Beyond transactions creating value through customer partnerships in utilities

Beyond transactions: Creating value through customer partnerships in utilities is an Economist Intelligence Unit report sponsored by SAP.. © Economist Intelligence Unit Limited 2009Beyon

Beyond transactions: Creating value through customer partnerships in utilities is an Economist Intelligence

Unit report sponsored by SAP The Economist Intelligence Unit bears sole responsibility for this report The Economist Intelligence Unit’s editorial team conducted the interviews and wrote the report The

fi ndings and views expressed in this report do not necessarily refl ect the views of the sponsor Dan Armstrong was the editor of the report and Dorian Benkoil as the author Mike Kenny was responsible for layout and design Our thanks are due to all of the executives who responded to the survey.

October 2009

© Economist Intelligence Unit Limited 2009

to 1% per year.1 As economic activity and the demand for electricity slows, power utilities need to work harder to understand the needs of customers in order to keep revenues and margins high.

Water utilities have more robust customer demand, but face different customer challenges These include growing public concerns about water quality and supply, more recycling and re-use of water, and the need to raise prices to recover higher costs in an environment which is often heavily regulated Both types of utilities face pressure from regulators and consumers pressing for “green” alternatives that decrease carbon emissions Utilities customers have more choice than ever, brought on by deregulation, government mandates, market forces, and new transparency in information and pricing

To survive and thrive, utilities companies need to deepen their understanding of existing customers to understand which are most valuable and how best to retain them They must also develop a brand identity

to differentiate their products from commodities

About the survey

In a survey completed in September 2009, the Economist Intelligence Unit surveyed 105 utilities industry executives on the challenges of getting customer-facing departments to work together more consistently and effectively Respondents spanned

the globe, with 28% from the Americas, 24% from the Asia-Pacifi c region and the rest from EMEA

Electric power utilities made up the largest group of respondents, with 57%, followed by gas with 38%, and water, sewage and other types of utilities comprising the remainder One third of respondents had annual revenues of over $10bn, and average annual revenues

of respondents were approximately $5bn.

1 Rate of Electricity Demand

Growth Slows, Following

the Historical Trend, Energy

Information Administration/

Annual Energy Outlook 2009,

US Government Printing Office,

Washington DC, 2009

© Economist Intelligence Unit Limited 2009

Beyond transactions

Creating value through customer partnerships in utilities

4

Building the brand

While most consumers know the name of their utility provider, they may not have a sense of its brand—the image that differentiates it from other fi rms in the industry Thirty-two percent of respondents to the Economist Intelligence Unit survey acknowledge that giving customers a consistent picture of the organisation is an activity most in need of improvement Respondents also admit that they have not suffi ciently differentiated themselves from other utilities

Building a consistent brand is critical in an era when customers know exactly how much utility services cost, can compare the costs of different providers on online sites, and can switch providers at will

Mining customer information

One of the best ways to learn about customers and their needs is by building longer-term relationships with them Sixty percent of survey respondents say they have strengthened relationships with customers over the past year and 56% say they are more engaged in developing products or services collaboratively with them Yet respondents also cite building longer-term relationships with customers as an activity in need of improvement at their organisation (33%), followed by giving customers a consistent picture of the organisation (32%), and gathering customer intelligence in the course of providing service (25%) Customer information will be wasted if it is not shared across customer-facing departments Nearly 80% of the utilities companies surveyed acknowledge less-than-full integration of information across marketing, sales and customer service in each of eight categories.

Key fi ndings

Building long-term relationshipsProviding a consistent customer experienceGathering customer intelligence in the course of providing serviceTargeting the right customers in order to close a high percentage of prospectsSegmenting and profiling customers

Which of your organisation’s activities are most in need of improvement?

Improving online relationships

In an era where price comparisons are easy to fi nd on the internet, utilities are striving to provide customers with a richer online experience This will not only enhance the brand and increase the perception of accessibility and openness, but can also reduce the cost of sales by making interactions more effi cient

Utilities industry executives report empowering customers by improving online and self-service product support tools; improving usability, search and navigation on customer-facing websites, and building or supporting online customer communities Forty-two percent of respondents also say they are developing a social media strategy

Forty-eight percent of respondents admit their biggest challenge is that “customers see our products and services as commodities,” and 55% say customers view their organisation’s products and services more as commodities than fi ve years ago Nevertheless, only about a quarter of survey respondents say they are good at using customer feedback to differentiate their offerings In other words, nearly three- quarters of utilities companies—whose toughest challenge is perceived commoditisation of their products and services—do a poor job of using customer feedback to improve their performance in this area.

Customers see our products and services as commoditiesRegulatory restrictions in providing servicesLarge infrastructure costs in fulfilling new ordersPerceived cost of switching (base is overly entrenched)

We have not sufficiently differentiated our brand

What are your biggest challenge in acquiring customers?

© Economist Intelligence Unit Limited 2009

Beyond transactions

Creating value through customer partnerships in utilities

6

How the regions differ

The survey of utilities executives spanned three regions: the Americas, Asia-Pacifi c and EMEA Each faces its own challenges.

The Americas Of the three regions, the Americas has the farthest to go in partnering with customers

Most fi rms in the Americas have neither used customer feedback to differentiate offerings nor developed products collaboratively with customers The Americas is less focused on customer service, and most focused on operational excellence, and respondents in the Americas tend to say that margins are thin and pricing fl exibility minimal

Asia-Pacifi c Asia-Pacifi c has made the most progress in partnering with customers It is the antithesis

image of the Americas: most focused on customer service and the least on operational excellence Asia-Pacifi c fi rms are most likely to say that customer service, sales and marketing are well integrated in almost every category, and most emphatic in stressing the need to develop and share a unifi ed picture of customers

EMEA Companies in all three regions cite reliability above all other factors in persuading potential

customers to buy But after reliability, companies in the EMEA region have the strongest focus on fl exible product offerings This differentiator is higher ranked in EMEA than elsewhere.

That nearly half (49%) cites operational excellence as their core strength (rather than customer service or product innovation) is no surprise in a capital-intensive industry with long lead times and a focus on reliability But there are limits to the customer benefi ts of operational improvements, especially when these improvements are not informed by customer intelligence The biggest benefi ts may come from making better use of customer information, gathering it and sharing it across sales, marketing and customer service Not only will companies be able to act on the information more quickly, they may be able to persuade regulators to provide more fl exibility.

To achieve the goals of information gathering and integration, utilities should:

l Integrate marketing, sales and service activities, sharing information among customer-facing departments, achieving economies and lowering the cost of sales

l Increase their understanding of customers, and their ability to market to them, based on their lifetime value

l Build a consistent brand image, and reinforce it in dealings with the customer

Customers take utilities for granted Water fl ows from a tap; electricity comes from an outlet; waste disappears with the press of a button But modern life would end without the services provided by utilities Despite their underlying value, most utility companies are only noticed by customers when there

is a problem.

To be noticed by customers, management needs to move beyond the operational mindset that has historically dominated the industry Utilities need to better understand what customers value, share this information among customer-facing functions, and hammer home this value at every opportunity More than the organisation itself is at stake: Healthy and profi table utilities are necessary for a growing economy as well as a clean environment.

Conclusion

2 Fix Utilities Before They Need

a Rescue, Peter Fox-Penner,

Harvard Business Review,

July-August 2009

8 Economist Intelligence Unit 2009

Operational excellence: Creating highly efficient processesCustomer service: Providing superior service to clientsProduct innovation: First to market with groundbreaking new products or servicesOther

In your view, which of the following best represents the core strength of your overall business? Select only one.

(% respondents)

1 No coordination; 2 Ad hoc coordination; 3 Some procedures 4 Procedures 5 Broad, systematic and Don’t knowunits are completely not systematic established, but not established, regular consistent integration of

separate or consistent consistently followed interaction information and strategies

Generating, tracking and measuring leadsDeveloping and launching new productsPlanning and executing campaignsAnalysing and segmenting customersGauging customer satisfactionMeasuring effectiveness of processesResponding to customer demands or complaintsIncorporating customer feedback into products/servicesOther

Each of the organisation’s customer-facing departments influences the customer via different channels For each of the processes below, how closely do your marketing, sales and customer service units work together? Please rate on a scale of 1 to 5.

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Building long-term relationshipsProviding a consistent customer experienceGathering customer intelligence in the course of providing serviceTargeting the right customers in order to close a high percentage of prospectsSegmenting and profiling customers

Cross-selling or upselling customersEnsuring that customer complaints are resolved quicklyMeasuring customer satisfaction and loyaltyInvolving customers product/service development (eg, co-creation)Generating qualified leads

Creating effective collateralEfficiently acquiring customers (eg, reducing the cost of sales)Measuring/optimising effectiveness of marketing and promotional campaignsMaximising the number of repeat sales

OtherDon’t know

In your view, which of your organisation’s activities are most

in need of improvement? Select up to four

Our company sees no need to integrate our marketing, sales and service activities

OtherDon’t know/Not applicable

Which of the following would provide the biggest benefits in integrating your organisation’s marketing, sales and service activities? Select up to three

My organisation has an accurate way to estimate the lifetime value of customers

My organisation prioritises sales and marketing resources based on each customer’s lifetime value

We are currently developing a social media strategy

My organisation has more flexibility than its competitors in pricing its productsDespite the recession, my organisation has greatly strengthened customer relationships over the past 12 months

We are more engaged in developing products or services collaboratively with customers than we were 12 months agoCustomers view my organisation’s products and services more as commodities now than five years ago

Our margins are higher than the margins of most of our competitors

Agree Disagree Don’t know

10 Economist Intelligence Unit 2009

Focusing on sustainability effortsEmergence of new competitorsChanging customer requirementsDisruptive technology developmentsEmergence of new markets for our products and servicesAccessing key components or resources through our supply chainOther

Flexibility in changing offeringsSafety

Overall customer experienceAbility to scale quickly to meet demand spikesSource of power generation (hydroelectric, natural gas, wind, solar, etc.)Variable pricing (based on demand, season, etc.)

ConvenienceOtherDon’t know

Given the trend towards increasing customer choice among differentiated utilities services, which factors has your organisation best presented to customers to influence purchase decisions? Select up to four

SeamlesslyVery wellSomewhatPoorlyNot at all

How well has your organisation made use of customer feedback

to differentiate utilities offerings and make them appear less commoditised?

(% respondents)

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Customers see our products and services as commoditiesRegulatory restrictions in providing servicesLarge infrastructure costs in fulfilling new ordersPerceived cost of switching (base is overly entrenched)

We have not sufficiently differentiated our brandToo difficult to compile and analyse leads from different sourcesOther

In which region are you personally based?

Which of the following services does your company provide?

Which of the following best describes your title?

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ITMarketingCustomer serviceSalesRiskR&DHuman resourcesProcurementInformation and researchLegal

Supply-chain managementOther

What are your main functional roles? Please choose no more

than three functions.

Business-to-businessConsumer/retailBoth

Who are your organisation’s primary customers?

(% respondents)

69 31

Consumer/retailBusiness-to-business

Which perspective—consumer/retail or business-to-business—are you sharing in this survey?

(% respondents)

13 Economist Intelligence Unit 2009

Operational excellence: Creating highly efficient processesCustomer service: Providing superior service to clientsProduct innovation: First to market with groundbreaking new products or services Other

In your view, which of the following best represents the core strength of your overall business? Select only one.

(% respondents)

1 No coordination; 2 Ad hoc coordination; 3 Some procedures 4 Procedures 5 Broad, systematic and Don’t knowunits are completely not systematic established, but not established, regular consistent integration of

separate or consistent consistently followed interaction information and strategies

Generating, tracking and measuring leadsDeveloping and launching new productsPlanning and executing campaignsAnalysing and segmenting customersGauging customer satisfactionMeasuring effectiveness of processesResponding to customer demands or complaintsIncorporating customer feedback into products/servicesOther

Each of the organisation’s customer-facing departments influences the customer via different channels For each of the processes below, how closely do your marketing, sales and customer service units work together? Please rate on a scale of 1 to 5.

14 Economist Intelligence Unit 2009

Targeting the right customers in order to close a high percentage of prospectsBuilding long-term relationships

Gathering customer intelligence in the course of providing serviceSegmenting and profiling customers

Efficiently acquiring customers (eg, reducing the cost of sales)Ensuring that customer complaints are resolved quicklyCreating effective collateral

Measuring/optimising effectiveness of marketing and promotional campaignsCross-selling or upselling customers

Maximising the number of repeat salesOther

Don’t know

In your view, which of your organisation’s activities are most

in need of improvement? Select up to four

Making each unit aware of how the others have interacted with a given customer

Helping each function find and act on ways to support the othersPrioritising resources directed towards customers

by total value over life of customerIntegrating customer tracking from lead through post-sales serviceEstablishing common definitions, assumptions and dataMeasuring the probability that leads will turn into sales, and using these scores to guide sales

Our company sees no need to integrate our marketing, sales and service activities

OtherDon’t know/Not applicable

Which of the following would provide the biggest benefits in integrating your organisation’s marketing, sales and service activities? Select up to three

My organisation has an accurate way to estimate the lifetime value of customers

My organisation prioritises sales and marketing resources based on each customer’s lifetime value

We are currently developing a social media strategy

My organisation has more flexibility than its competitors in pricing its productsDespite the recession, my organisation has greatly strengthened customer relationships over the past 12 months

We are more engaged in developing products or services collaboratively with customers than we were 12 months agoCustomers view my organisation’s products and services more as commodities now than five years ago

Our margins are higher than the margins of most of our competitors

Agree Disagree Don’t know