Utility Week

UTILITY Week 17th February 2017

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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26 | 17TH - 23RD FEBRUARY 2017 | UTILITY WEEK Customers Market view E ngland's water sector is one of the last major regulated UK markets not to be fully competitive. When it opens the non-household retail market to competition in April this year, companies will have to invest in strategies to retain customers for the very first time. Competition could be extended to indi- vidual household consumers by 2020. With Ofwat likely to encourage competition from the energy sector and the entry of new chal- lenger brands, the quality and relevance of communications will soon be the measure of whether incumbent suppliers will grow or shrink. New brands will be able to quickly carve out a niche position in the market. They will also be able to target those customers with the largest bills and lowest risk profiles. This could quickly leave existing suppliers with a higher concentration of vulnerable custom- ers and those that have small bill values or bad payment histories. Getting ahead of the curve by personalising communications will help protect against a mass exodus. This is what was seen in the telecoms sec- tor over 20 years ago when the telephony and broadband markets were deregulated. While the incumbent, BT, had significant historic advantages, there was immediate competi- tion between existing firms in the industry. Then we saw a new wave of more agile, cus- tomer-centric challenger brands who quickly became established, oen through a focus on a specific market segment. Similarly, bigger players from other sec- tors moved in to create consumer-facing tele- coms brands. Now supermarkets offer mobile phone contracts, and TV companies offer broadband. It is an entirely different market, and together these competitors own a signifi- cant market share which had belonged to BT. Telecoms is different to water in that there is a tangible variation in quality depending on price paid. With water and sewage, cus- tomers differentiate brands predominantly on price and service. The former will likely start to converge as competition increases, meaning customer decision-making and loy- alty will soon be based foremost on service. Business customers today are more pre- disposed to switching on this basis than they were at the time of the electricity and gas markets' deregulation in the mid-nineties. The brands that make customer centricity their core focus will be braced to weather the storm. Challenger brands will have a head start in all markets unless incumbents take action now. Challengers will be built from the ground up in the digital era, and the use of big data in their customer service strategy will be second nature. Meanwhile, estab- lished players will be vulnerable because of their remits over a specific region. They do not have systems in place to profile cus- tomers nor extensive retention strategies, because they have never needed them. Big data allows companies to effectively personalise all communications, making them relevant to the customer. Established firms will likely know very little about their customers beyond the bill payer's name, address and payment details. The first step in ordering this data, alongside payment his- tory and contract value, is to gain an over- view of the level of marketing investment needed to suit each customer profile. Using third party data to segment custom- ers even further will enable personalisation. For business customers this means finding out the company's size and its sector. In the domestic world it means differentiating marketing collateral depending on different stages of life – from young families to pen- sioners. Through personalised printed direct mail, email marketing and interactive video, brands can improve the service and present customers with information in a way that makes them feel valued. Making all communications proactive and relevant can also build trust between customers and brands by helping arm cus- tomers with the correct information. This can significantly help reduce in-bound queries and call centre costs. It also enables brands to target customers for life. Financial services firms will invest significantly in student marketing because once someone joins a student account, they are likely to continue to bank with them for years to come. Water firms could create a similar strategy for their business custom- ers by marketing to start-ups and small businesses, building relationships at the beginnings of the businesses' life cycles and adapting how they market to them as they grow. This all begins with robust data. Competition will ultimately overhaul the entire market and new entrants that know customer communications inside out will quickly grow market share. Existing utilities companies will need to establish retention strategies and ensure these are underpinned by data and personalisation to improve cus- tomer service. Those that do so will be in the best position to protect themselves in the short term and seek growth in the long term. Tom Webb, operations director – customer experience, Communisis This time it's personal To retain customers in a competitive water retail market it will be essential to personalise communications – and that means effective big data analytics, says Tom Webb. Key points When the water retail market is opened to competition this year, incumbents' customer retention strategies will be key. In a deregulated market, communications is essential. Customers must be treated as individuals rather than meter points. The water sector should learn from what happened to the telecoms and energy sectors when they were privatised. Competition will come from other utilities and challenger brands. Competitors are likely to try and cherry- pick the most profitable customers and those easiest to serve. Big data allows companies to effectively personalise communications. Using third party data allows customers to be segmented further, enabling even more sophisticated personalisation.

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