Utilities: a very unusual problem

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By: Wise Marketer Staff |

Posted on April 24, 2002

New research shows that the customers of utilities in Europe are not switching often enough. Yes, that's right. I had to read it twice, too.

Clearly, in a mature, finite-sized market, one company's defecting customer is another company's newly acquired customer. Of course, the more often they churn, the less profit everyone makes, because companies simply pass around the same number of customers without any of them keeping any for long enough to begin making a profit from them. So the optimum would seem to be a happy medium - switch once and then remain loyal. Ironically, a high churn rate (customers who switch more than once) keeps the industry regulators happy, because it shows them that there is healthy competition!

Few are switching
A new Datamonitor report, Affinity Relationships in Residential European Utilities, reveals that, despite fiercely aggressive marketing campaigns to entice customers to switch from competitors, few customers are actually switching. The UK has the highest switching rate, but still a massive 62% of UK customers haven't yet jumped suppliers. In Europe, the figure is much higher: 85-95% of Scandinavian and 96% of German households have remained loyal to their suppliers.

Emotional involvement needed
The promise of savings on their energy bill has proved to be not enough of an incentive for most customers to switch supplier. Even though the UK leads with average savings of around 40 a year, most customers see the switching process as too much hassle in return for limited savings. It all comes back to what many successful marketers have known for years: emotional involvement is necessary to stimulate action. Customers want rewards but, even more, they want emotive engagement if they are to be persuaded to switch.

Utility/non-utility partnership
Datamonitor's research shows that one of the best ways to overcome the apathy is by forming affinity relationships with non-utility companies - a supermarket, for example. Partnerships such as these help to minimise the leap of faith needed for customers to trust in the bundled service offerings which suppliers are endeavouring to provide to their consumers. Datamonitor believes that utilities who try this approach could potentially see the rate of customer acquisition rise by between 8% and 15%, representing a very real growth opportunity.

So far, the most promising rewards have involved a utility/non-utility partnership: say, a utility partnering with an airline to offer its customers frequent flyer miles or with a supermarket to offer loyalty points on their utility spend. This is more tangible and useful than (necessarily so) small discounts on their bills. And, by associating with an already well-known brand, utilities can potentially increase their own brand recognition for a relatively small investment.

Charities too
Datamonitor's research has also shown that affinity relationships - specially with a charitable or "green" partner - can help to reduce the level of churn by as much as 50%, and can, as such, greatly aid the utility's revenue line. Affinity relationships help to build an emotional connection between the utility and the customer � the key to customer retention. Senior citizens are an attractive group to target as they are proven to pay bills on time and consume a high level of energy. Forming a alliance with a partner such as 'Age Concern' or a company such as 'Saga', which specialises in 'over 50's' services, allows the utility to directly market customised services to such valuable customer groups.

Coherent affinity portfolio
According to the report's authors, utilities' association with the affinity-marketing concept has been characterised by ad-hoc affinity initiatives, aimed at supporting existing marketing campaigns. However, case studies of successful partnerships within markets such as financial services indicate that utilities should now be placing affinity relationships at the heart of their competitive strategies. Utilities should aim to offer a coherent affinity portfolio, incorporating a number of partners, which will between them provide an opportunity for linking and increasing the volume of customer incentives.

Affinity Relationships in Residential European Utilities is available from Datamonitor priced at $3,995. See details below.

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