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24 | 8TH - 14TH APRIL 2016 | UTILITY WEEK Customers Market view T he UK energy supply market is a diffi- cult place in which to thrive these days – if you're a big six supplier. First, in 2014 the Competition and Markets Authority (CMA) probe into the market was launched. Then wholesale energy prices collapsed, leading to squeezed profit margins. And finally an assault from challenger brands like First Utility and Ovo has grabbed almost 15 per cent of the market. However, Npower has taken a bad situ- ation and made it worse. Its woeful perfor- mance in 2015 is captured in this sorry set of statistics: a €137 million loss; a record £26 million fine from Ofgem; 2,400 job losses announced; hundreds of thousands of cus- tomers defected; and the chief executive and chief finance officer both departed. To add insult to injury, Which? placed it 22nd out of 22 suppliers in its survey of customer service. Other big six suppliers have not suffered as much, despite operating in the same mar- ketplace. For example, British Gas reported a 31 per cent profit increase from its residential supply business and SSE is continuing to increase its dividend. So what's been going on at Npower? And more importantly, what should it do to rebuild its brand? Let's consider the context. The energy supply market has historically been a low interest category with very infrequent cus- tomer engagement, resulting in high levels of inertia. In that benign climate, suppliers could get away with brands that are little more than labels on otherwise near-identical services, with price the only differentiator (and given how closely they all follow each other's price changes, it's not much of a differentiator). In such circumstances the definition of a good brand amounts to little more than delivering on the hygiene factors: accurate and timely billing. Crudely put, if the only difference between competing brands is the logo at the top of the bill, then the rest of that bill had better be right. In a stable oligopoly the last thing the incumbents want to do is give their ordinarily quiescent customers a reason to sit up and start paying attention. But that's precisely where Npower went so badly wrong. Problems with the implementa- tion of a new customer relationship manage- ment system in 2011 were compounded by the outsourcing and off-shoring of a large number of back office and customer support roles, resulting in horrendous billing mis- takes. Npower achieved the near-impossible in a low interest category: it roused its cus- tomers into action by giving them a reason to think about their energy supplier. Disaf- fected customers deserted in droves, with the inevitable consequence for profits. So what should Npower do now? It goes without saying it must fix the billing prob- lems, and this is presumably well underway. But now that it has given its customers cause to doubt the brand, it's essential to dampen down these worries and give customers per- mission to start ignoring them again. For example, Npower might consider pub- licising a service guarantee with compen- sation payable if service standards are not met in future (something far wider-reaching than the limited Ofgem-imposed compensa- tion scheme buried in the depths of the web- site that only covers billing mistakes up to December 2015). Adding a dose of openness and transpar- ency would help too: for instance by more prominently publishing the average time taken to resolve complaints, and creating a platform where customers can post feedback on the company (with company representa- tives empowered to respond to and resolve the inevitable negativity that will be vented). However, the bigger opportunity is for Npower to demonstrate why it exists, beyond generating profit for shareholders. It's pre- cisely because the energy supply market is so undifferentiated that there is an opportunity for it to break ranks and be clearer about its purpose. If product and price are at parity, we'd generally prefer to spend our money with a company we feel is in business to change things for the better (whatever form that may take). What does Npower exist to achieve beyond the table stakes of share- holder value and regulatory compliance? At Naked we ask our clients three ques- tions to help identify where their brand pur- pose may lie: 1. Does your company exist to improve the industry in which it operates – to rem- edy a weakness or solve a problem in the market? 2. Is it driven by a desire to create a change in the wider world? 3. Or is it there to achieve something more personal – to better the lives of its cus- tomers with real moments of delight and value? However it's defined, it's only worth any- thing if the brand "lives it" for real, for cus- tomers and employees alike. The alternative for Npower is continued decline, because its current market posi- tion is a historical inheritance rather than a strength won by winning the battle for pref- erence. It's a hollow leadership that has very little to support it in consumers' hearts, and could be swept aside if switching were to become widespread. Will Collin, founding partner, Naked Communications The trouble with Npower It's been a tough year for all the big six energy suppliers, but for Npower it has been disastrous. Will Collin looks at what went wrong and lays out what it must do to rejuvenate its brand. Npower's recovery plan On the back of its annual results and a loss of £99 million in 2015, Npower launched a two- year recovery plan. The key parts of this plan are: • Extensive cost savings. This includes reducing the number of direct and indirect employees by 2,400. • Simplification. This involved reducing the number of sites it has from 26 down to three regional hubs and reducing or stop- ping some energy services work. • Improving customer service. A "major set of improvements" has been made to the billing system and modifications to customer service have been made. • Future preparations. This include the launch later this year of Powershop, a fully digital energy supplier in preparation for the smart meter rollout. For more detail: bit.ly/1pZTBpH