By V. Rory Jones and Stephen L. Malloy, Planet Ecosystems
Ask about customer engagement in the utility sector these days, and anyone will tell you it’s the new frontier in demand reduction and climate change. It’s hailed as a new hope that promises a new breakout in energy efficiency penetration.
Unfortunately, it’s this type of thinking that has stifled progress in energy efficiency penetration to date and seems to threaten customer engagement initiatives. Consumer engagement efforts today are too much about prioritizing policy objectives and not enough about aligning outcomes with consumer wants and needs.
Value Proposition Isn’t New
Understanding and serving consumer wants and needs isn’t new. It’s a well-established capability that has long been practiced and perfected by most consumer-focused business. Some argue, though, that utility services remain an exception, and the increasing value offered with new information services in other consumer markets (e.g., mobile remote control, peer consumer reviews of vendors, etc.) has led to customer frustration with the lack of progress in new value sources from utilities.
In retail, for example, success depends not just on price and inventory management but on things such as location, the return policy (customers are more likely to buy if an item can be returned), the ease of the transaction, etc. In telecom, success used to depend on call completion, but now it depends on being able to choose equipment (phones), level of service (texting, pre-purchase quantities, voicemail), bundling (cost amortization), etc.
So why is “always on” enough for utility services? It’s now not enough. Other value propositions should be associated with utility services, and those propositions readily lend themselves to customer engagement initiatives. It turns out those potential value propositions are well-aligned with policy objectives; it’s just a matter of offering orientation. Policy objectives are not the driving motivator for most consumers.
What could new utility service value propositions be? Let’s start by looking at what customers might want from their utility systems:
- Comfort at home: warmer in winter, cooler in summer;
- A healthy environment in and out of the home; and
- Automated management: adjusting systems when away from home, etc.
And what do consumers want when dealing with their utility systems?
- Spending less with no or little outlay and no noticeable service degradation;
- Help evaluating the purchase of appliances and equipment or getting them fixed; and
- Help understanding and evaluating utility service alternatives in home improvement and other decision-making.
Home utility systems mean comfortable, easier, even healthier living conditions, and they should mean readily manageable spending. The potential to deliver high-value propositions from utility services are unusually expansive compared with most consumer services.
Value of Customer Value Propositions
Any family with a few teenagers will find that upgrading to a new efficient washing machine is worth a few hundred dollars net over the life of the machine. Unfortunately, most families don’t know what the opportunity is with the needed degree of confidence and postpone their decision indefinitely.
That net few hundred is a flawed estimate, however, and it understates the opportunity. In calculating the net benefit, even the experts use an average electricity price around 10 cents per kilowatt-hour. Even though tiered price schemes in many utility territories mean the applicable price for the marginal consumer decision is the marginal price–usually between 20 and 40 cents per kilowatt-hour. Those “experts” calculate the net “few hundred dollars” based on saving about 2 cents per kilowatt-hour when they should have been using a savings of 12 to 32 cents per kilowatt-hour.
The impact of this correction is profound. The upside from a marginal decision is actually a few thousand dollars net. The case is now compelling–even urgent. No wonder there’s a lack of consumer confidence.
Reconfiguring utility systems and including opportunities in behavior change, efficiency retrofits and generation retrofits is often worth tens of thousands of dollars net. The trouble is it’s a highly complex computation that utilities are, today at least, best positioned to do. They already have access to the usage information needed and the software that can provide customers with customized answers.
Savings is just one value proposition, and it has much potential to be valuable and compelling. Consumers respond to many powerful factors: some based on emotions, some on convenience and more.
The common factors are that they are largely information-based and readily delivered by utility providers, and the net result of offering them is that they motivate customers to take actions consistent with policy objectives. The only real change needed is that utility service provision is devised from the customers’ viewpoints rooted by the customers’ wants and needs.
Who wouldn’t change to time-of-use pricing and change the timing of their pool pumps to off-peak hours if they knew it would save thousands of dollars a year? They need their utilities to provide the information as a service and help build confidence. It wasn’t long ago when telecom insiders professed that smart phones would be too complex for most consumers. And how wrong they were! It’s time for utility service providers to step up.
The Engagement Imperative
Value proposition outcomes are well-aligned with policy objectives, but it’s increasingly clear that utilities are getting another, more compelling reason to re-orient consumer engagement around customers’ viewpoint: customer loyalty.
No longer is the utility business model only about truck rolls and “always on.” Sure, consumers want a reliable supply, but now that’s an expectation. It’s not enough. The focus on customer satisfaction measures and goals is a poor technique to meeting the expectations of today’s customers, and utilities likely would find it more useful to start thinking in terms of competing for each customer. Competition is here, and it will intensify and spread into every territory. Competition comes in many forms:
- As regular retail competition, as in Texas.
- As community action alternatives, such as Community Choice Aggregation (CCA) and other community-driven entities that are taking over the customer relationship. Several thousand exist across major U.S. population centers.
- As nonutility player offerings, after seeing the consumer value propositions available through new utility services, as evidenced by Comcast’s recent entry into Pennsylvania utility markets and all those security vendors’ and telcos’ positioning to capture utility consumer relationships.
- As straightforward substitutes for utility services, such as distributed solar, wind and geo generation.
Competition for the consumer relationship is increasingly present and becoming a factor much faster than most utilities appear willing to respond to. As with so many other markets before, the incumbents risk losing large, critical parts of their business because they refuse to recognize the implications of market inflections. Challenger utility service providers are turning to providing consumers with the information they need to see the merits of switching to their services.
Perhaps most urgent, general consumer expectations are rising rapidly as they see the benefits of a range of information-based services from elsewhere (e.g., cable and cell phone services, etc.). In the coming years, it will be difficult to maintain high consumer satisfaction with only the promise of “always on.” It will not be enough to prevent an agile upstart from taking customer relationships by promising lower bills or other propositions consumers value.
Utilities that recognize the higher-value role their services can play in their customers’ lives will have an easier time improving satisfaction, reducing consumer churn and expanding business opportunities. Incumbent utilities are best placed to deliver such consumer wants and needs with smart grid and other advanced information analytics available.
Although the incumbents don’t seem to see the opportunity, the competitive retailer providers do, as do CCAs, solar vendors and just about every other challenger.
The Little Red Brick Building
Historically overlooked in the standard utility service operating model schema is a little red brick building tucked next to the customer’s premise. While much valuable effort goes into power plant, transport and subsequent distribution operations, the little red brick building has had the much less sexy role of sending out bills and fielding customer calls–seemingly always the source of negative news.
But that is changing. As the new world takes shape, the little red brick building has the greatest strategic value: finding and delivering new sources of value to customers. That role drives more than customer satisfaction; it forms the basis for customer decisions from where future utility services will come based on the provision of features customers value. There is a legitimate assertion that transmission and distribution operations will not be subject to competitive forces, but services from the little the red brick building easily could be provided by multiple providers. And they don’t have to be incumbent utilities.
Little red brick building services are even being expanded to include helping customers get more comfortable at home, get automated utility system management, get help buying and repairing appliances and equipment, and more. All these value-added services stem from the powerful position the little red brick building has in the formula: possessing the customer relationship and being able to leverage all the smart grid data that comes with it for new high-value services.
With the advent of information-based products and services, together with the increasing availability of choice, incumbent utilities must shift from their traditional orientation to more proactively understanding consumer wants and needs as other consumer markets do.
V. Rory Jones is CEO of PlanetEcosystems, which he co-founded after two decades of leading services organizations. He has an MBA from The University of Chicago, a BSc from City University London and is a thought leader in markets and finance. Reach him at email@example.com.
Stephen L. Malloy is senior vice president of sales and marketing at PlanetEcosystems, which he co-founded after 15 years as a serial entrepreneur and leader in business services. He has an MBA from The University of Chicago and a bachelor’s degree from Carleton College. Reach him at firstname.lastname@example.org.
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