The open water market is an opportunity for energy companies
The opening of the retail water market offers energy companies the chance to come up with a true multi-utility offering, but Nigel Baker warns that they must be aware of the potential pitfalls.
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With the water market set to open in just a few weeks, now is the time to contemplate what the new competitive landscape might look like and evaluate the threats and opportunities facing new entrants, along with incumbents.
While we can expect to see – and indeed already have seen – a number of mergers, acquisitions and consolidations of existing incumbents, it is the potential of new entrants from other sectors that is worth keeping an eye on. The possibility of energy companies entering the market is one area creating interesting discussions. We already know a handful of energy companies are watching the market closely and considering expanding their dual fuel offering into a true multi-utility customer proposition.
Whether these businesses jump right in, keep an eye on developments before committing, or even wait until the likely opening of the household market, it is set to be an interesting period. But, for those energy companies considering entering the water market, what are the key considerations to bear in mind?
1) Understanding the wants and drivers of individual water customers
While it is easy to get excited about the possibilities, a market entering a brand new phase of development will inevitably be subject to hurdles and growing pains. It therefore could not be more important to have a deep understanding of customers and their individual wants and needs. However, fully understanding the requirements of such a varied customer base – large corporates, small and medium-sized enterprises, small businesses, multi-site businesses – will not be easy.
Some customers might want self-service options, rich data on their usage, and efficiency indicators, whereas others might value tight account management and great customer service. While energy retailers will be used to segmenting their customers, a deep understanding of the specific nuances of the water sector will be vital in order to add true customer value.
2) Using the right technologies
Companies looking to break into the water market will need to consider the fact that billing water customers will bring with it significantly different challenges to those they currently face. Therefore, a water-specific billing engine that can bolt on to their existing solution may need to be deployed to ensure accurate and reliable customer billing.
Businesses need a system in place that equips them with the tools needed to compete effectively in the new market and assists them in offering added value to customers. It is essential that the billing solution can interface with the market operator, enable consolidated and multi-site billing, and provide insightful customer data that can be used to complement the customer service function and drive continuous improvement and service innovation.
3) Balancing technology with human interaction
To provide a well-rounded service, retailers must maintain a consistently high level of customer service across multiple communication channels – striving for efficiency across and between different online and offline channels. This will not be a new concept to energy companies, but what will be crucial is ensuring the customer service team has water sector knowledge and experience and is able to handle water, sewerage, metering and billing and charges contacts effectively and efficiently. Clearly, as margins will be extremely tight in the market, this will need to be achieved at a low cost to serve.
4) Strong wholesaler/retailer relationships
Strong partnerships between retailers and wholesalers will be critical as the market opens, to avoid disruption in the customer journey. It is not difficult to foresee customers becoming confused about who they need to contact when they experience a service issue such as low water pressure, or an incorrect meter reading. Ultimately, it is up to the retailer to ensure they have a robust communications strategy in place with the wholesaler to avoid confusion and ensure the focus remains on the customer.
5) Tackling cash flow issues
The age old issue for companies in most sectors is debt, and the water sector is no exception. While incumbent water companies may fully understand the issues and challenges associated with water debt, newer entrants might not. Given the low margins in the market, retailers incurring debt from non-paying customers could easily run into cash flow issues.
Remembering that the wholesaler must be paid for the water they provide, no matter what, it will be important for retailers to weigh up which new customers to accept, through accurate customer profiling. They might decide not to take on those who are badly in debt, or in instances where customers are already on board, focus on early intervention to ensure debt is promptly addressed and does not escalate.
Unlike the energy market where prepayment meters can be fitted, water retailers are not able to use this non-payment sanction, therefore cost-effective collections approaches will be needed, while balancing activities with customer retention strategies.
Ultimately, it is an exciting prospect that as Open Water pushes full steam ahead over the next few months, the market is set for big change, and possibilities are plentiful and varied. However, energy companies looking to take the plunge should recognise that remaining agile in an ever-changing marketplace, and truly understanding the nuances of water customer service, will be key to success.
- ADSM and Peel Water become latest water retail licensees Two more new entrants granted permission to participate in open water market, bringing the total to 22
- View customers as active participants in water sector, says Ross Water firms urged to think “differently and more radically” about customers
- Price caps could lead to steep bill hikes, warns thinktank Institute of Economic Affairs says price controls would result in reduced competition