Utility Week

28 | 8TH - 14TH JUNE 2018 | UTILITY WEEK Customers Market view N obel prize-winning behavioural eco- nomic theory and the utility industry are not oen mentioned together, but new ideas are always welcomed when they cut costs, increase productivity and help cus- tomers make better choices. For utilities that can't simply cut off sup- ply or use aggressive pricing tools, there is a need to be subtle and sophisticated about how to encourage behavioural change, per- haps even making customers and employ- ees think the change is their own idea. It is possible to encourage users to make little changes that have a big impact. Professor Richard Thaler explains in his best-selling book Nudge that although peo- ple regularly make poor decisions they can be "nudged" into making better choices. So how could this work for utility companies? Here are a few ideas: Customer billing Customer billing is a perfect target for nudge theory. With the possibility of an increase in the number of defaulted bill payments as a result of rising interest rates or a Brexit- related economic slowdown, utility com- panies must act quickly to help customers before they get in to financial distress. By analysing billing payment data to spot trends in late payments, it is possible to create targeted nudges for vulnerable customers. Combine this with credit history data and location-based payment trends – similar sized households in the area, or large employers nearby that have made redundan- cies – and a model could be built that would identify if the customers are at risk of finan- cial difficulty. At-risk customers could then be nudged into seeking help with an early interven- tion. The nudge could take the form of a personalised letter that outlines the help available – supported by statistics such as "X% of customers Y months late on pay- ment get in distress, we are here to help". In this way, vulnerable customers can be offered help and are nudged before debt becomes a problem and costly debt collec- tion is avoided. Demand reduction The power industry has experimented suc- cessfully with nudging customers to reduce consumption. The rise of smart heating con- trols such as Nest, which learn the energy use pattern of each house and its occupants and adjust the temperature accordingly, has significantly cut consumption. The water industry could borrow some of these tactics. How about comparing metered households with their neighbours to inspire a bit of competition? For example: "Did you know the neighbours in your street pay an average of £X less for their water due to lower consumption?" Another interesting example is an experi- mental collaboration between Plymouth Council and Plymouth University under which local residents were shown thermal images of their homes that highlighted the amount of energy that was escaping because of poor insulation. By tailoring the images in the letters to each household, the study is nudging householders into making a change based on their specific circumstances rather than a general warning about lack of insulation. Nudge management At the offices of utility companies, nudge management techniques can be useful to encourage greater productivity across an organisation. Instigating a "no-meeting" day across a company is a perfect way to allow workers to think deeply about the task at hand with- out the distraction of constant meetings eat- ing into the work day. If meetings are taking over, how about making the default meeting time 30 minutes instead of 60, cutting down unnecessary and lengthy sessions? For non-customer-facing workers, this can be taken further. Why not limit or slow down email delivery during a certain period in the day so workers can concentrate rather than feel they have to respond immediately to incoming emails? Where to begin The best thing about nudges is that they tend to be cheap, represent very little risk and ensure a good return on investment. But while nudges look easy, the most effec- tive ones are the product of meticulous, methodological design. A successful nudge campaign will be the result of careful exami- nation of the context in which people cur- rently make decisions, an understanding of the details and triggers of choices, plus knowing what has and hasn't worked in the past. Encourage creative thinking when scop- ing your solutions and then rigorously test, measure and evaluate what works in the real world. The nudge design team oen need a degree of protection from the cut and thrust of operational delivery, which is why David Cameron invited the infamous "nudge unit" (the Behavioural Insights Team) to work across UK government with a long-term man- date and cross-party support. In our view, realising the benefit of nudges will require executive sponsorship and dedicated teams to really drive sustain- able behaviour change. That doesn't neces- sarily mean going it alone, however. The application of nudge theory is ripe for col- laboration. Think nudge not shove – gently does it. Alex Graham and Jamie Harrison, consultants, Egremont Group Nudge customers, don't shove Utilities often can't simply cut off a customer's supply or use aggressive pricing tools, so they must encourage behavioural change in a more subtle way, say Alex Graham and Jamie Harrison. A thermal image can encourage customers to reduce their household energy consumption

• Cover