The UK energy supply market is a difficult place in which to thrive these days – if you’re a big six supplier. First, in 2014 the Competition and Markets Authority (CMA) probe into the market was launched. Then wholesale energy prices collapsed, leading to squeezed profit margins. And finally an assault from challenger brands like First Utility and Ovo has grabbed almost 15 per cent of the market.
However, Npower has taken a bad situation and made it worse. Its woeful performance in 2015 is captured in this sorry set of statistics: a €137 million loss; a record £26 million fine from Ofgem; 2,400 job losses announced; hundreds of thousands of customers defected; and the chief executive and chief finance officer both departed. To add insult to injury, Which? placed it 22nd out of 22 suppliers in its survey of customer service.
Other big six suppliers have not suffered as much, despite operating in the same marketplace. For example, British Gas reported a 31 per cent profit increase from its residential supply business and SSE is continuing to increase its dividend.
So what’s been going on at Npower? And more importantly, what should it do to rebuild its brand?
Let’s consider the context. The energy supply market has historically been a low interest category with very infrequent customer engagement, resulting in high levels of inertia. In that benign climate, suppliers could get away with brands that are little more than labels on otherwise near-identical services, with price the only differentiator (and given how closely they all follow each other’s price changes, it’s not much of a differentiator).
In such circumstances the definition of a good brand amounts to little more than delivering on the hygiene factors: accurate and timely billing. Crudely put, if the only difference between competing brands is the logo at the top of the bill, then the rest of that bill had better be right. In a stable oligopoly the last thing the incumbents want to do is give their ordinarily quiescent customers a reason to sit up and start paying attention.
But that’s precisely where Npower went so badly wrong. Problems with the implementation of a new customer relationship management system in 2011 were compounded by the outsourcing and off-shoring of a large number of back office and customer support roles, resulting in horrendous billing mistakes. Npower achieved the near-impossible in a low interest category: it roused its customers into action by giving them a reason to think about their energy supplier. Disaffected customers deserted in droves, with the inevitable consequence for profits.
So what should Npower do now? It goes without saying it must fix the billing problems, and this is presumably well underway. But now that it has given its customers cause to doubt the brand, it’s essential to dampen down these worries and give customers permission to start ignoring them again.
For example, Npower might consider publicising a service guarantee with compensation payable if service standards are not met in future (something far wider-reaching than the limited Ofgem-imposed compensation scheme buried in the depths of the website that only covers billing mistakes up to December 2015).
Adding a dose of openness and transparency would help too: for instance by more prominently publishing the average time taken to resolve complaints, and creating a platform where customers can post feedback on the company (with company representatives empowered to respond to and resolve the inevitable negativity that will be vented).
However, the bigger opportunity is for Npower to demonstrate why it exists, beyond generating profit for shareholders. It’s precisely because the energy supply market is so undifferentiated that there is an opportunity for it to break ranks and be clearer about its purpose. If product and price are at parity, we’d generally prefer to spend our money with a company we feel is in business to change things for the better (whatever form that may take). What does Npower exist to achieve beyond the table stakes of shareholder value and regulatory compliance?
At Naked we ask our clients three questions to help identify where their brand purpose may lie:
1. Does your company exist to improve the industry in which it operates – to remedy a weakness or solve a problem in the market?
2. Is it driven by a desire to create a change in the wider world?
3. Or is it there to achieve something more personal – to better the lives of its customers with real moments of delight and value?
However it’s defined, it’s only worth anything if the brand “lives it” for real, for customers and employees alike.
The alternative for Npower is continued decline, because its current market position is a historical inheritance rather than a strength won by winning the battle for preference. It’s a hollow leadership that has very little to support it in consumers’ hearts, and could be swept aside if switching were to become widespread.
Will Collin, founding partner, Naked Communications
Npower’s recovery plan
On the back of its annual results and a loss of £99 million in 2015, Npower launched a two-year recovery plan.
The key parts of this plan are:
• Extensive cost savings. This includes reducing the number of direct and indirect employees by 2,400.
• Simplification. This involved reducing the number of sites it has from 26 down to three regional hubs and reducing or stopping some energy services work.
• Improving customer service. A “major set of improvements” has been made to the billing system and modifications to customer service have been made.
• Future preparations. This include the launch later this year of Powershop, a fully digital energy supplier in preparation for the smart meter rollout.
For more detail: http://www.npowermediacentre.com