence, etc, will not only make utilities future ready but also assist in providing better service to their customers. In the first wave of technology implementation, utilities can:

  1. Provide the front-end team or CSRs with the 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.
  2. Provide customers with digital experiences which include mobile capabilities, digital self-service, live chat, utility e-commerce platforms, etc. A few examples of digital experience include mobile notifications (for bills, abnormal consumption, notices of service problems, information on tariff changes, new products/offers), bill payments through mobile, time to resolve an issue through live chat, etc.
  3. Make provision for integration of decentralised 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 selfservice portals with outage management systems.

 Service: By enhancing and 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. In fact, 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 nonpayment 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 exploring innovative ways to surprise and amaze their customers. For example, the 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.

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

Setting customer expectations: Utilities should remember that this is not the first-time customers are buying electricity and natural gas. Most likely they would have purchased it from a regulated utility or from a competitor. Therefore, it is important not to overcommit or overpromise to customers during the sales pitch. Unfilled promises would lead to negativity, disappointment and dissatisfaction.

How companies treat customers both before and after the sale is very important.

Communication: Proactive communication with customers is a proven method to build these relationships and boost a utility’s image. Utilities are encouraged to use marketing automation tools for personalised communications to customers based on their interests, historical behaviour and other factors. A few examples are as below:

  1. Personalised periodic email messages with their name, company name and a url of content of their interest.
  2. Empower customers by continuing to provide relevant information and recommendations that will enable them to succeed. For example: If a customer’s intention is to reduce energy consumption then recommendations on energy saving strategies would help.
  3. Provide special discounts for products or services that customers need or want. Ensure incentives are available to them via personalized emails or website pages.

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 ways to address customer issues and promote offerings. Also, this will help build trust with customers.

A few of the things which utilities can address via social media are billing issues or service outages, provide information about utility service or programmes, register complaints, communicate crisis situations or educate customers.

For example, AT&T uses social media platforms to generate customer buzz and 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 of social media to track its performance. The only thing utilities should be careful about are legal and fraud risks. A few of the social media KPIs that utilities can monitor are:

  1. Share of voice (SOV) = (Number of billing related conversations) / (Total no. of utilities conversations)
  2. Sentiment indicator = (Positive comments or conversations – Negative comments or conversations) / (Total no. of comments or conversations
  3. Social reach = Total number of customers across all social platforms conversing on energy efficiency programmes d. Energy Efficiency (EE) programme launch = (Total number of likes + number of blog comments) / (Number of published posts for the utility company)
  4. Social campaigns cost / benefit analysis = (ROI of social media campaigns) / (ROI of traditional EE marketing campaigns)
  5. Complaints visibility and feedback = Ability of marketing department or customer service executives to respond to issues raised by customers in social channels

Key Performance Indicators (KPI): Utilities should measure and analyse 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 analyse customer satisfaction. One simple way to do this is with a customer satisfaction survey. Survey results can be analysed for trends and followed up when individual concerns are raised.

Much 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.

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 their brand image. Utilities should come up with a distinctive value proposition to differentiate themselves from their competitors.

It may be necessary for the utility to reinvent itself as a consumer-centric organisation.

Conclusion: Customer churn doesn’t happen overnight but a series of failed interactions and several other aggravating experiences increase the frustration levels in customers and subsequently the customer reaches a tipping point to churn.

While it is critical to get the basics right, utilities need to go further and exceed expectations to retain the customer.

Holistically speaking, today’s customers are no longer influenced by competitive pricing alone but also look for excellent customer service.

Therefore, utilities can no longer be a mere commodity provider. MI


About the author

Sanjivrao Katakamn is a principal consultant - Energy and Utilities for WIPRO. All of the points mentioned by the author are his personal views.