Turning customer satisfaction into returns for Utilities

Having satisfied customers is obviously a good thing and overall, Utilities are doing well in that regard according to The Engagement Opportunity for Utilities report, which found a strong majority of homeowners (70%) in 20 markets around the world are satisfied with their utility providers.

Attaining higher levels of customer satisfaction has also been linked to better return on equity (ROE) and increased profitability, according to a US report authored by Timothy Alan Simon, Commissioner Emeritus of the California Public Utilities Commission.

Traditionally, Utilities have kept their customers happy simply by making sure the lights were on, heating and cooling were available, and water was flowing. But increasingly, providing basic services is no longer sufficient and Utilities must think more creatively to develop deeper relationships with their customers to ensure their loyalty in an environment that makes it easier to switch.

 

Satisfaction, return on equity, and profitability

The utility landscape is in varying states of deregulation across the world but no matter where they are, providers must keep a close eye on ROE and profitability. Thankfully, it would appear that keeping customers satisfied is a sure way to improve these financial metrics.

According to the Natural Gas Utilities: Securing the Future whitepaper, commissioned by HomeServe, there’s “an increase in ROE among utilities who ranked in the top quartile of customer satisfaction one year prior to their rate case; on average, top quartile utilities earned 10.7% ROE, whereas bottom quartile utilities earned 10.1%.”
 


 

The impact is even more pronounced when it comes to profitability. “Electric utilities in the top quartile of customer satisfaction typically report profits 3%-4% higher than utilities in the three lower quartiles.”
 

 

Strategies for that “warm and fuzzy feeling”

In the Natural Gas Utilities: Securing the Future whitepaper, the author asks whether it’s realistic for Utilities to expect “customers to have a warm and fuzzy feeling about the pipes bringing natural gas into their homes or the appliances that use the fuel?” If providers are to increase customer satisfaction, which as we’ve seen, is a key to unlocking performance in the utility sector, the answer has to be yes.

 

A more proactive customer relationship

The first step, according to Edmund Reid, partner at Lazarus Research, is for Utilities to move “away from a purely reactionary model where the company fixes breakdowns as they occur to one which is around monitoring, managing, and maintaining the customer’s home.” What Reid calls the 3Ms approach, is much more appealing to customers and generates much higher levels of satisfaction, he says. So how can utilities implement a 3Ms approach?

 

Home assistance services

There’s growing evidence that points to home assistance services as prime solutions for Utilities to develop stronger and deeper relationships with their customers. It’s no longer just about providing gas, electricity or water, it’s also about being there when something goes wrong and these essential services fail.

In essence, it’s about giving customers peace of mind. Continuous monitoring, management, and maintenance (3Ms) means customers don’t have to live with the constant stress of a catastrophic failure that would leave them unable to enjoy their homes with their families.

HomeServe asked homeowners across the globe why they would consider signing up for home assistance cover. Peace of mind was by far the top reason (71%) followed by the ability to control costs and access trusted suppliers (both near 40%). The importance of peace of mind as a deciding factor varied from one country to the next but it was especially prevalent in China (86%), Japan (83%), and Romania (79%).
 

 

In the US, an analysis of utility customers who bought a home assistance plan shows just how beneficial they can be for Utilities. The satisfaction level of electricity customers increased more than 60% after enrolling into such a programme while enrolled gas customers were more than 75% happier with their providers than those who weren’t. Enrolled customers were also 45% more likely to have a favourable perception of their gas company.
 

 

Giving customers the tools they want

Home assistance plans are a great way to give customers peace of mind and a sure way to increase satisfaction. But increasingly, utility customers want to take charge of some aspects of the 3Ms and many want to do it via mobile applications.

As a result, it’s crucial for Utilities to develop such tools, in-house or through partnerships, to respond to customer needs and preferences. For example, these apps could provide “online bill presentment and payment, energy usage reports or trends, as well as requests for service,” suggests the Securing the Future report.

Mobile apps can also be used to improve customer service and, in turn, satisfaction. HomeServe for example has an app to allow customers to manage their repair experience while Dutch utility Eneco developed Toon, which enables their customers to self-manage their energy consumption.

The report argues that customers nowadays want both mobile and face-to-face interactions. “A good example of this in action is the Mayday button on the Amazon Kindle Fire HDX tablet. This button connects tablet owners with an Amazon customer service rep via webcam technology. Amazon calculates that among tablet owners, 75% of all customer service interactions now arrive via the button. 

All these strategies aim to create that “warm and fuzzy” feeling Utilities should be after. The resulting increase in satisfaction will be a catalyst to improve ROE and profitability.

 

More products mean less churn

If the benefits of home assistance and added value services are not convincing enough for some utility providers, they should also consider their impact on churn reduction. Churn is an increasingly significant threat for Utilities. Long gone are the days of monopolies in most markets and many companies are now providing online switching tools that make the process a lot easier for customers.

In its Consumer Engagement Survey, Ofgem found that the proportion of people in the UK switching suppliers had grown from 15% in 2016 to 18% in 2017, with a third of those (6%) being first time switchers. Overall, the survey also found that affluent customers were the most likely to switch. This, coupled with the fact that households with higher incomes are more likely to be interested in home assistance services brings to light a golden opportunity for Utilities.

Home assistance services not only bring in revenues in the form of monthly or annual subscriptions fees but they also have a major impact on churn.

Convincing customers to commit to additional products, such as smart home offerings, also has a positive impact on churn. In the Netherlands for example, Eneco has seen a reduction in churn of 60% after its customers added smart home services via Toon.

This is supported by an analysis conducted by Centrica, which shows that customers in the highest value segment have a high propensity to hold multiple products and are 20% less likely to switch to another provider. It would appear then that, the more products a customer signs up for, such as home assistance cover or smart home services, the less likely they are to churn.

 

Increasing customer satisfaction should be primary goal

The results of the reports and surveys mentioned here provide ample evidence of the importance of customer satisfaction in order to increase return on equity and profitability in the Utility sector.

It’s clear that the addition of more products, such as home assistance, binds utility providers and their customers more closely creating a more engaged relationship that can benefit both parties. It’s also clear that membership-style assistance programmes can help cement the relationship between a utility and their customers.

To drive forward a satisfaction strategy Utilities should pick their partners carefully, only working with those who understand and can deliver the critical elements of success: customer-centric offerings, valuable benefits, ease of access, exceptional level of service at the points of interaction and effective communications.

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