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UTILITY Week 7th July 2017

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10 | 7TH - 13TH JULY 2017 | UTILITY WEEK Interview "Then there's also the fact that it means there's likely to be water here in 20 years' time and not the opposite," she adds. Affinity for Business's office is nestled within Affinity Water's main office. How- ever, Gillett has ensured some separation from the parent company – a separate book to sign-in at reception, and a locked door with a separate pass code. The office itself is rather small but airy. "If everyone was in, we wouldn't all fit," says Gillett. Gillett estimates that about two-thirds of Affinity for Business's customers automatically transferred from Affinity Water at market opening. And likewise, many of the company's staff have migrated from the parent firm. "There was a team that was responsible for the com- mercial stuff which happened for retail non-household," she says. "Then there were activities which happened elsewhere, like the 'debt team' and the 'correspondence team' and those sorts of things, so we brought those together from the various bits of the business." As the company grew, however, Gillett brought in external people, changing its demographic. "We've obvi- ously been looking for different skills in some places. The people who were here before have been challenged, but in a good way because we're growing. The vibe is pretty positive, everyone's learning from each other. But there are a lot of new people." For now, Affinity for Business employs around 60 people and, although this could increase, Gillet is keen that the company maintain its small size and regional feel, insisting that "big isn't necessarily beautiful". Although Affinity for Business wants to be successful, its primary focus is not growth. "We exist in the market because we believe there's an opportunity, and because we believe that we can do something for customers. I am quite passionate about that," she says, adding that "big- scale national businesses aren't necessarily the answer to every customer's need". "Having a healthy, smaller- scale, good quality offer in a market is really valuable." Examples from other industries have shown that bet- ter customer experiences tend to come from smaller players – the ones that have "decided that customer expe- rience is important". "Some of them have successful busi- ness models, some of them really struggle. I'm hoping to be the former not the latter," she adds with a smile. Tight margins make water retail a relatively difficult market to operate in successfully, and Gillett says she hopes that "all the good will and skills" in Affinity for Business will carry it through and allow it to offer cus- tomers choice. Aer all, she argues, opening the market to competition and everyone consolidating into a few big players "is not choice". Gillett, then, is firmly of the belief that variety is key to a well-functioning market, but: "There is a value in knowing your region, knowing the customers in there, sharing the economy, sharing an objective around that economic growth... I don't know that big is beautiful." Asked if she thinks incumbent retailers – such as Affinity for Business – have an advantage over new entrants, Gillett says not necessarily, because there are pros and cons to each. "Brands are interesting things. If you are Severn Trent and United Utilities and you've come up with Water Plus, there's no connection, but I bet you an awful lot of their customers still think of them as the old brand – for good or ill. If you're a new brand, you have an opportunity to position yourself differently, but again, you've got to generate some awareness around it. So, it very much depends, on lots of stuff." Affinity Water itself has, in the past, been known as Three Valleys Water and Veolia Water. "Where you've had an industry where there is not huge com- mercial awareness because you can't change supplier, there's not huge brand awareness," says Gillett. "Therefore, trying to get the customer to think of you in a certain way will only stick if you've got something interesting to say. "Therein lies a challenge for all of us – new entrant and associate licensee – as to what are we going to do to make our brands distinctive. I don't necessarily need my customers to remember Affinity Water, I need them to think about Affinity for Business in a particular way, and I find that a challenge irrespective of what their percep- tion was previously." In general, Gillett is pleased with how the opening of the market has gone so far and, although as a percent- age of the overall market, the number of switches is "still minute", "at least there's been some". "The worst thing that could have happened would've been a big fat noth- ing," she says. She is also pleased with how Affinity for Business has handled the opening of the market. "I think it's very easy, when you've come from an incumbent position, you could say 'well we've got all these customers, we just need to look aer them, how hard can that be, it's what we've always done'. Well, actually, there is a lot more to it than that." The question, she contends, is whether the market is going to build momentum or peter out. "Realisti- cally when you look at the economics of the world and the stuff that's going on, there's inflation biting, there's loads of uncertainty around Brexit, there's stuff happen- ing to sterling because of uncertainty politically. None of this can you plan for as a business in the market as we are. I bet if you asked Ofwat three years ago what macro impacts it expected, it wouldn't have predicted most of what's happened." And does she think domestic competition will come? "Probably, because it kind of would be odd if it didn't. The challenge is that the incentive for consumers to switch – financially – is tiny. I know it's not just about the financial incentives, but to generate the right work in the industry and the right outcomes for customers, there needs to be a big reason why, and that may be a challenge." However, she doesn't see it happening earlier than 2025. "I don't see how it's going to be a huge priority – either politically or in business – while competing with all the other stuff that's going on. "I think part of the point about doing non-household first was that it was smaller scale, it was a step to learn from and to refine and improve, and then you go for the big-scale consumer thing. You need time for those things to happen, and I don't think there's enough time between now and 2020. There's probably not enough time between now and 2022, really, so where does that put it on the horizon? Maybe 2025, it's all just guesses." All that said, Gillett ponders whether recently beefed up service incentives from Ofwat may negate the need for domestic choice. She says she was "struck" by the service incentive mechanism which, though not perfect, creates a level of competition, with financial benefits and penalties, that "works". "There's a lot more work to be done to really under- stand the benefits. And if we all find it'll only save us £8 a year, we might just stay as we are. Is it the most impor- tant thing? I doubt it." "The worst thing that could've happened [at market opening] would've been a big fat nothing."

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