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Customers Market view Home truths Complaints: the silver lining The standing charge under attack Root cause analysis of water complaints can reach parts regulation hasn't, says Paul Clark. F or years, Ofwat has been keeping a close eye on complaints made about Britain's water companies. When the regulator launched its service incentive mechanism (SIM) back in April 2010 to incentivise good customer service and to punish any failings in this area, it was a pivotal moment in water regulation. The scheme, which runs in five year increments – the first concluding in 2015 – works on a basic but effective premise: those companies that perform better for their customers will be rewarded with higher price limits. Those that perform less well will have a penalty imposed. Even though initiatives such as SIM should be applauded, the problem is that the penalties and incentives on offer often fail to elicit real change. This is compounded by the fact that water companies in Britain have not had real competition. Customers are simply served by their local provider. SIM seems to be much more of a carrot than a stick. Do more and you can charge your customers more; do very little and those same customers will still be there, still paying. Compare this approach with what we've seen in the financial services sector where the Financial Conduct Authority (FCA) clearly favours the stick over the carrot, and where the results have been very positive. Even though financial services firms have suffered their fair share of bad press and reputational damage, service levels have improved dramatically as a direct result of increased regulation in recent years, to the benefit of customers. Not only are banks publicly accountable with twice-yearly published complaints data naming and shaming the worst offenders, but they also must have processes in place that enable them to understand the root cause of customer complaints. Further, to ensure complaints are given appropriate toplevel exposure, financial firms must appoint a nominated head of complaints with access to the board to keep them abreast of any issues. If, after following a bank's complaint process, the customer is still not happy, he or she can escalate the matter to the Financial Ombudsman Service, which has the power to uphold the complaint, and if all else fails the customer can switch to another bank. Without this competitive dynamic, Ofwat needs to go much further than the FCA in supporting and encouraging improvements in customer care. While regulation is still seen as burdensome by many, there are shining examples of smart organisations in the financial services sector that have realised the extent to which complaints can be leveraged for profitability. These firms are now going further than regulation demands and reaping significant operational and financial benefits, including the reduction of complaints, understanding of the operational issues that led to the complaints in the first place, and increased customer retention and advocacy levels. With benefits like these on offer, businesses should not wait for enforced regulations to provide a catalyst for change. Any company, in any industry, is in a position to leverage complaints for economic advantage right now, but to do so they need to concentrate on their abilities in three key areas: people, processes and platforms. Getting the culture right for a company's people is the hardest part. By comparison, implementing the processes and software platform is relatively easy. This holistic view of customer complaints can provide extraordinary benefits, because this level of insight can help businesses to see their systems and processes from the customer's point of view, and therefore prevent unexpected processing errors, customerservice bottlenecks and other inefficiencies from damaging public confidence – and the bottom line. This will form the basis of a strategy of continuous improvement that will far outweigh any initial investment. After all, if a company does not have the ability to tackle complaints at any point, how can it truly understand the problem? Many companies are blind to this kind of information, however. A company's culture needs to address this fact, and management should encourage all staff to see customer complaints as an opportunity, rather than a threat. Above all else, in a climate where businesses are cutting budgets, Britain's water companies will soon realise that these benefits will translate into increased revenue and reduced costs and will also provide a strong foundation for a programme of continuous improvement. Paul Clark, chief executive, Charter UK Which? remains unimpressed with the reform of the retail market, complaining this week that customers are subject to a "lottery" of standing charges. The consumer watchdog found more than 109 tariffs with 75 different standing charges in a single region of the country. These ranged from nothing to £402 a year for individual gas and electricity deals combined. Richard Lloyd, executive director at Which?, said: "At a time when rising energy bills are one of peoples' biggest financial worries, the energy secretary must step in to make it easier for consumers to work out the cheapest deal. Ofgem's current plans to reform energy tariffs do not go far enough to simplify the market for consumers. If the government fails to take more radical action, people will not feel confident that they are paying a fair price for their energy." We asked the industry for its views: "The standing charge is a simple and, above all, fair way of spreading these costs, which are the same for all customers regardless of their energy usage. SSE offers a flat standing charge of £100 per fuel per customer across all tariffs – we believe it strikes the right balance between simplicity and fairness. A single unit rate may be simple but simplicity at all costs may not lead to the best outcome for customers." Richard Westoby, director of retail economics at SSE "At Eon we have simplified our tariffs following customer feedback and applied a standing charge, with a single unit rate. We believe this structure is simple, fair and transparent for customers and at the same time it supports Ofgem's RMR approach." Eon spokesman UTILITY WEEK | 27TH SEPTEMBER - 3rd OCTOBER 2013 | 27