Customer relationships: learning from the utility sector
Businesses are increasingly aiming to foster 'better relationships' with their customers, with most trying to duplicate the techniques of small shopkeepers on a wider scale. But CRM systems and database marketing are only part of the answer, according to Rob Denton, managing director for UK-based Navigator Customer Management.
Billions of pounds have been poured into customer relationship management (CRM) systems over the past decade with the aim of gaining a detailed understanding of each customer and providing consistent communications regardless of the channel used.
The example of utilities Energy companies in particular face an up-hill struggle in retaining and developing customer relationships, due mainly to the low customer engagement level of the industry. Consumers are simply not interested in their energy provider unless something goes wrong and they need to make contact. This gives some indication as to why churn rates are so high (according to Ofgem over 4 million energy customers left their supplier in the first 10 months of 2006).
But how can the problem be solved? And how can energy companies begin to abate growing churn rates? First, says Denton, these businesses must understand the extent to which consumers want to engage with their brands. For some businesses, particularly those where there is either a strong natural need (e.g. IFAs or banks) or emotional attachment (e.g. fashion retailers or car manufacturers), it will be relatively easy to foster strong relationships with customers.
Build loyalty first But others - and utility companies are a classic example - will need to work harder to alter the way in which their customers perceive them. British Gas recognised that, in order to sustain profitability, it needed to first improve its customer offer and service, saying "improving the quality of our service is a critical short-term priority".
Alongside its drive to restore customer faith, the company is also diversifying its brand and bringing in other partners to provide a more attractive package and a stronger emphasis on consistency. By broadening the utility offering and providing a higher number of products per customer, the chances of defection grow smaller as brand loyalty increases.
Combating inertia This is also the case for telecoms suppliers, which face an environment of cut-throat competition and traditionally high customer defection rates, with research showing that mobile operators suffer annual customer churn of some 33.4%. Despite a relatively robust level of investment in customer loyalty initiatives, the sector has still not (in the UK at least) managed to achieve solid customer satisfaction, and telecoms companies still face rising inertia.
To overcome this and increase their overall appeal, telecom operators are introducing more mobile phone products into the market place, which our technology-preoccupied culture seems very willing to pay for. A report recently published by Telecom Express revealed that 50% of UK consumers now pay for mobile phone content, with services such as ring tones, telephone directory and "Where's My Nearest?" information all being deemed worthy of payment.
So, by combining channels that naturally reflect the behaviour of the consumer, mobile operators are gaining both market advantage and brand presence. By using affinity collaborations, these companies are starting to successfully nurture relationships with their customers, building a brand that they are less likely to defect from.
Data-driven customer service For the utilities sector to really understand the inherent interest of their customers and encourage an ongoing dialogue and mutual interest, the focus will need to be on data driven customer service, Denton told The Wise Marketer. Recent research has shown that what customers really value is not brand advertising, loyalty schemes or even celebrity endorsements but good old-fashioned contact, with informed and friendly staff who demonstrate real knowledge of the brand.
Organisations that give staff or agents training to become effective brand representatives, and that then support those staff with individual customer data to help them make conversations more relevant and compelling, are creating customer value that also generates a solid commercial return.
Sadly, utilities have been ranked as the worst at providing good customer service, although this will surely have to change as more products and services are offered under a single utility brand.
Conclusions There is clearly a serious demand for utilities to invest in customer development initiatives and use data analysis to identify weak areas of customer service. And by analysing where the problem concentrations are - and where the majority of queries are coming from - they can begin to form a model that can even identify these problems before they happen, and give direction as to where increased efforts are needed.
Companies is under-performing sectors - such as energy and telecom utilities - should ideally repeat these analyses every year to refresh their customer service insights and see where the most significant changes are happening. Simple procedures, such as spotting the nature of customer complaints and how these are handled, can allow these companies to be more efficient without unnecessary investments in the wrong places and processes.
To reduce defection rates and improve customer engagement, Denton concluded, utility companies must continue to find ways of adding interest to the brand and making the experience of being a customer something that promotes loyalty, with tangible added value. Similarly, telecoms companies can no longer trust in the natural interest of the consumer and should instead enrich the market with more content services, and paying closer attention to relationship building.