Beyond transactions: Creating value through customer partnerships in utilities

Beyond transactionsCreating value through customer partnerships in utilitiesAn Economist Intelligence Unit white paperSponsored by SAP

Beyond transactionsCreating value through customer partnerships in utilities

© Economist Intelligence Unit Limited 20091

Preface

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



2

Contents

Introduction 3

Key fi ndings 4

Conclusion 7

Appendix 1: Overall survey results 8

Appendix 2: Americas survey results 13

Appendix 3: Asia-Pacifi c survey results 18

Appendix 4: EMEA survey results 23



Introduction

A half-century ago, when energy was cheap and conservation rare, electricity consumption grew on average by 9-10% per year. Today lower levels of economic growth, higher energy prices, greater conservation and the movement of people to warmer climates have reduced the level of growth to closer 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



4

Building the brandWhile 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 informationOne 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 relationships

Providing a consistent customer experience

Gathering customer intelligence in the course of providing service

Targeting the right customers in order to close a high percentage of prospects

Segmenting and profiling customers

Which of your organisation’s activities are most in need of improvement? (% respondents)

Source: Economist Intelligence Unit survey, September 2009.

33

32

25

24

21



Improving online relationshipsIn 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.

Commoditisation conundrumSurvey respondents do not see pricing as a way to differentiate their products. A plurality says that they lack pricing fl exibility compared to their competitors, and seven out of ten suggest that pricing fl exibility is not necessary, since price is not the most important concern for their customers anyway. These results are not surprising in an often regulated and frequently oligopolistic industry. Without the ability to distinguish their products based on price, companies need to fi nd other differentiators.

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 commodities

Regulatory restrictions in providing services

Large infrastructure costs in fulfilling new orders

Perceived cost of switching (base is overly entrenched)

We have not sufficiently differentiated our brand

What are your biggest challenge in acquiring customers? (% respondents)

Source: Economist Intelligence Unit survey, September 2009.

48

30

24

19

18



6

How the regions differThe 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.



A recent Harvard Business Review essay said, “Electricity and gas customers—aided by the utilities themselves—are reducing consumption. Sales are already fl attening and they’ll only fall faster as governments put in place more incentives to control greenhouse gas emissions.”2 In this low-demand environment, utilities will need to reach out to customers to fi nd things that they will pay for—service, reliability, shared values—to maintain margins and keep them from switching providers.

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

Appendix 1Overall survey results


Appendix: Overall survey results

49

36

12

3

Operational excellence: Creating highly efficient processes

Customer service: Providing superior service to clients

Product 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)

0 20 40 60 80 100

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 leads

Developing and launching new products

Planning and executing campaigns

Analysing and segmenting customers

Gauging customer satisfaction

Measuring effectiveness of processes

Responding to customer demands or complaints

Incorporating customer feedback into products/services

Other

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.(% respondents)

3 10 28 32 17 10

2 13 20 38 15 11

3 10 23 41 16 8

5 10 27 28 19 11

5 9 28 30 24 4

4 12 35 33 13 5

1 12 16 42 25 4

7 18 24 32 14 5

5 5 26 16 47









Cross-selling or upselling customers

Ensuring that customer complaints are resolved quickly

Measuring customer satisfaction and loyalty

Involving customers product/service development (eg, co-creation)

Generating qualified leads

Creating effective collateral

Efficiently acquiring customers (eg, reducing the cost of sales)

Measuring/optimising effectiveness of marketing and promotional campaigns

Maximising the number of repeat sales

Other

Don’t know

In your view, which of your organisation’s activities are most in need of improvement? Select up to four. (% respondents)

33

32

25

24

21

20

20

19

18

17

15

14

11

11

4

8

Developing and sharing a detailed picture of customers, behaviour and preferences

Presenting customers with a consistent picture of the organisation

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

Prioritising resources directed towards customers by total value over life of customer

Helping each function find and act on ways to support the others

Integrating customer tracking from lead through post-sales service

Establishing common definitions, assumptions and data

Measuring 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

Other

Don’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. (% respondents)

31

30

30

28

26

25

18

9

4

4

12

0 20 40 60 80 100

Do you agree or disagree with the following statements?(% respondents)

In chosing to do business with my organisation, price is the single most important factor most customers consider

Compared to our competitors, my organisation’s customers are more loyal

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 products

Despite 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 ago

Customers 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

31 65 4

52 27 21

41 42 17

34 40 26

42 34 25

36 48 17

58 27 15

51 36 13

55 27 17

27 46 27




Global economic downturn

Significant demand shifts for our products/services

Finding access to credit/capital

Focusing on sustainability efforts

Emergence of new competitors

Changing customer requirements

Disruptive technology developments

Emergence of new markets for our products and services

Accessing key components or resources through our supply chain

Other

Don’t know

Which of the following trends have had the greatest impact on your business over the past 12 months? Select up to three.(% respondents)

65

28

27

23

21

21

16

11

10

7

3

Improving usability, search and navigation of customer-facing websites

Improving online or self-service product support tools

Making prices and sales terms more transparent for easy comparability

Investing in self-service tools across multiple channels (eg, web, mobile devices, e-mail, point of sale)

Building or supporting online customer communities

Other

Don’t know

In which of the following ways does your organisation empower its customers? Select all that apply.(% respondents)

38

38

37

31

28

4

10

Reliability

Customer service

Environmental “green” concerns

Price

Flexibility in changing offerings

Safety

Overall customer experience

Ability to scale quickly to meet demand spikes

Source of power generation (hydroelectric, natural gas, wind, solar, etc.)

Variable pricing (based on demand, season, etc.)

Convenience

Other

Don’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. (% respondents)

65

41

38

32

30

26

25

18

18

17

12

1

3

2

25

57

12

4

Seamlessly

Very well

Somewhat

Poorly

Not at all

How well has your organisation made use of customer feedback to differentiate utilities offerings and make them appear less commoditised?(% respondents)









Too difficult to compile and analyse leads from different sources

Other

Don’t know

Which of the following represents your institution’s biggest challenge in acquiring customers? Select up to two. (% respondents)

48

30

24

19

18

8

2

6

Western Europe

Asia-Pacific

North America

Eastern Europe

Middle East and Africa

Latin America

In which region are you personally based? (% respondents)

35

24

24

9

5

4

Power

Gas

Water

Sewage

Other

Which of the following services does your company provide?(% respondents)

57

38

8

5

34

Board member

CEO/President/Managing director

CFO/Treasurer/Comptroller

CIO/Technology director

Other C-level executive

SVP/VP/Director

Head of Business Unit

Head of Department

Manager

Other

Which of the following best describes your title?(% respondents)

2

10

6

2

4

12

5

23

30

7




27

17

13

10

33

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more

What are your organisation’s global annual revenues in US dollars? (% respondents)

General management

Strategy and business development

Operations and production

Finance

IT

Marketing

Customer service

Sales

Risk

R&D

Human resources

Procurement

Information and research

Legal

Supply-chain management

Other

What are your main functional roles? Please choose no more than three functions.(% respondents)

35

35

21

17

13

11

11

10

9

8

8

5

3

3

2

5

47

12

41

Business-to-business

Consumer/retail

Both

Who are your organisation’s primary customers?(% respondents)

69

31

Consumer/retail


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


Appendix 2Americas survey results


Appendix: Americas survey results

59

38

3

0




Other


0 20 40 60 80 100










Other


3 14 24 24 21 14

3 14 31 14 17 21

3 7 28 31 17 14

3 7 24 24 24 17

7 7 17 31 31 7

3 14 24 38 17 3

14 21 28 31 7

10 14 21 31 17 7

29 14 57


















Other

Don’t know


28

24

24

21

21

21

21

17

17

17

14

10

10

7

7

10










Other



38

31

31

24

24

17

14

7

0

0

17

0 20 40 60 80 100













32 64 4

63 22 15

52 33 15

37 41 22

46 31 23

44 41 15

43 39 18

37 37 26

52 19 30

33 41 26













Other

Don’t know


62

38

34

24

21

17

14

14

7

3

7






Other

Don’t know


45

41

28

28

24

0

7

Reliability

Customer service



Price


Safety




Convenience

Other

Don’t know


62

45

41

34

31

24

24

21

17

14

10

0

3

3

14

69

10

3

Seamlessly

Very well

Somewhat

Poorly

Not at all











Other

Don’t know


45

38

24

17

14

7

0

7

North America

Latin America

Asia-Pacific

Eastern Europe

Western Europe


In which region are you personally based?(% respondents)

86

14

0

0

0

0

Power

Gas

Sewage

Water

Other


62

28

10

7

17

Board member





SVP/VP/Director


Head of Department

Manager

Other


0

10

7

0

3

17

3

10

38

10




34

24

7

7

28

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more



General management


Finance

Customer service

Risk

Sales

R&D

Human resources

Marketing

Procurement

IT

Legal



Other


38

31

28

21

17

14

10

10

10

7

7

3

3

3

0

3

39

14

46


Consumer/retail

Both


58

42

Consumer/retail




Appendix 3Asia-Pacifi c survey results


Appendix: Asia-Pacifi c survey results

44

40

12

4




Other


0 20 40 60 80 100










Other


4 4 21 50 13 8

4 4 17 46 17 13

4 8 13 54 13 8

8 4 33 29 25 0

4 8 29 33 25 0

4 4 33 38 21 0

4 4 21 50 21 0

8 8 21 38 17 8

40 20 40


















Other

Don’t know


52

36

32

28

24

24

24

16

12

12

12

8

8

8

0

8










Other



40

32

24

20

20

20

20

16

12

8

8

0 20 40 60 80 100













24 72 4

52 24 24

40 48 12

48 40 12

25 42 33

36 56 8

72 20 8

60 36 4

52 32 16

28 56 16













Other

Don’t know


68

36

32

28

24

16

16

8

8

4

0






Other

Don’t know


40

36

36

36

24

4

12

Reliability

Customer service

Safety


Price






Convenience

Other

Don’t know


80

52

44

36

32

32

20

16

16

16

4

0

0

0

32

56

8

4

Seamlessly

Very well

Somewhat

Poorly

Not at all











Other

Don’t know


40

32

32

28

24

12

0

0

Asia-Pacific

Latin America

North America

Eastern Europe

Western Europe



100

0

0

0

0

0

Power

Gas

Water

Sewage

Other


52

24

12

0

32

Board member





SVP/VP/Director


Head of Department

Manager

Other


4

16

8

0

8

12

8

16

16

12




40

24

12

4

20

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more


General management



IT

Finance

Customer service

Marketing

Procurement

Human resources

Risk

Sales

R&D

Legal



Other


36

36

32

24

20

12

8

8

8

4

4

4

4

4

0

4

60

16

24


Consumer/retail

Both


80

20

Consumer/retail



Appendix 4EMEA survey results



Appendix: Europe Middle East and Africasurvey results

47

31

18

4




Other


0 20 40 60 80 100










Other


2 10 35 29 16 8

18 16 49 14 4

2 12 26 40 16 4

4 14 26 30 14 12

4 10 35 29 18 4

4 14 41 27 6 8

14 12 47 24 4

4 26 28 30 10 2

14 14 14 14 43


















Other

Don’t know


33

31

27

22

22

22

20

20

20

18

16

16

16

12

4

6










Other



35

33

31

31

27

24

20

4

2

4

12

0 20 40 60 80 100













33 63 4

46 32 22

35 43 22

25 39 35

47 31 22

31 47 22

59 24 18

55 35 10

59 29 12

24 43 33













Other

Don’t know


65

29

25

24

22

16

12

8

8

10

2






Other

Don’t know


41

41

37

33

24

6

10

Reliability



Price

Customer service



Safety

Convenience



Other

Don’t know


59

41

37

33

33

22

18

18

18

16

14

2

4

2

27

51

16

4

Seamlessly

Very well

Somewhat

Poorly

Not at all











Other

Don’t know


57

22

20

18

16

6

4

8

Western Europe

Eastern Europe


Asia-Pacific

Latin America

North America


73

18

10

0

0

0

Power

Gas

Water

Sewage

Other


57

51

6

4

45

Board member





SVP/VP/Director


Head of Department

Manager

Other


2

8

4

4

2

10

4

33

31

2




16

10

16

14

43

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more


General management


Marketing

Finance

IT


Sales

Risk

R&D

Customer service


Human resources

Procurement

Legal


Other


37

33

16

14

14

12

12

8

8

8

6

6

2

2

0

6

45

8

47


Consumer/retail

Both


73

27

Consumer/retail



28

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