Competition forces utilities to implement new customer solutions

Tami Cissna

Associate Editor

There is no getting around it. Energy companies who want loyal customers are going to spend serious money on customer-facing information technology.

Customer systems are costly, and return on investment (ROI) is difficult to prove. But while the high cost justifiably rankles many CFOs, most agree it costs far more to acquire customers than to retain them.

Do energy companies highly value building strong relationships with customers? The fact is, it takes cutting-edge technology to serve them well, serve them fast, every time.

“The big bet in the industry is the customer,” said Marc Jacobson, Andersen Consulting senior manager of utilities industry. “Winning the bet will require utilities to guess right on its customer acquisition and retention strategy, its customer service strategy and its customer-facing systems strategy.”

Experience has proven in other deregulated industries commodity price matters, but it is not the bottom line. AT&T has prospered because it has honed in on customer preferences and focused on managing well its customer relationships.

Utilities in the UK have learned the same lessons. ScottishPower`s value proposition to public utility commissioners in PacifiCorp`s territory, which it seeks to acquire, focuses on promises of great service, backed by financial guarantees. There are no promises of rate cuts. So far, most parties are buying in.

Thin profit margins within a competitive market will place customer loyalty at a premium during the next century, said Greg Galuzzi, president of TMG Consulting Inc., at the CIS Conference in May. “Now is the time to focus on the customer-not after the year 2000 when competitors have a chance to catch on and catch up,” he said. “We have to do something to focus on our customers.”

Though it is extremely difficult to demonstrate cost-benefit, IT is the catalyst that drives an organization`s transformation to a customer-centric environment. Customer-centric organizations will spend twice as much on IT as their non-customer-centric competitors, he said.

“Many utilities that claim to be customer centric don`t provide staff with the necessary tools to provide exceptional levels of service,” Galuzzi said.

Facing who

Of course, the utility must first decide which customers it wants to face. “Depending upon regulatory rules and business strategies, companies can have different combinations of customers, but no one will be `customerless,`” said Andersen Consulting`s Jacobson.

Even a pure wires and pipes company will have RetailCos as customers and will probably have to perform one or more customer service processes. The combinations of customer types companies have determine their customer-facing system requirements.

“If you must have customers, you must manage those relationships,” Jacobson said. For the energy merchant that entails identifying, attracting and retaining the best customers to generate profitable revenue. For the deliverer, it involves balancing service quality and service costs.

Andersen Consulting defines the major functional areas of customer relationship management (CRM) as marketing, selling and serving (Figure 3). Each area needs a customer strategy coupled with customer insight.

CRM yields bottom line benefits by reducing costs and improving operating cash flow through increased revenue, Jacobson said. There are less tangible benefits, as well, such as employee and customer satisfaction and enhanced company image.

Costs are reduced by lessening number of transactions, reducing those transaction costs and avoiding potential future costs. The increased revenue is achieved by increasing the number of profitable customers, improving sales-close rates and improving pricing and margins.

Requirements

A competitive marketplace forces utilities to implement new customer solutions (Figure 1). Sharpening the focus on customer care will require:

– extensive customer information;

– data warehousing capabilities;

– billing as primary communication;

– a sophisticated front-end; and

– customer self-provisioning offerings.

Who are you?

The foundation of providing quality care to customers is knowing them. Energy companies need to understand characteristics of their best customers and how they relate to the marketplace as a whole.

Data warehousing helps a utility to build an environment to house existing and ongoing customer data. The next step is transforming the data into a context and structure designed to guide the business strategy. Understanding customer segments enables utilities to develop strategies for specific pools of customers, or to determine if the segment even fits into its long-term vision.

Tactical steps here include collecting data; inventorying data; performing third-party data enhancement; identifying segments; and marketing to target groups.

“At each customer touch point, you need to exploit the opportunity to gather information,” said Marianne Nosal of IQ2.net, a division of Intelliquest. “Know how your customer wants to be interfaced with.”

With skillful handling of customer information, electric power companies can “own the home,” even segmenting customers into pools-for example, people with elderly residents, people with security systems, or people with healthcare monitoring. “We believe truly knowing and segmenting customers will be a massive revenue generator,” said Cheryl T. Smith, CIO of Key-Span, a communications technology vendor.

Tools of the trade

One of the most obvious opportunities for utilities to bond with current customers is through their utility bills. Internet bill presentment and payment offers utilities a way to offer customers a distinctive value-added service and potentially decrease costs. Handling a bill via the U.S. Postal Service costs between 60 cents and $1.40. Electronic bill presentment and payment can cut those costs to between 35 cents and 75 cents per bill.

Creating a sophisticated front end may run counter to the enterprise resource planning (ERP) movement. ERP vendors do not have the functionality of some of the most cutting-edge CIS vendors, Smith said. “The integration of the front and back office is a dangerous trend. Front-office processes will change at an incredibly fast pace. You want to keep your competitors off balance, so you don`t want to impede your ability to change quickly.”

Self-provisioning is another burgeon- ing customer care trend that benefits both sides almost immediately. “Customer self-service is based on the highly counterintuitive idea that you can simultaneously get your customer to do your work for you (realizing great economies) and get them to thank you for it (realizing enhanced customer loyalty),” wrote Tom Fields in Webmaster Magazine.

It isn`t hard to make a strong business case for self-service systems-efficiencies are gained that justify costs, and companies quickly gain ROI. Self-service mediums include telephone, self-service voice response, fax/mail, self-service Web and kiosks.

Loyalty economics

Nearly half of utilities` spending per customers now is on acquiring customer data and operating the customer information systems (Figure 2).

“Utilities must now balance corporate objectives-operational excellence and customer intimacy,” said Peter Trinz, Siebel Systems Inc. vice president.

The effect of loyalty on financial growth cannot be overstated. A 5 percent increase in customer retention can equal a 25 to 100 percent increase in profitability. “Be customer centric-streamline your processes that touch your customers,” Trinz said.

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