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Table of Contents
- Energy Users vs Energy Customers
- Ageing Infrastructure, Rising Peak Demand, Increasing Bills
- The Customer Paradigm Shift
- An Industry Moving Forward
The energy industry is going through a period of immense change. A new type of energy customer is emerging. Energy companies across the supply chain are reassessing what they do, how they do it, and at what cost as a result of an industry wide shakeup driven by the market, governments and stakeholders. The competition from emerging energy companies and new energy brands is building, with many seeking to engage customers in exciting new ways.
The relationship between customers and the energy they use, store and produce is one of the most critical areas of future focus for energy companies across the world. However, there are some questions that remain to be answered: why do customers care about energy, and should they care at all? Long-time industry leaders and professionals struggle with these questions and many have traditionally ignored them when they have asserted that their role may not be customer-facing. They are problems that many newcomers to the industry assume they know the answer to, without a full grasp of the complexities of the industry. This could be a perspective that potentially works in their favour or backfires completely. Either way, they are questions that energy companies are now trying to answer with mixed results and varying degrees of success. Whichever camp you belong to, the new energy customer will redistribute market share, redefine the industry and breathe new life into the role energy companies play in our lives.
Energy Users vs Energy Customers
As many readers of this article will already know, the energy industry is historically a monopolistic, vertically integrated industry that has provided a basic essential service equally to all customers. The most that energy users cared about their usage was during a blackout or when an energy bill arrived. Even then, more often than not the blackout resulted from a storm and was taken on the chin, and the once affordable bill was just part of life. Dissatisfied energy users could not defect or leave, as often there was nowhere else to go. Even referring to an energy user as an “energy customer” would have raised eyebrows. Do the same today for other essential services referring to “road customers”, “water customers” or “sewerage customers” and an odd look is the least of your worries. This is important for several reasons. Firstly, it serves as a base case for the relationship between the energy industry and its users: the delivery and provision of an essential service only.
Secondly, it highlights the importance of a primary driver for change: dissatisfaction with the essential service and the search for alternatives. For many, going green is a secondary driver and “nice to have”, but justified where the economics stack up. Finally, it draws attention to the “anti-customer”: the disengaged, unexcited and uninformed energy user. This category defines a large chunk of the market that simply doesn’t understand their bill. At most, they will make changes based on price alone, if at all. This is a problem experienced globally: up to 60% of energy users in the UK were found to have little or no understanding of their energy bill or the market. Therefore, the big challenge is finding new ways to define, interact with and add value for the new energy customer. Who will they be, why will they care and will they have enough of influence over fellow anti-customers to turn them into engaged and excited energy customers? The companies that get the mix right may ultimately redefine the industry entirely.
According to the Australian Energy Market Commission 2017 consumer research report, energy users with a sufficient level of understanding of the market are now starting to seek greater flexibility and a wide variety of services. They are searching for quote...
Emerging trends that are starting to define the new energy customer include - Increased take-up of new options. Solar PV solutions are being used by 20% of the population, with this expected to jump to 38% by 2020 and battery storage to rising to 21% over the same period -
High awareness of retail choices, but a low understanding of products. Up to 90% of energy users in Australia are now aware that they have a choice in the market, but their understanding of product differentiators remains low - high market disparity. Up to 47% of residential customers and 54% of small business customers in Australia have not changed retailers in the past 5 years, yet 39% have actively switched during the same period Price drivers.
Up to 65% of residential and 75% of small business energy users in Australia that has switched in the past 5 years did so because of the price decreasing customer satisfaction for small businesses. A decrease of 11% in customer satisfaction for small businesses across the National Electricity Market.
These figures indicate a rapidly changing and moving market, with room for growth.
Ageing Infrastructure, Rising Peak Demand, Increasing Bills
To form a better understanding of where the industry is going and who it is serving, we need a firm grasp of where it’s coming from. Across Australia in 2014, it was found that over 70% of coal generation assets were operating beyond the intended design life. Network assets are also ageing, driving network service providers to increase their replacement expenditures. For example, as of 2015 Ausgrid reported that up to 43% of their 300,000 poles were above the standard age of 45 years, thus requiring an extensive replacement program. Add to this the observed growing peak demand from residential air conditioner loads before bills started to increase - even just for a few hours each year in summer (see table 1). The need to invest in new and replacement assets seemed reasonable, safe and in most cases, the only thing network service providers, generators and gentailers could do to guarantee supply. Alternative solutions were untested and immature.
To capture the impact of all these changes, bills have of course continually increased. Most recently it has been reported up to 20% of increases are due from the first of July 2017, with wholesale prices rising from factors such as the closure of the Hazelwood coal power station. As a result, Australia has been left with some of the highest electricity prices in the world. While there are many other factors at play - regulatory changes, political forces and so on – this has created a perfect storm for the rise of disgruntled customers.
It’s unsurprising that just 22% of all customers in Australia have a favourable view of the energy industry.
The Customer Paradigm Shift
The best in the industry are capitalising on this turn of events. They are investing heavily to learn what energy users want, realising that many customers are on the move. They are finding new ways to connect and engage beyond billing and supply, and they are developing new touchpoints to deliver a better customer experience. Energy users alone won’t grow their business, but long-term, engaged energy customers will. The extent to which new customer value is being explored is particularly interesting, as customer satisfaction is no longer limited to customer service improvement through call centres or complaint handling. It is far reaching and now includes innovative value adding solutions that cover information availability, product and service bundling, new technology products, and greater market participation through solar generation but also storage and embedded networks.
Behind-the-Meter Products and Services
A customer-focused trend gaining momentum is the rise of new ‘plug and play’ behind-the-meter products and services. While talk of the Internet of Things, Smart Homes and Smart Meters have persisted for a few years with only pockets of early success, more mature market players are starting to appear. When it comes to commercial customers, the market for building management systems is progressing towards maturity and is now attracting aggressive competition. This market is forecast to grow over 12% for the next 4 years. The aim has always been to learn energy usage behaviour and provide increased control over electrical systems and appliances. However, the mixture of features and benefits that cover seamless integration, the absence of complex hardware installation and automated solutions is proving to be a winning formula for many energy companies. The popularity of the Nest thermostat (see Figure 2) is one such product that pioneered this space, which culminated in its acquisition by Google in 2014 for $3.2B US Dollars. It is a prime example of putting the customer first using seamless integration into the home, automated comfort settings and easy installation before even being considered as an energy efficiency product. Origin Energy is one of many companies in 2017 looking to move into this space. They recently launched a trial of new energy monitoring technology that gives them the ability to analyse every electrical appliance in the home using one single monitoring device. While the aim is to provide more customer insights and eventually lower bills, by leading with the seamless customer experience this will allow them to build trust early on.
Digitisation and Transformation
Going digital is more than making energy bills paperless. It introduces the capability for energy customers to know and do much more by leveraging their own data, visualising their usage and regaining control. Critically, it gives users a modern experience with convenience, speed and personalisation. AGL is leading the way with a new $300m digital transformation project launched in August 2016. It has taken less than a year to receive a return on investment with reported increases in customer acquisition and customer retention through digital channels, already up 44% in FY17. Undoubtedly their digital transformation framework was sound and the company has worked aggressively on their digital and mobile interfaces to create new data-driven personalised services. This revolves around five key customer “signature moments”:
1) Self-service meter reads
2) Simple account logins
3) Individual appliance energy use tracking
4) Faster experience when moving houses
5) One-click bill payments
Newer energy companies that have had a digital focus from inception are also reaping the rewards of their ability to move with customer needs in the market, and also into new markets to serve new customers. With the opportunity to engage more closely with disgruntled customers, a strategy Powershop has explored is to match bill payments with consumer lifestyles. For instance, their customers can flexibly pay their bills in sync with their pay schedules, meaning easier budgeting and less bill shock. Their customer focus has been recognized and they hold the title for Most Satisfied Customers for 2015 and 2016 in Victoria.
Providing Clarity Among The Confusion
Energy products, services and pricing can be extremely confusing. Most energy users have no idea of what a kilowatt hour is, nor do they understand how their consumption is billed. Product simplicity is proving to be an effective strategy for many new energy retailers. Red Energy has acknowledged the complexity, investing in one centralised, locally based, world class customer service team to address all customer enquiries. In conjunction with providing clear billing and demonstrating value for money, this strategy has helped Red Energy earn the title for Most Satisfied Customers for three years in a row to 2016 in NSW. In the US, CleanChoice Energy has made this approach work in their favour by offering a smaller product range with clear differentiation: 100% solar and wind power. Furthermore, by rebranding from “Ethical Electric” to a more relevant and identifiable brand name, customers can more quickly relate to what they stand for. Clarity, trust and transparency are three pillars proving to draw in new customers in an industry that has operated behind closed doors for too long.
The Community Gateway
Recently, energy companies have found themselves misaligned to the needs of the customers as well as community groups. This has caused them to find new ways to reconnect with communities, as well as to create new communities of their own. By leveraging existing communities, this gives quick access to trusted networks and new growth opportunities. CleanChoice Energy is one company that has carved out a profitable niche using this method. The 100% renewable energy retailer was recently named as one of the top 500 fastest growing companies in the US, experiencing over 10-fold growth in the past three years. Their approach involved using micro-targeting of community solar projects to attract new retail customers who cannot install solar panels on their property. Through this approach, they are also able to create a sense of community achievement: their customers feel as though they have played a direct role in preventing 835,000 tonnes of carbon pollution from entering the atmosphere since the company was founded. Sport team sponsorship has also helped with customer recognition of energy brands. They are using sponsorship to quote “advance their brands, showcase products and entertain customers and prospects”. Retailer Momentum Energy is a sponsor of the Geelong Cats and St George Illawarra Dragons. Energy Australia was previously a major sponsor of Port Adelaide Football Club until November 2016, and still sponsors the club’s community projects. Red Energy too have ties with the Newcastle Knights, and their logo is prominently displayed across NSW Ski Fields. By using these partnerships, customers perceive the sponsor in a positive light, playing a role in the success of the team through the provision of resources and facilities.
Branding and Public Relations
One cannot go further without mentioning the new energy behemoth that is Tesla. It scores points across several areas. Branding, tick. Price, tick. Innovation, three ticks. The energy brand is recognized internationally and wins points across the board, with the creation of a new energy lifestyle that covers battery storage, solar roofs and of course electric vehicles. Their brick and mortar retail experience is also a unique approach to attract a new breed of energy customer. For 2017, Tesla’s best tactic has been through public relations. Following a single Tweet by popular CEO Elon Musk, Tesla has captured the imagination of many Australians and global energy users by pledging to build a 100 megawatt battery storage facility for South Australia, deliverable within 100 days otherwise it is free. The elegance in this pledge comes from its simplicity, its timing, appetite for risk, and also through the act of upstaging the government. These are all elements that competing energy companies struggle with.
In addition to Tesla, other brands in a range of sectors are using their existing brand loyalty and equity to venture into energy, capturing a new breed of energy customer for market growth. Carmakers Mercedes Benz, BMW and Ford are also hoping to redefine the new energy customer lifestyle by using the growth of electric vehicles to capture the market for energy storage. Telecommunication companies such as Telstra and Dodo have similar plans, accessing existing phone and internet customers to provide integrated solutions that cover data and telecommunication solutions as well as energy products and services.
An Industry Moving Forward
The energy companies that will dominate the industry going forward are those that understand the customer. Many of the gentailers and network service providers will need to begin shifting their focus away from fixed electrical assets to start exploring how customers and data will drive new revenue and growth opportunities. During this rapid period of change, there will be a greater need to move with the market and adapt to customer needs without relying on single technology solutions. Gone are the days where their security and sustainability is embedded in long-term assets. Customer-centric strategies that react to customer needs will add significant value and customer loyalty, while strategies that redefine the new energy customer will pave the way for a new energy future.
Enjoy the read? You may also like Carsten Primdal's Whitepaper on ethical supply chain:
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