Switching rates of significantly more than 10 percent of the customer base are now standard in the European energy market. In many countries they are rising very fast. Established energy supply companies in particular are coming under increasing pressure because agile start-ups and providers from outside the industry are stirring up the market with digital channels and individual offers. Against this background, it is essential that many utilities modernize their IT structures immediately. The secret to success: Consider everything from the customer’s point of view and offer products that fit perfectly!
Since the liberalization of the European energy markets around 20 years ago, the proportion of household customers who regularly turn away from their suppliers has been rising steadily – a trend that can be precisely measured by the market’s churn rate (the proportion of customers switching to another supplier per customer base). To this end, in a Report from November 2019, the Council of European Energy Regulators (CEER) lists, among other things, the following figures:
- Norway has the highest European switching rate in the electricity segment. In 2018, it amounted to over 20 percent.
- Other markets with a relatively high average switching rate of at least 10 percent are Finland, Germany, the UK, Ireland, Portugal, Spain and Sweden.
- Even “stragglers” like France are catching up quickly at the moment. In 2018, the switching rate in the market was already over 9 percent, which is about twice as high as in the period 2013 to 2017.
Over the years, such churn numbers add up to an enormous customer fluctuation. The Federal Association of the Energy and Water Industry estimates (BDEW) that more than 44 percent of all household customers in Germany have changed their electricity supplier at least once since liberalization, many of them several times.
Customer behavior and products change
Completely new customer behavior is required for the necessary change in the market (and the associated increase in customer switching rates). Digital channels provide fast access to new offers and provide comprehensive comparison options. This is not only about prices, but also about the customer satisfaction shown. In contrast, the industry and segment in which a supplier operates plays only a minor role. From cars to insurance policies to energy contracts – everything can be compared, configured and ordered online. As a result, power supply companies in particular must redefine their product world in order to be able to compete against start-ups and new players from other industries:
- With individual electricity contracts, it is no longer possible to break away from the market. As a result, electricity-gas bundles with additional customer benefits, for example, are moving into focus. The new DEW21 subsidiary “stadtenergie”, for example, already offers such services fully digitally.
- The next step is to combine commodity and non-commodity. So customers combine their new energy contract with the purchase of mobile phones, game consoles, washing machines, Netflix subscriptions and much more. The demands on utilities to be able to map such offers are lower than expected: A suitable full-service offer is available in the powercloud powerApp stores in the shape of the “Non-Commodity-Fulfillment” app. The app enables the establishment of a huge product portfolio without tying up capital. All services are provided on behalf of the supplier by large trading companies.
- Fully digital offers such as those from stromee have automated and digitalized processes to the extent that you can get by with a fraction of the cost-to-serve typical for the industry and pass on all purchase prices 1:1 with a basic fee of only five euros.
- Apart from this, regional suppliers such as municipal utilities could score higher than before with their existing product portfolio. This also requires bundled offers: For example, anyone who gets a “free” family annual ticket for the local indoor band together with the electricity tariff will want to stay with their municipal utility. Public utilities can thus secure and even expand their regional supplier dominance.
Change rate highest after invoicing
But when exactly do customers actually decide to change? A Deloitte Study provides information on this subject which, among other things, has examined the role of the invoice, as it is often the only annual customer contact point with the energy supplier. According to the study, the vast majority are satisfied with the way invoices are issued. However, according to the study, the following also applies: “The churn rate is highest after the bill is received.” If you want to change this, you have to watch your speed: Inquiries about the invoice should be answered very quickly – regardless of whether they arrive by phone, online portal, e-mail or web chat – and the problem should be solved “within one working day” including a possible invoice correction, according to the authors of the study. They also emphasize that a customer experience that is as simple as possible acts as a “natural barrier to switching” – which ultimately requires automation of the acquisition and service processes within utilities.
But of course, the ideal way is still to send correct invoices to customers. powercloud offers the best conditions for this with its automation and avoids sending incorrect invoices with its extensive checking rules – and the expensive complaint and correction processes that come with it.
powercloud: Rapid product development and automated billing
All in all, the “internal” digitization of the utilities is thus becoming the focus of the discussion at this point. Against the background of new customer behavior the clear directive: Any redesign of the process landscape must take place with “customer glasses”. This includes, for example, a consistent linking of front and back end. This is the only way to ensure that data and actions are presented clearly and that the consumer has the chance to manage and extend his contract independently. This is, moreover, a basic prerequisite for the case-closing processing of transactions with a high quota. What’s more, The new infrastructure must be able to massively simplify the product development mentioned above. E.ON is a good example of the opportunities that powercloud opens up in this context. Since the introduction of the SaaS solution at the multinational company based in Essen, Germany, the development of new products takes only a few days – previously comparable processes took several months. The satisfaction of case workers and call center agents has also increased massively.
Slow down and counteract churn
All in all, powercloud contains all the business processes and data necessary for the “energy-economic engine room”. The services can also be booked individually. This includes billing processes, market communication, payment transactions, receivables management, invoice verification, tariff and offer calculation and many other capabilities. In addition, powercloud and various partner companies offer more than 80 apps in an app store to cover individual requirements.
Will all of this bring the churn train to a complete halt? Certainly not. But it will stall it in the right places – and that is with the desired customers. Because something like this is also possible: Identifying customers with above-average contribution margins or further potential, analyzing their situation on the basis of data and making offers before the end of the contract, which lead to a better customer relationship. Many customers are not yet aware of the fact that they receive a message from their supplier at the right time, which for example includes cheaper tariffs and attractive bundle packages. We think: It’s about time.
About the author
Marco Beicht, born in Achern, South Baden, is the founder and CEO of powercloud. To this day he lives and works in Achern, the headquarters of powercloud GmbH, which in the near future will have a state-of-the-art and climate-neutral IT campus as its new company headquarters. Right after graduating from high school, Marco Beicht founded his first software start-up, and after his studies he specialized in eCommerce. Today, Marco Beicht is managing director and shareholder of various energy, software and investment companies.