DIGITAL CUSTOMER ENGAGEMENT: the key to long-term success for utilities
Power utility businesses around the world are rapidly waking up to the enormous changes taking place in the global energy market. Stronger environmental policies, increased competition, empowered customers and evolving demographics add to the factors compelling the traditional electric utility industry to shift to a more competitive model. In this article, Yugant Sethi and Alakshendra Theophilus discuss the changing utility market, the benefits of digital transformation and the challenges many utilities are facing with their digital initiatives.
THE CHANGING STATE OF POWER UTILITIES
The traditional services model for utilities was one in which customers had little interaction with their energy providers. But that is rapidly changing. With the evolution of the smart grid, an automated system that helps balance electrical consumption with supply, customers now have more reasons to communicate with their service providers. What’s more, utilities are now offering a wide range of energy options, including green and retail through deregulation, as well as energy efficiency products and services, giving customers the power of choice. For utilities, keeping customers satisfied, engaged and loyal has never been more important.
The utility industry faces drastic change as renewable energy turns consumers into producers and undermines the dominance of utilities. In Germany, 27.7 percent of electricity came from renewable sources in 2014.1 The big four German utilities—E.ON, RWE, EnBW and Vattenfall—are nearly absent in this sector. Renewable generating capacity broke the 100GW barrier in 2014,2 which is equivalent to the entire fleet of nuclear power capacity of the United States, a United Nations report shows.3
Utilities that serve many of the deregulated states in the United States may lose the comfort of guaranteed consumer demand as new third-party or renewable energy vendors join the market. Failure to provide engaging customer service that fosters loyalty can increase the risk of today’s utilities being left behind as consumers switch to these new companies.
Competition with other providers, new digital technologies, rising customer expectations and the need to support more sophisticated customer interactions are driving the push to deliver a better customer experience.
According to a report by American Customer Satisfaction Index (ACSI) customer satisfaction with investor-owned utilities dropped 1.3 percent to 74 out of 100. Customer satisfaction levels in Britain dropped from 78 percent in 2012 to 55 percent in 2013.4 As a result, the utility industry is seeing a shift to the use of more technology and data as a means of addressing the growing dissatisfaction of its customers. There is clearly a requirement to reenergize the customer experience and improve satisfaction and willingness to regularly engage with their service provider.
To drive long-term customer engagement, utilities must transform themselves from energy suppliers to energy service providers—with a focus on meeting the needs of customers beyond just energy supply. Social media as well as web and mobile apps are rapidly becoming the preferred channel for customers to interact with their service providers, leading to the emergence of new business models.
Digital initiatives undertaken by the utilities help gather more detailed data by running specialized billing, energy efficiency, demand response and behavioral programs. The market drivers to go digital are complemented by the following digital initiatives as shown in Figure 1.
- Real-time insights on energy usage and personalized advice on reducing consumption help customers reduce their energy bills
- An ability to make payments online to avoid late fees or to report billing errors strengthens customer service
- Demand forecast solves demand uncertainty and equips the utility to better manage peak capacity
- Energy efficiency helps customers reduce energy bills with consumption analysis patterns while minimizing peak-time purchases from spot markets
- Discount offers and promotional campaigns are customer engaging practices that help foster customer retention and building trust
Figure 1: Digital initiatives and drivers to go digital.
WHY CUSTOMER ENGAGEMENT MATTERS
Customer engagement, through digital transformation, can deliver business value in a variety of ways. First, it can provide a wealth of data that utilities can use for continuous improvement of customer-facing programs.
Second, a well-designed customer communication channel with personalized messaging can reduce the burden on customer service representatives and help lower the cost of call-center operations. Third, it can help utilities better optimize asset and capital investments by predicting savings from energy efficiency and demand-response programs.
Figure 2: The rise of the empowered customer.
Utilities that successfully engage their customers have reported peak consumption reductions up to 30 percent greater than non-peak reductions. These utilities reduce excess capacity generation, and therefore, can quantify the benefit of their effective customer engagement. The potential to lower energy bills through real-time insights on energy usage and personalized advice on reducing consumption will enable utilities to create more value for themselves and for their customers. This will result in greater customer satisfaction and loyalty.
ADOPTION OF DIGITAL INITIATIVES AND ITS CHALLENGES
Sapient Global Markets recently conducted a study of 40 North American (NA) and European utility providers to assess the adoption of digital initiatives to improve the customer experience. The research focused on their web, mobile and social media initiatives and evaluated each utility based on their use of the following:
- Social media platforms to provide information, address customer complaints, communicate outages and run promotions
- Mobile apps and web self-service features to access and pay bills online, view usage comparison and outage information and participate in home energy management and energy efficiency programs
Figure 3: Mobile app feature support–percentage of utilities offering the feature.
Figure 4: Web feature support–percentage of utilities offering the feature.
The study revealed the following:
- Although more than 50 percent of NA and European utilities allow customers to pay bills online through their official websites or mobile apps as part of a digital initiative to reduce operating costs, billing issues continue to be a cause of concern for customers.
- Nearly 68 percent of NA utilities provide outage information on their websites and 53 percent offer it via their mobile site, while approximately 30 percent of European utilities offer this information on both mobile and web. However, beyond basic outage reporting, there is rarely a web or mobile mechanism available for customers to provide feedback.
- 70 percent of European utilities are sharing customer usage information and promotions on mobile apps and the web, while NA utilities are just beginning to follow suit.
- Very few utilities in NA and Europe provide real-time insights on energy usage and personalized advice on reducing consumption though mobile apps or websites. However, this number is expected to increase over the coming years as utilities expand their digital presence and launch social media campaigns.
- Utilities have made social media a part of their communication strategies—using it to share energy efficiency tips or information during outages.
- Thermostats are an important step toward creating smart homes and helping consumers better manage energy costs. It is gaining market attention as it is being implemented by emerging players in the field of energy management.
How do utility customers feel about digital initiatives? The study collected opinions from a wide range of sources, including social media sites, blogs and online discussion boards, as shown in Figure 5. The data suggests that only 30 percent of online customers deem digital transformation as positive, whereas others complain about overcharges, especially for delayed payments and inaccuracies in billing periods and rate plans. Of this, 91 percent of customers complained about poor response of mobile apps, 45 percent were not happy about being charged for the app service and more than 20 percent had app login and connectivity issues.
Figure 5: Customer Sentiments.
Driving the Need for Better Data Management
Utilities must work with a rapidly increasing amount of data. In the past, utilities had 12 meter readings per year. Today, smart meters are capable of delivering usage data every 15 minutes—or 35,040 times a year. In addition to smart meter data, utilities need to analyze customer data such as location, energy efficiency measures in place, large appliances installed and energy usage patterns, along with data on rates, billing, demand-side management, load growth and more. The growing volume of information, multiplied by millions of customers, highlights the fact that utilities will quickly be overwhelmed by data that is usually stored, managed and maintained via different tools and technologies. This need for better data analytics is underscored in a recent study by the Utility Analytics Institute that anticipates spending on analytics by utilities will grow 32 percent a year, from $180.4 million in 2011 to $718.9 million in 2016.5
ENGAGING WITH THE CUSTOMER
Seeking more engagement, customers have asked utility companies to provide more value by helping them save more, inform them about their energy usage, and deliver usage information via both traditional bills and apps. And when things are not going well, they want to be able to inform the utility through new channels such as social media from their smart phones.
Effective customer engagement opens up new opportunities for utilities by creating a dialogue that had not existed before. To transform the digital customer experience, web and mobile channels must be expanded and social media customer service capabilities must be strengthened. This can be done in the following ways:
- More efficiently delivering bills via online and web channels, with options for customers to report errors easily
- Educating customers and keeping them informed about new products and services through live chat or energy savings tips
- Informing customers about changes to pricing and billing to switch tariff plans in order to reduce energy consumption
- Addressing questions and enabling virtual customer conversations by leveraging trained social media personnel
- Setting up a dedicated social media account, such as a Twitter handle, to address customer issues
- Creative approaches to bring customers into the utility’s fold, such as gamification, which provides a platform to enhance customer engagement, achieve higher energy efficiency and identify new sources of revenue. It turns the energy management experience into a game.
By offering a self-service model that provides fast, accessible and personalized resources, utilities can help enhance day-to-day customer interactions involving outages, maintenance and billing. This improves customer satisfaction and a customer’s willingness to regularly engage with its service company.
DIGITIAL UTILITY—A WAY FORWARD
If utilities are going to succeed in a much more competitive market and meet increasing customer expectations, they need to make the shift from simply supplying energy to servicing the needs of the customer. Ultimately, this means changing their mindset and business structure to seamlessly incorporate digital channels as part of their customer touch-point strategy. This digital transformation is the key to long-term customer engagement and retention. But, it brings challenges, such as the need for utilities to manage and extract insight from a much larger data set. How utilities address these challenges and their ability to keep customer needs at the forefront will be critical to their longterm success.
is a Senior Manager of Business Consulting with Sapient Global Markets in Gurgaon. He leads Sapient Global Markets’ research efforts to support the company’s strategy and thought leadership programs. Yugant has over 15 years of experience and is a certified SAP consultant. With deep knowledge of C/ETRM product development and implementation, he has led several large advisory and technology implementation engagements in the energy industry.
- BloombergBusiness, Renewables Take Top Share of German Power Supply In First, Stefan Nicola, http:// www.bloomberg.com/news/articles/2014-10-01/ german-renewables-output-tops-lignite-for-firsttime- agora-says.
- International Renewable Energy Agency, Rethinking Energy 2014, http://www.irena.org/rethinking/ rethinking_fullreport_web.pdf
- BBC News, UN: New renewables broke through 100GW barrier in 2014, Mark Kinver, http://www.bbc.com/ news/science-environment-32119463
- American Customer Satisfaction Index, ACSI Utilities, Shipping, and Health Care Report 2015, http://www.theacsi.org/news-and-resources/ customer-satisfaction-reports/reports-2015/acsiutilities- shipping-and-health-care-report-2015/ acsi-utilities-shipping-and-health-care-report- 2015-download
- Reuters, Utility Customer Analytic Market to Quadruple by 2016, http://www.reuters.com/ article/2012/06/21/idUS110009+21-Jun- 2012+BW20120621