Businesses increasingly talk about fostering relationships with their customers. It is a well-worn argument that in a competitive global business environment, companies are attempting to re-learn the lessons of village traders and get up close and personal with their customers. The difference is that, instead of a few dozen customers, some modern businesses have literally millions of customers. So nailing that personal touch is no mean feat. Billions of pounds have been poured into customer relationship management (CRM) systems over the last decade, in the hope that an overarching understanding of each customer and detailed, easily accessible customer information would enable consistent customer communication – whether the contact be made by phone, email, face-to-face or through direct mail.
Energy companies particularly face an up hill struggle in retaining and developing their customer relationships due to the low customer engagement nature of the industry. People are simply not interested in their energy providers unless something goes wrong and they need to make contact. This gives some indication as to why customer churn rates are so high, which according to Ofgem stand at over 4 million energy customers leaving in the first 10 months of 2006. That indicates a dramatic rise to over 18% churn rate in energy companies, which has historically seen rates of 12-13%. Whilst moving to a cheaper supplier was sourced as the motivation behind this dramatic shift in the wake of price hikes, power utilities are still under increasing pressure to address their growing customer retention problem if they are to stay ahead in such a highly competitive market.
But how is such a problem solved? And how can energy companies begin to abate growing churn rates? Businesses need to understand the extent to which consumers want to engage with their brands. For some businesses, particularly those where there is either a strong natural need (IFAs, Banks) or emotional attachment (Fashion Retailer, Car Manufacturer), it will be relatively easy to foster strong relationships with customers. Others – and Utility companies are the classic example – will need to work harder to alter the way in which their customers perceive them. British Gas, whose market share dropped to 48% in October 2006, recognise that to sustain profitability, they need to first improve customer offer and service, describing their strategy as ‘improving the quality of our service is a critical short-term priority’. Alongside their drive for restoring customer faith in their services, British Gas are also diversifying their brand and bringing in other companies so as to provide a more attractive package and a stronger emphasis on consistency. By broadening the utility offering and providing a higher number of products per customer, the chances of defection become less likely as brand loyalty increases.
This is also the case for telecoms suppliers, who face an environment of cutthroat competition and traditionally high customer defection rates, with research showing that mobile operators suffering annual customer churn of 33.4%. Despite a relatively robust level of investment in loyalty activity, the sector has still not managed to achieve a solid basis of customer satisfaction, and with a historically fickle customer base, telecoms companies face rising inertia. To overcome this dormancy and increase their appeal, telecom operators are introducing more mobile phone products into the market place, which our technology preoccupied culture are willing to pay for. A report recently published by Telecom Express revealed that 50% of UK consumers now pay for mobile phone content, with services such as ring tones, telephone directory and “Where’s My Nearest?” information all deemed worthy of commanding hard cash payments. This shows that by combining channels that naturally reflect the behaviour of the consumer, mobile operators are gaining market advantage and brand presence. By using affinity collaborations, companies are starting to successfully nurture relationships with their customers, building a brand that they are less likely to defect from.
For the utilities sector to really understand the inherent interest of their customers and encourage an ongoing dialogue and mutual interest, the focus needs to be on data driven customer service. Recent research reveals that what customers really value is not brand advertising, loyalty schemes or even celebrity endorsement, but good old-fashioned contact, with informed and friendly staff that show real knowledge of the brand. Organisations that give staff or agents training to become effective brand representatives, and who then support those staff with individual customer data that help them make conversations more relevant and compelling, are creating customer value that also generates commercial return for the company. Customers who obtain value are four times more likely to buy, on average. The research also showed which sectors are delivering customer value most successfully, and which are not. Utilities were found to be the worst at customer service – perceived by the respondents to offer the least customer value at 24% below the average. This will change as more products are offered under a single utility brand to the customer base.
There is clearly a serious demand for utilities to invest in customer development initiatives and use data analysis to identify weak areas of customer service. By analysing where the problem concentrations are and where the majority of queries are coming from, utilities can start to form a model that spots problems early and shows where to increase effort. Both energy and telecom utilities need to repeat these analyses every year to refresh customer service data and see where changes have occurred. Simple procedures, such as spotting the nature of customer complaints and how these are handled make predictions much easier and enable companies to become more efficient without potentially unnecessary investment.
Utility companies need to continue to find ways of adding interest to the brand and making the experience of being a customer something that promotes loyalty, with tangible added value in order to reduce defection rates and improve customer engagement. Similarly, telecoms can no longer neglect to cultivate long-term relationships with their customers and simply play on the natural interest of the consumer. By enriching the market with further content services, alongside close attention to relationship building, defection and churn rates can be stemmed and a warm bed of loyalty achieved.