The 'leaky bucket' syndrome � customers leaving as quickly as others arrive � means that UK utility companies are effectively chasing their own tails.
As fast as UK utility companies poach each other's customers by mounting aggressive door-to-door and television marketing campaigns, their own existing customers are slipping out of the back door. In a mature market like utilities, there are only so many customers to go around. This rampant churn means that no single company keeps customers for long enough to recoup the cost of recruiting them and to begin making a profit from them - and Datamonitor's new Impact survey, Improving the Lifetime Value of Utility Customers, puts current marketing costs at a significant 6.7m per week.
Can they do it?
It would make much better sense to take more care of existing customers and increase profits by selling them more services, such as dual fuel (say, electricity and gas), telephone services or home insurance. Some three out of ten customers say that they would buy extra services from their supplier if the service was better, so the marketing money would be better spent on improving customer service and strengthening the relationship with existing customers - thus improving the level of commitment from both sides. It's not as if the customers save much money by switching � many would willingly trade the small saving they make for better customer service. The question is, would the companies be able to raise their levels of service enough to tap this pool of potential profit?
Know your customer
Clearly, utility companies need to have an effective, viable customer loss and win-back policy in place. Datamonitor's survey reveals that as many as six out of ten electricity customers don't even tell their supplier why they have left.
Nearly one in six utility customers would like to switch supplier (but haven't done so yet), so to identify these customers and address their dissatisfaction would be a good start. Most utilities operate extensive in-house customer databases and know more about their customers than many realise. However, most are currently not using this valuable information to improve their service to customers.
Datamonitor recommends that utilities identify their customers and track their activities, then create profiles to predict the likely directions various customers will take. These profiles would reveal problems that could be solved and opportunities that could be exploited. In addition, if data such as age, income and status were profiled, it could be used in the targeting of marketing campaigns for other products like mobile phones or credit cards. Courtesy calls or emails, product suggestions or loyalty schemes could be economically viable for higher value customers. It may not be worthwhile to offer these to lower value customers.
According to Alex Patient, utilities analyst at Datamonitor, "A higher level of customer service can unlock an additional 30% of the up-selling market, currently withheld due to lack of customer loyalty and trust. If suppliers and customers are to benefit, the supplier must get to know their customers better."