Updated on 09/01/2023
How to manage the Churn rate in the utility sector
Customer churn is a reality that almost every company has to deal with, especially those in the hyper-competitive Utilities and Energy sector. In this article, we will share five methods to help companies reduce the customer churn rate.
It is no longer the only commodity, nor just the efficiency of the network or distribution: today, the customer is the real center of business and interest in the Utility Industry. More than ever before, users represent the real added value.
It is a revolution for an enormous industrial sector that, in just a few years, has gone from being controlled by a few large players to an open and hyper-competitive market.
At this point, it is no longer a question of fighting over narrow price margins: the real challenge is all about customer care, the ability of companies to update their brand identity and—above all—to increase engagement with and loyalty of their users.
Nicola Lanzetta, Head of Italy Market at Enel, recently declared: “The product we offer—especially the basic one (the commodity)—is not a “sexy” service and we operators must be able to speak to consumers. Too often we still focus on the price of the single kw/hour and the single cubic meter. But if we think about what happened to Telcos: no one buys “x per minute” now, you buy a more complete service.”
The real challenge that companies must address is that of the churn rate: the rate that specifies how a company loses customers.
An ARERA report, updated to September 2021, shows the following data: 59.7% of Italian households chose the free market for the supply of electricity. This is a total growth of +2.4% over the last six months. Similar results also come for natural gas supplies. In this case, 62% of households have chosen the free market with an increase of +1.8% compared to previous surveys.
But this change was not limited to domestic customers. 70.4% of companies (+2.4%) chose the market for the electricity sector while 71.3% of condominiums (+1.4%) abandoned the protection for the gas sector (with consumption lower than 200 million cubic meters). In recent months, therefore, the growth recorded by the total number of customers who chose the free market has been considerable.
Well. Take all this data and consider this: a 5% increase in the customer Churn rate can lower profits from 25% to 95%, depending on the specific case. Frightening figures, focused in an in-depth study by Frederick Reicheld of Bain & Company, also taken from the Harvard Business Review.
What is clear is that the churn rate is a problem that companies can’t ignore. Reducing the customer churn rate is really important for companies in the utility sector. Not only because of the threat to revenue but above all, because these challenges present enormous opportunities.
And companies in the Utilities sector know this very well. These companies are strengthening and integrating marketing and customer service departments. They are making their processes digital, interactive, multi-channel, and customer-oriented.
That’s why giants like Engie, Enel, Fastweb, and A2A have chosen to rely on a company like Doxee, who is specialized in digitization services, personalized and interactive CCM, and video marketing, activities that put the spotlight on the customer.
Therefore, personalization is the frontier in the world of customer service, and it Utility companies take advantage of personalization to reduce customer churn rate. How? “knowing” each user, talking to him in one-to-one, understanding and predicting his needs, and being ready in the right place at the right time.
Below we will go into more detail, focusing on 5 concrete and effective methods – some more general, others more specific – through which companies in the Utility and Energy sector can significantly lower their Churn rate.
1. Don’t make false promises to the customer; instead, create the right expectations
The first method to reduce customer churn rate is actually something very basic, almost trivial, and valid for any type of business.
Something that becomes, however, absolutely fundamental for suppliers of electricity, water, and gas: basic necessities, which have a decisive impact on the environment and the quality of life of each and every one of us.
It is a question, in simple terms, of not making false promises from the beginning. So we must set up a clear, effective and simple dialog right from the start.
In fact, transparency is an important keyword for the companies in the sector: both for new players using the latest smart technologies and incumbents who are working to redefine their image and get closer to customers.
The customer is no longer passive; he is informed and can switch to another supplier with a few clicks, and has the power of social media where he can broadcast his complaints.
This is what happened to Scottish Power, a company with more than 3 million customers, which in 2016 was forced by British regulators to pay a hefty fine of £18 million for its lack of customer service. Complaints accumulated by the company between June 2013 and December of 2015 amounted to over a million and the churn rate, of course, soared.
2. A good customer service is omni-channel and it works 24/7
If the customer has become the center of the business, customer service is the department to which the greatest investment and attention must be channelled.
A user in difficulty, who has encountered problems or who is simply looking for information, expects clear, effective and, above all, rapid answers. Technology helps companies to be “always on” and available.
And all this can only happen in an omnichannel dimension: a well-designed and efficient help center on your site, first of all, that works perfectly even in live chat mode. It also requires activities on mobile and through apps, which are increasingly used by customers, but also through traditional channels, like mail, which are still relevant.
Being omnichannel, then, also means knowing how to interact on social networks: this is an area where businesses can’t afford to be careless.
Overall, according to the Customer Experience Impact report, 86% of users are willing to pay more for better customer care. And 89% of customers switch to a competitor precisely because of negative experiences in the field of customer service. These numbers are worth a thousand words.
3. Reduce customer churn rate by exploiting big data (but be smart about it)
How is it possible to employ personalization when you have to deal with a huge number of users? This is where “big data” can help. Big data allows us to know as much as possible about our target customers—no matter how many.
Of course, it is not enough to collect data; it is also necessary to be able to analyze the data in a way that is meaningful to your business. So, divide those who interact (or could interact) with our brand into segments that are as specific as possible, pulling from personal, geographical and social data. On the basis of this clustering, it will then be possible to target the various segments with actions and communications that are as tailored as possible.
Big data is fundamental for tracing the customer journey of users, identifying critical points, and catching those signals that anticipate and reduce customer churn rate, which, after all, does not come out of the blue, but is in fact, predictable.
4. The frontier is customization
We have described above how important it is to tailor messages as much as possible, starting from the segmentation of the target through intelligent analysis of big data. But you can go further than the typical one-to-many approach and embrace the one-to-one perspective. This allows you to address each user in a personalized way, based on their unique characteristics.
All of this is made possible by services such as those offered by Doxee, in an omnichannel perspective (from personalized videos via email, with the possibility of inserting multiple calls-to-action tailored to the individual user, as well as upselling and cross-sell actions in an omnichannel perspective), with the result of increasing the rate of engagement, loyalty, and, therefore, decisively reduce customer churn rate.
5. The bill – when it is personalized and interactive – increases loyalty
With personalization, the customer is really at the center of the business. And traditional touchpoints (which may increase churn) are transformed into new opportunities for dialog, loyalty, and the creation of added value.
The interactive and personalized bill is the most striking example of this reversal of perspective. The most proactive companies are already taking advantage of this opportunity, with important results: Engie, Fastweb and A2A, for example, have already transformed their bills into a powerful marketing tool thanks to Doxee’s services.