Consumers have more choices ever since the UK power distribution scenario changed and DNOs, like any other sellers, have introduced loyalty programs. The Electric Lighting Act 1882 in the UK allowed individuals, local authorities and companies to set up power supply systems. This was followed by various amendments. British Energy came into being in 1995 by merging Nuclear Electric and Scottish Nuclear and in 2001 the Central Electricity Generating Board wound up. Electricite de France acquired British Energy in 2009. The current policy is to reform the electricity market, introduce smart meters and improve energy efficiency.
All this about past history is to show that Britain has not adopted a monopolistic attitude to power generation and distribution, in line with EU policy of deregulating electricity markets. Today, power generation is handled by six companies in the UK who in turn supply to local distribution networks. Energy switching services came into existence in 1996 and these companies compete with each other offering attractive schemes and pricing structures. Naturally this paved the way for customer retention programs. After all, if customers were offered choices, they would easily switch and getting them to stay loyal became part of the agenda.
- Why customers switch
The Big Six, comprising of British Gas, EDF Energy, E.On, Npower, Scottish power and SSE, together hold a major market share. They face severe competition from suppliers offering dual fuel tariffs and the number of small suppliers has been growing since 2011. The big six also stand accused of higher energy bills that have doubled in the last decade. The Competitions and Markets Authority investigated and found that households could save up to £160 a year by switching to a cheaper tariff from an independent small producer. The market is in two tiers. One is the inactive customers who pay higher prices to the Big Six. The active market is smaller customers served by small producers. The tariff structure too varies. There are fixed price deals that lock customers into a fixed price for a year or more. Over half of the big six customers could stand to benefit by switching to smaller companies offering better tariffs. Savings in fuel costs are the prime reason for switching. However, customer satisfaction is also a prime factor, an area where smaller energy companies are better in comparison to the big six. Customer retention programs assume importance in order to maintain market share.
It is easy for consumers to switch suppliers in 10 minutes and the government cap on standard variable tariffs so, for power companies, retention is an uphill task, calling for strategy changes. Studies have found that loyal customers are, in fact, being fleeced. Loyal customers are on standard tariffs that tend to go up and also cost more while newer customers get the benefit of deals. The big six are considering loyalty plans and customer retention programs to prevent existing ones from leaving in droves. This move is chiefly targeted at existing 10 million loyal customers.
- Customer retention programs
- British Gas offers free boiler service as a way to keep its customers happy and hopefully loyal.
- Npower and EDF considered rewards programs to keep customers loyal. This includes free boiler service, much the same as British Gas.
The above would seem like small change compared to the extra loyal customers have paid over the years.
Retention programs considered redeemable points but this idea had the drawback that it made sense only if people redeemed them otherwise they would not benefit and, therefore, may not stay loyal.
Another idea that was considered as part of customer retention program was to offer discounted Sky TV packages or to partner with football clubs to allow customers to take part in monthly prize draws.
The trend is to shift away from a generalized approach to a more personalized rewards system to ensure maximum customers remain loyal and digital technologies such as apps are being leveraged. The focus is on giving customers what they want, again and again.
Service expectations are higher and utility companies in the UK will need to raise quality of service to match expectations.
Customers want simplicity, savings and fast responses and if a utility company can deliver these, it will get them loyal customers.
Transparency may receive the importance it deserves. Utility companies only give options on their tariffs while tariffs of competitors are conveniently ignored. The exercise of customer retention could include comparisons and not just on price point to show why the existing supplier is the best choice. In fact, electricity companies may find it wiser to simplify varying tariff slabs by working together. In addition, other matters like transparency in billing, better customer support and energy saving devices or methods are also important for loyalty.
Service providers are now designing solutions from the customer’s perspective and this assures better satisfaction leading to loyalty.
A case worthy of mention is that of Robin Hood Energy, the first fully licenced municipal supplier launched in 2015. It is a non-profit company and provides low cost energy as a way to retain customer loyalty. In the process they entered into a partnership with other energy companies to expand the idea in other regions.
Utilities partner with home service providers to provide installation and repairs of energy related devices.
SSE has partnered with Dixons Carphone to offer connected home products to 10 million households.
Ogfem carried out a survey to show what customers expect from power companies. What they need is fluid, adjustable tariff referenced to income and age. This is in addition to fast response and autonomy on when and how to use energy.
There are plenty of recommendations that are adopted, are under consideration and may be adopted in the future to improve customer retention.