Best Practices in Utilities Customer Retention

Introduction

Utilities have been facing major challenges in recent years: environmental policies, an economic downturn, and increasing measures by regulators and governments to promote competition and encourage consumers to switch their energy supplier. Good practices in customer retention, with a focus on fostering loyalty, will enable utilities to maintain or enhance their value despite these challenges.

Scope

- Insights into why customers do or do not switch suppliers. Analysis of the four main types of utility customers according to their retention rates

- Best practice examples in: pricing strategy; billing; customer service; reliability; communication; environmental responsibility; and loyalty schemes

- Strategies to increase customer satisfaction and the perceived costs of switching in order to achieve optimum retention rates for each segment

- Conclusions and recommendations for utilities, highlighting best practices from around the world for retaining customers in liberalized markets

Highlights

Customers switch suppliers because their level of dissatisfaction outweighs the perceived cost of switching, whether financial, emotional, the time and effort involved, or the uncertainty about the quality of other suppliers. Customers who do not switch can be classed as either loyal, apathetic or locked-in

Marketing messages purely based on price will attract deal-seekers who are unlikely to be retained by utilities. Value-for-money messages will reassure the loyal and locked-in segments. Emotional messages might appeal to an otherwise apathetic segment

Customer loyalty is the best retention weapon for utilities and strategies to achieve it are: focus on the positive aspects of the relationship apart from pricing; find what satisfaction factor would appeal to each type of customer; and target customer segments that will benefit the most from your natural competitive advantages

Reasons to Purchase

- Benchmark against best practice strategies for enhancing customer satisfaction, improving retention rates and inspiring loyalty

- Optimize customer retention rates in your target customer segments by adopting effective approaches to pricing, communication and customer service

- Maintain or enhance retention rates, despite measures by regulators and governments to facilitate switching in liberalized energy markets

Contents

DATAMONITOR VIEW

CATALYST

SUMMARY

Strategies through which utilities can achieve residential customer loyalty
ANALYSIS

The additional challenge for utilities in a liberalized market: how to retain customers despite policies that facilitate switching?
The residential energy retail sector scores poorly on customer satisfaction indexes
Switching is perceived as proof of market health in liberalized markets
Cheaper electricity tariffs encourage Irish consumers to switch from the incumbent supplier
Customer satisfaction with a supplier's competitiveness is not a guarantee of customer retention
Retention efforts have a very large impact on customer lifetime value and consequently on a company's value
Utilities' best retention weapon is customer loyalty
In order to maximize retention, suppliers should increase both customer satisfaction and the cost of switching
How to retain customers in a liberalized market? Focus on customer satisfaction with the goal of reaching loyalty
Price alone does not retain customers
Price is the main but not the sole driver of customer switching
Suppliers do not necessarily need to be the cheapest, but should not be perceived as the most expensive
Utilities should clearly justify price increases and broadly publicize price cuts
Careful product design can increase customers' perceived or actual cost of switching
Billing is the area that needs to improve the most in terms of customer satisfaction
Billing is the principal cause of customer dissatisfaction
Wrong bills can be very costly to suppliers, including in terms of customer lifetime value
Governments and regulators are stepping in to improve bill clarity
Smart meters: more communication, better communication?
Customer service can make or break the relationship with the customer
Consistency in customer service is key to retention
Aggressive sales ultimately drive customers away
Social media can be a valuable customer service channel
Bundled products contribute to retention but put extra focus on customer service
Smart metering will change customer service, but suppliers need to improve customer trust first
Product quality and reliability are crucial for customer retention
Supplier reliability is the primary indicator of value to a customer
Communication helps to overcome the dissatisfaction caused by outages
Communication is essential in order to achieve customer loyalty
Social media and the iPhone: utilities should make the most of new ways to communicate with the customer
Consumer forums can provide an opportunity to address customer complaints
Emotional connection with the customer should be every brand's goal
Differentiated energy tariffs can be part of emotional branding
Environmental responsibility is evolving as a retention strategy
Customers want reassurance that they are buying from an environmentally responsible utility
Green tariffs provide a new opportunity for customer retention
Loyalty schemes: every little helps
Energy suppliers find new ways of adding points to loyalty
Reward schemes should be consistent in order to achieve loyalty
Program rewards should be significant and diverse
How to retain customers in a liberalized market? Follow the best practices from utilities around the world
Focus on the positive aspects of the relationship apart from pricing
Find what satisfaction factor would appeal to each type of customer
Choose the customer segments that would benefit the most from your competitive advantages

APPENDIX

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Datamonitor consulting
Disclaimer

LIST OF FIGURES

Figure 1: European energy suppliers rank low overall on consumer satisfaction
Figure 2: Switching is heavily influenced by how long the market has been liberalized, but also by regulated prices and by the degree of competition in the market
Figure 3: Irish consumers have been switching to new suppliers to take advantage of lower electricity prices
Figure 4: Some price-satisfied customers do intend to switch and some price-dissatisfied customers do intend to stay
Figure 5: There are four main types of customers with different retention rates and price connections with the utility
Figure 6: Loyal customers are highly satisfied and will stay with the utility for longer
Figure 7: The type of customer is defined by the satisfaction level and the perceived cost of switching
Figure 8: The relationship between a supplier's price positioning and customer switching is not linear
Figure 9: Pack behavior: the UK's electricity market does not single out any major supplier's price strategy
Figure 10: Price cuts should be publicized broadly in order to reassure customers that their supplier offers competitive prices
Figure 11: Fixed-price tariffs can be a double edged sword: they retain customers but can cause dissatisfaction
Figure 12: Billing is by far the biggest source of complaints among utilities' customers
Figure 13: Billing issues have caused British Gas both financial and customer losses
Figure 14: The EC has provided bill templates to illustrate good practices in energy billing
Figure 15: Smart metering will increase communication with customers, strengthening the relationship with the supplier if expectations are managed correctly
Figure 16: Billing and customer service are the main sources of dissatisfaction among energy consumers
Figure 17: The sales agent's conduct often defines the length of the customer's relationship with the supplier
Figure 18: In the UK, SSE is using Twitter as an effective customer service channel
Figure 19: Energy suppliers' bundled products/services increase customers' perceived risk of switching
Figure 20: Smart metering promises to ease part of the strain put on customer service
Figure 21: Supply issues are a significant source of customer dissatisfaction in Spain
Figure 22: Information is power: PG&E's outage map helps to mitigate the inconvenience caused by outages
Figure 23: The British Gas iPhone app improves brand perception and contributes to customer retention
Figure 24: PG&E's Twitter page establishes an emotional connection with the customer while also serving as a contact center
Figure 25: Ecotricity in the UK uses consumer forums to address negative word-of-mouth
Figure 26: Emotional branding: Iberdrola leverages its connection with customers by sponsoring Spain's national football team
Figure 27: EWE appeals to customers' passion for football, consistent with its non-price value tariffs
Figure 28: Utilities' green credentials are constantly being assessed and compared
Figure 29: All-in-one tariffs provide a solution for customers who also generate their own power
Figure 30: EDF in the UK provides loyalty points to customers, independently of their energy consumption
Figure 31: Two different approaches to loyalty schemes: gaining discounts with or on the utility bill
Figure 32: The Airmiles program was not providing enough benefits for SSE in the UK and Eneco in the Netherlands
Figure 33: Different customer types respond to different influences
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