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UTILITY WEEK | 2ND - 8TH JUNE 2017 | 25 Customers Market view T he strong focus on customer engage- ment was one of the notable successes in the new approach used for the last water price control (PR14). Companies were encouraged to pay much closer attention to what customers want, both in terms of the overall business plan and the specific outcomes and performance commitments. While not all aspects of PR14 engagement worked perfectly, there was general agree- ment that something important had started. Ofwat's recent report, Tapped In – From Passive Customer to Active Participant, simul- taneously reinforces the importance of con- tinuing customer engagement and further raises the bar. The report challenges compa- nies to engage customers as "active agents in the water experience", working with custom- ers to find ways to innovate to deliver better, more resilient services, at a lower cost. On the face of it, Ofwat's report is a timely challenge, encouraging companies to build on the good work already being done and stretch their thinking further. However, while there is undoubted potential in the report's proposals, to unlock this potential compa- nies will need to overcome some fundamen- tal challenges. The key challenge stems from the fact that customers have already begun to change since the last price control and now have much more power. The arrival of hyper- connectivity, through the combination of technical advances in mobile communica- tions and the internet, has enabled a funda- mental change in the way individuals and companies interact with each other. This has led to the emergence of significant new behaviours, for example customers trust- ing the opinions of people they have never met, either through forums or social media channels. This shied the balance of power between companies and customers, creating what we have called "Customer 4.0". In the water sector, the focus on cus- tomer engagement and outcomes at PR14 helped move the relationship with custom- ers to Customer 2.0 and in some aspects Cus- tomer 3.0. But crucially, the customer-centric world that the Ofwat report envisages is still focused on the services the companies pro- vide. It does not go far enough in shiing the focus to being truly customer led, putting the goals that the customer wants to achieve at the heart of thinking about what services to provide and how to deliver them. In a Customer 4.0 world, no amount of engagement on the water sector's plans, or the latest innovative technology offering for water saving, will interest customers if it is focused on the water sector. It has to be focused on the customer and what they want to achieve – areas such as personal lifestyle goals, being able to pay all their household bills, or safety and security in the home. Even though there are still monopoly elements that inhibit some aspects of cus- tomer choice, water company customers are already used to living in a world of empow- erment and choice. Reorienting and funda- mentally rethinking an approach to respond to this change is already being used across a number of sectors. Organisations in the financial sector like HSBC Premier are talking to customers about their life goals for invest- ment rather than promoting particular prod- ucts. And retailers like asos.com are going beyond brand promotions and asking their customers to co-create fashions and loyalty to their brand, extending their own systems and platforms as social media outlets. Understanding the range of customers and customer goals is the first step each water company must take. It is important to recognise that this is not traditional customer segmentation using standard measures. It requires a segmentation based on a much wider range of factors and that is aligned to customer goals – such as water affordability or reducing day-to-day stresses. These may then need to cut across traditional meas- ures such as age, income or geography. This has the potential to identify both significant change in how existing services are defined and provided, and customer needs which are not currently being met. The Ofwat report and its drive towards greater customer participation and the key focus on innovation is welcome. There is no doubt that successful innovation can deliver benefits for customers and companies alike. But if the innovation does not drive the tran- sition to a customer-led universe, "tapped in" risks becoming "trapped in", creating an approach that customers simply find irrelevant. Greg Beard, business design expert and Marc Tritschler, water sector expert, PA Consulting Group Tapped in or trapped in? Ofwat's efforts to mandate customer engagement are being overtaken by the evolution of Customer 4.0. Greg Beard and Marc Tritschler say water companies must get ahead of the curve. An example of a customer-led approach – water affordability Consider the customer-led goal of "ensur- ing access to affordable water charges (for customers in water poverty)". Instead of asking customers how social tariffs or other affordabil- ity related schemes should be structured, the company should ask questions such as "what would make access to affordable water charges easier?" What impacts the accessibility of affordable water charges? Awareness of the availability of such schemes clearly has an impact, as does the variety and complexity of the schemes on offer. The eligibility criteria also has a bearing on accessibility, both in terms of ensuring the relevant customers are entitled to support and also in terms of ensuring that they can easily find out if they qualify. So what could a water company do to help achieve this goal? It could provide simple, affordable tariffs that are well promoted, easy to understand and where eligibility is clear. The process for signing up for such a scheme, and remaining on it, could be made as simple as possible for all relevant customers. Another customer goal is to be on top of all their bills and understand all their utility debt. A water company could join up with other util- ity providers and help customers across their services rather than forcing them to choose between the debts they have with each utility.