Restructuring is unfolding at various stages across the United States and around the world. The consequence for utilities is a transformed model for customer relationship management (CRM). Those companies operating for the first time in a competitive environment are realizing the importance of satisfying their customers. More are realizing immediate opportunities to use CRM to provide better services at reduced costs and to differentiate themselves.
While CRM has historically been a low priority for utility companies, the marketplace today is tougher, the environment more complex and customers more informed and demanding. As the industry continues to restructure, executives are beginning to examine CRM in a new light and look for ways to optimize existing investments, not only to attract and retain customers, but also to fuel additional profits.
An average utility, with $2 billion in revenue, could increase its pretax profits by $250 million to $360 million simply by improving key CRM capabilities, and the profit increase could be even greater for larger utilities, according to a study of utility companies by Accenture.
The study, Reaching New Heights in Customer Relationship Management: What Every Utility Should Know, is one of the first to quantify the value and impact of CRM capabilities on financial performance. It offers practical ways for identifying CRM opportunities and efficiently prioritizing business investments to enhance profits.
Identifying areas of impact
Among the key findings: CRM is a key differentiator between average and top performers in the utility industry, and the right investment in CRM capabilities could have a direct impact on a utility company’s bottom line, potentially generating hundreds of millions of dollars in additional profits. The research also found that 80 percent of the difference between high and low pretax profits among the study participants could be explained by the emphasis these companies placed on capabilities in three key CRM areas: customer service, marketing and sales.
The research, which examined 58 CRM capabilities across the three key CRM areas, found that improvements in 31 of these capabilities helped increase pretax profits. The two CRM capabilities within each of the three key CRM categories that were shown to have the greatest impact on profit improvement were marketing (channel strategy and promotion strategy), customer service (customer service execution) and sales (sales strategy and sales execution).
For example, the research demonstrated that if a $2 billion utility company were to move from “average” to “top performing” across all of the 13 marketing capabilities, it could increase its pretax profit by approximately $190 million. For larger utilities, the profit improvement associated with such a move could be even greater.
Interestingly, the North American utilities market has been very focused on cost management as the key component of CRM. This has been largely driven from the regulatory climate and the historical traditional utility customer service mindset. As markets become more open, successful retail operations will require very strong capabilities in marketing and sales.
To be successful in these areas, companies will need to reach beyond their in-house capabilities. Bringing in key skills from other competitive industries will be a probable route to creating a value-driven retail culture. Transitioning from a “right-to-serve” mentality to a “privilege-to-serve” mindset will be difficult for an industry that has been immersed in the entitled state for more than 100 years. Companies that diligently focus on CRM will understand their customers best and will be in a position to improve their profitability.
Robust capabilities becoming a necessity
As CRM has evolved over the past decade, many companies believed that pure technology investments and/or new service offerings were the answer. Recent CRM reports and articles, however, have highlighted failed
initiatives and unrealized returns on investment. CRM investments are not just about technology, but also about strategy influenced by competitive dynamics and jurisdictional market rules in the utilities industry. Companies must therefore focus on all of their capabilities–from strategy and business processes to technology and workforce issues–to excel in marketing, sales and customer service.
What are some of the forward-thinking energy companies doing to improve customer profitability? The progressive energy retailers and utilities are aggressively developing capabilities in four key areas:
“-Developing customer analytic capabilities to determine which customers to pursue with which products and services;
“-Developing channel strategies and interaction models that create a seamless experience for the customer while generating economic value for the company;
“-Shoring up service capabilities through outsourcing and/or internal operational improvements to enable the transactional customer service components to be executed exceptionally well;
“-Developing sophisticated supply strategies to secure the energy commodity at attractive prices.
The future of CRM for utilities
If energy markets and regulation remain fragmented in the United States, those utilities and retailers with flexible CRM capabilities will be able to adapt to a variety of market rules and processes to profitably conduct commerce. Regulated utilities would likely focus primarily on providing excellent customer service at reduced costs, with limited emphasis on marketing and sales, while non-regulated retailers will focus on marketing, sales and service.
Regulated utilities and non-regulated retailers alike will focus holistically on the entire customer experience. The ability of utilities to generate significant amounts of pretax profits through focused CRM strategies will drive new accountability models within utilities as well as new customer service models. Retailers will focus on customer segmentation and channel strategies to get the right product/service bundles to the right customers at the right time.
As customer expectations grow and technology advances, the next wave of CRM will provide customers with a seamless, integrated experience across all relevant channels. As the evolution continues, CRM will focus heavily on customer insights, channel strategies and customer interaction models to support new ways of providing excellent and profitable customer relationships.
Stu Solomon is Accenture’s North America Utilities Retail Managing Partner. He has focused on helping companies significantly improve both their customer-related capabilities and the associated economic results.