It’s a growing problem: Churn rates in utilities’ customer bases are increasing on average due to significant changes in online customer behavior and the energy market, where the name of the game is to have “more and more competition with further pressure on prices”. Utilities, however, can take action to counter these developments. powercloud has developed a new free expert guide that provides information on how churn prediction can work and what IT requirements are important. Four questions are asked and answered in the following to provide a short summary of the extensive document:
- Why is the specific market change in the energy industry complicating the problem?
Electricity consumption has been shrinking for years now, while the number of electricity suppliers has been increasing. This leads to intensified competition. Churn rates of well over 10 percent of the customer base are now the norm in many European countries, as highlighted by the Council of European Energy Regulators (CEER) in a report. Economic experts also estimate that the average cost to serve (CtS) of many utilities is too high. All of this is having a negative impact on their returns and diminishing the level of competition. In the expert guide, we explain why a CtS of 10 euros per customer and year is possible.
- What role do comparison websites and the new products offered on these sites play?
Comparison websites are the “Google of the energy industry”, as the spokesperson for a utility start-up puts it in the new expert guide. These websites enable customers to proactively gather information and conclude new contracts directly. The interesting part about this is that options such as “free iPhone” are also increasingly appearing on these portals. It’s evident what the underlying strategy is here: Individual utilities are trying to set themselves apart from the competition with new offers. In principle, three approaches are possible here: the bundling of energy contracts, regional bundles for example from municipal utilities, and the combination of non-commodity and commodity.
- How important is billing and the end of the contract term?
“Billing is a driver of churn – especially in the case of a ‘bill shock’ or additional payments,” explains an expert in the new expert guide. Speed of response is the key to counteracting this. In other words, queries about the bill should be answered very quickly, regardless of the channel through which they are then received. However, it is also true that error-free billing is getting progressively more difficult as product complexity increases. The utility’s IT system must therefore facilitate largely automated processes and ensure the automatic integration of regulatory changes.
- How can data science, AI, etc. help combat churn?
Advanced analytics, artificial intelligence, and machine learning make it possible to predict whether a customer will change providers (with a certain degree of probability), as shown by a study conducted by the statistical consulting provider Novustat (further info in the expert guide). This, however, all depends on the quality and volume of the data. Utilities benefit from the powercloud concept: Thanks to the open architecture, they can access the data directly at any time and analyze it from a churn perspective using the powerApp from the powercloud store, an external CRM, or a business intelligence tool.