Insight Report: Enabling customer-led innovation
Utilities want to innovate in a way that benefits and engages their customers. But this ambition faces challenges shows a study from Utility Week in association with Wipro.
It would be hard to find a utility company of any sort whose corporate rhetoric does not speak of improving customer experience. Yet when it comes to using innovation to make that happen, not everyone is up to speed.
“The culture is part of the problem – the ways of working at these organisations,” says Steve Jennings, UK power and utilities lead at PwC. “The incumbents have come from an environment where you didn’t need to be innovative to succeed. Now innovation is a core capability that’s required of them.”
Whether it’s smart technology, improved and more streamlined contact centre interactions, automatic voice recognition (AVR) systems, or the “gamification” of energy and water usage to encourage consumers to cut down, utilities are striving to find novel ways to attract new business and improve the experience of those they already serve.
Furthermore, with vulnerable customers representing an ever-larger group, enabling them through the innovative use of technology could be both a boost for business and create genuine social change.
But what are utility companies doing on the ground to make their innovation efforts genuinely customer-led – sensitive to their behaviours, needs and desires? What more can be done? And what are the barriers, both for customers and for the innovators themselves?
On the customer side, a PwC report from May 2016 carries a stark message. The consultants’ research showed that, at the time, 72 per cent of people believed they were unlikely to introduce smart energy technology into their homes in the next five years. However, once the technology is there, customer experience improves, with 81 per cent of people noticing a positive impact from smart heating and 95 per cent seeing benefits as a result of installing smart appliances.
“There are a relatively small number of people who are prepared to pay for this technology, but a high number who, once they have it, think it’s fantastic,” says Jennings. “Overcoming that resistance is key. Once you have a delighted customer, you have the opportunity to monetise that delight.”
From a business point of view, the challenge boils down to something more prosaic: boosting the bottom line and justifying the kind of investment needed.
“Everyone is asking what more they can do,” says Jennings. “How can I grow revenue and make the most of the tech opportunities that are available through distributed generation, connected homes, smart devices? Or how can I be more cost efficient?”
Jennings gives an example of a way in which some companies get it wrong: “One of the common misconceptions is that by moving people to digital channels, your costs of service will go down. What it actually means is the type of queries you will deal with will be different.”
When it comes to vulnerable customers, overcoming the resistance to take up technological innovation is even harder, according to Jennings.
“It’s more difficult as they tend to be less engaged. Intuitively you have to say if the general population is reluctant to spend to save, then the poorer customers will be even less likely to.”
Not all vulnerable customers are necessarily poorer, however. And it’s moving away from treating any group as a homogenous mass which will be crucial to engaging more effectively with them. Indeed, technology and its ability to capture more and more data about customers as individuals could be key to achieving truly customer-led innovation that leads to bespoke – and therefore better – experiences.
“Customers are not some amorphous group, all with the same needs,” cautions Suleman Alli, director of strategy at UK Power Networks. “They are very diverse so you have to really know and understand them and what their needs are from a distribution point of view.”
Keeping it simple
For an energy distributor, often these needs can be quite simple, says Alli. Technology and technological innovation should therefore be used to simplify processes for customers.
“You shouldn’t be thinking about technology first; in the case of supply interruption and fault, for example, technology should be used to support,” explains Alli.
“We have people that interact with us because their lights have gone off. They want information really quickly and a commitment from us on when their supply will come back on. That type of customer doesn’t want to have a laborious process or interaction with us. They want to tap into Google: ‘power cut’ and their postcode.”
Alli believes the utilities sector can learn from the retail sector when it comes to designing customer experiences: “We’re just taking the best user experiences and thinking about how to apply them to a digital context. That’s all we’re doing. Your interaction with a website should be very similar to your interaction with those best consumer websites.”
According to Alli, learning about what type of innovations will be welcomed comes down to knowing your customer better. Sometimes, as with an emergency pack for vulnerable customers that UKPN launched in January, technology might not even play a part [see box on this page].
“Don’t just introduce technology for the sake of it,” says Alli. “Instead, really try to understand what drives customer need and therefore how technology can support that.”
The irony is that the easiest way of harvesting customer data – and in turn becoming better equipped to service your customers – is through the kind of technology that companies are trying to encourage their customers to use in the first place. As PwC’s Jennings puts it: “More data means knowing more about the customer so you can sell them more.”
It’s something of a virtuous circle, but it requires take-up from customers first. So if that level of mass adoption is still some years away, how else can information be captured?
James Robbins, chief information officer at Drax Group, thinks the energy sector for one “missed a trick” when the market was privatised in the late 1990s.
“It was a different era when industry switching was set up,” he says. “It was all dial-up so you wanted to transfer as little data as possible; we missed a trick because [now] we haven’t got a central hub. Distributors have got their own database and retailers have got a separate database.
“Retailers used to think of that data as their own IP. But we’re in a different world where we’re much more open about data whether we like it or not.”
Knowing the customer
Drax itself is building web-based interfaces for business customers of its energy retail arm that will allow the company to share data about customers’ usage and benchmark it against similar businesses. The tool is only in the build phase, and Drax is exploring how to share the interface with customers. However, similar schemes are already up and running in the consumer space, for example in the form of First Utility’s My Energy app.
The app allows users to compare energy usage of similar homes in the area (see First Utility box, p22). According to PwC’s Jennings, it’s an example of how smaller, nimble, independent players are more ready to disrupt the market.
“What has happened in the domestic energy retail space is [initially] the independents came in and offered a lower price,” he explains. “Now, as competition has got fiercer and margins have got smaller, switching becomes based on differentiation in another form.”
Robbins agrees: “Ultimately we’re probably all searching for another model. If you’re new you can get customers to switch by offering a good price. What we’re offering here is for people to pay a premium rate but by partnering with the right company they could end up using less.”
Robbins only recently joined Drax from Northumbrian Water, where he also held the chief information officer role. In the water sector, he believes there is less need for “radical change”.
“The model there is kind of working,” he adds. “There’s less excuse for water companies to not know their customers because they’re a monopoly.”
Nicci Russell, managing director at Waterwise, agrees that the water companies’ monopoly status in the domestic market is “the big difference” when compared with energy retail. But she thinks that those companies still have a way to go before they can really make a difference to customer habits.
Southern Water installed 450,000 smart water meters across homes in Kent, Sussex, Hampshire and the Isle of Wight, which has cut water use among its customers by more than 16 per cent. But Russell says water companies’ overall spending on smart metering and retrofitting is “still a drop in the ocean”.
She thinks that part of the problem is lack of interaction on the customer service side, although some providers are taking steps to address this issue (see box – Northumbrian Water, left).
“If they start engaging with customers on water efficiency, they can really work out what customers want to see. The key thing we have been pushing is to turn passive consumers into active participants. It’s good for the company but it’s really good for the customer as well as it allows them to reduce their water use.”
Ofwat is also making moves to try to increase customer engagement, while start-ups such as Advizzo are showing how specialised software can gather data on water usage to deliver savings to consumers and businesses.
Cracking the market
Often it takes a disruptive technology or innovation to bring about real change in behaviour. But in a utilities market dominated by so many big beasts, this has its own set of challenges.
“The complexity of that world can make it difficult for smaller players to bring their offer to the market,” agrees Eric Brown, head of innovation at the Energy Systems Catapult.
“There is quite a lot of policy uncertainty, therefore innovators and their investors might not have the ability to price the risk of investing, and that creates another type of issue.” Brown cites the government’s 2015 U-turn on feed-in tariffs for solar PV as an example: “It was there and then it wasn’t there and that type of thing creates a reluctance to invest.”
There are also “commercial barriers”, he says, and these often involve procurement. “Smaller companies find it difficult to sell to big operators because they have certain requirements of their suppliers, such as level of insurance or their balance sheet [strength].”
The Energy Systems Catapult tries to help start-ups and small businesses understand and overcome some of the difficulties they are encountering in the market in any way that can make a difference. Ofgem’s Innovation Link, launched last December fulfills a similar function.
“There are some technical barriers,” explains Brown. “Some innovators have really good ideas but don’t understand how it fits into the bigger picture, as opposed to how their particular piece works. If we look at the smaller players, particularly, it’s quite difficult.”
Furthermore, when it comes to getting genuinely innovative technology to the customers that need it most, another barrier appears: cost. Energy Systems Catapult is carrying out work to better understand the nature and extent of fuel poverty and how innovators can reach the most vulnerable customers. For Brown, the difficulty here encapsulates the problem: “Some of the technology – whether it’s smart metering or whatever – which would genuinely help the fuel poor – tends not to be accessible because of the cost. The irony is that they can’t get access to the benefit you want to deliver.”
That’s why, for him and others, innovation isn’t just about the latest app or piece of kit, it’s about how it can be integrated into a bigger, more complex market to make a real difference.
“Integration is a hard topic,” concludes Brown. “It’s much easier to go away and invent a product than think about how it is integrated into the whole picture.”
First Utility’s My Energy
Operating as either a feature on our website or mobile app, My Energy gives customers personalised, relevant insights into their usage and how it compares with others, as well as energy efficiency tips to let them know what they are using and how much they are spending.
It incorporates ‘widgets’ that allow customers to gauge usage against similar homes and see which appliances are the most efficient/energy hungry.
First Utility describes the project as “very much a joint effort” with its customers, creating a constantly evolving database.
“From the very beginning we were clear that to be a success it needed to have customer input and feedback embedded in its DNA, which is why we have a number of approaches to engage our customers,” the company explains.
As with UK Power Networks’ emergency pack (see box), My Energy was developed through a series of focus groups to understand how customers think about energy efficiency. In addition, First Utility has created an ‘Alpha Group’ of highly engaged customers who act as testers for new products and innovations.
In a further bid to draw out more customer engagement, every page and widget on My Energy features a feedback button to prompt users to say what they like and what they would like to see more or less of.
One feature which came from customer feedback shows smart meter customers their usage by hour in a heat map of the week. It was developed in response to demand for a simple way to view detailed usage information and times of peak consumption.
A further innovative feature of the app is that it provides the option of showing information about usage in monetary form, showing customers how much they’ve spent on the assumption that kilowatt hours are a confusing concept.
So far, My Energy has engaged with 575,000 customers, more than half of First Utility’s customer base. That level of engagement helps the company to “build a very robust model around comparison data”.
UK Power Networks’ vulnerable customers emergency pack
Launched in January 2017, the emergency pack was designed to help vulnerable customers be better prepared when faced with a power cut.
The pack, which contains items including a plug-in the-wall torch that automatically switches on when there is a power cut, a glow stick and storage bottle for vital personal and medical information in the event of an emergency, was designed after a series of focus groups held with a selection UK Power Networks’ customers.
UKPN director of strategy Suleman Alli says the pack is an example of how innovation does not have to involve technological breakthroughs. “We had a focus group and co-designed an emergency pack with them,” he explains. “That’s got nothing to do with technology but it’s still an innovation.
“In consumer technology, the big phrase is co-design; we’ve just taken that approach and applied it in other areas of our service.”
The hope is that by involving vulnerable customers in the design process, more will make use of the pack and it will be a more effective tool when the lights do go off.
Alongside the pack, UKPN has introduced a free priority services register for customers who may need additional support in a power. This could include older or disabled people, customers with dementia, or families with young children.
Customers on the register can access extra services including a 24-hour priority phone number, a dedicated team who will update them during power cuts, tailored support such as home visits and hot meals where appropriate. In some circumstances, registered customers will receive a free overnight hotel stay, including transport.
“Customers are not some amorphous group, all with the same needs. They are very diverse so you have to really know and understand them and what their needs are from a distribution point of view.”
Suleman Alli, director of Strategy at UK Power Networks
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