The Future of Loyalty in Utilities
9 Nov 2021
We’ve picked an interesting moment to look at the utilities sector, as – at the time of writing – a number of smaller suppliers have ceased to trade...
We’ve picked an interesting moment to look at the utilities sector, as – at the time of writing – a number of smaller suppliers have ceased to trade in the face of soaring gas prices, with their existing contracts being switched to larger providers like EDF and E.ON and customers are already anxious about soaring fuel bills in the year ahead. And with an intriguing array of discrepancies between the size of spend and the levels of reward for utilities customers, what extra value can these providers offer to maintain customer satisfaction and retention?
Is the utility sector too obsessed with recruitment?
There are a number of similarities between the utility sector and the supermarket industry, namely that there is much greater choice than there used to be and that the advent of technology has reduced switching costs to zero in many cases. It is therefore surprising that the utility sector has not embraced the sort of loyalty programmes or schemes that are seen in so many other parts of the service sector.
Compared to industries such as airlines, car rental, financial services, telecoms, hotels, cinemas, restaurants, fuel and technology, all of which have very advanced and well-respected loyalty programmes, it is all the more surprising that utility providers in the main have not acknowledged the need to say thank you to their loyal customers.
If anything, the utility providers have gained a poor reputation, in the same way as many banks or telecoms companies have, by rewarding disloyalty and treating new customers much better than their existing clients. Given that utilities represent a significant amount of expenditure each year for the average household (typically the fifth largest component of household spend after housing, food & drink, transport and leisure), it is all the more alarming that most providers seem hugely disinterested in retaining existing customers.
With a plethora of aggregators offering very easy and painless switching between providers, it is staggering that many of the players, both big and small, invest so little in retention. Although some utility providers have started exploring different loyalty mechanisms, it remains the case that the bulk of the industry is more obsessed about recruitment. A lot of the providers marketing endeavours are focused on encouraging customers to switch from other providers, rather than extolling the virtues of remaining with the business.
How do you achieve loyalty?
The objectives of loyalty programmes are generally fourfold:
Remain - will customers continue to do business with a certain provider?
Recommend - will customers recommend the provider to other consumers?
Re-evaluate - will customers adapt their spending behaviours in exchange for greater rewards?
Reconnect – will customers elevate their relationship with a business beyond the transactional?
Several businesses in the sector do acknowledge the power of recommendation and a number of them offer rewards for referring a friend to that provider.
Where some of them have made progress is on the spend aspect where they can reward customers for extending their contracts to include other fuels or services such as broadband or mobile. A few providers also provide end of year rebates if a customer renews their contract, although these are not hugely significant sums of money involved and the narrative seems to be that most customers could save more than the rebate by switching provider each year anyway.
One other area of progress is that a number of providers have bolted on charitable or environmental initiatives based on the number of customers they have or the different tariffs that customers choose. This no doubt does wonders to enhance their reputation and has obviously impacted the loyalty from some customers based on the statistics provided by the providers.
It is unsurprising to see that some of the more enlightened philosophies regarding loyalty come from providers who are affiliated with retailers, such as Sainsbury’s or Shell, who have already established very successful loyalty mechanics elsewhere in their business.
In an era of unparalleled choice, the logic behind loyalty programmes is fairly simple:
Customers enjoy being thanked for their loyalty and also enjoy unexpected rewards for continuing to spend money with a business. As we have seen in other sectors like airlines and hotels, for example, customers also enjoy participating in tiered reward programmes where the best customers enjoy the best rewards. However, there is zero evidence of this being adopted by the utility's industry, and we feel that the sector is missing a trick by not saying thank you to their loyal customers at any stage.
Examples of some current loyalty mechanics
Certas Energy: Certas, a supplier of home heating oil, offers a rewards scheme called Cetas Entergy Extras, which is provided by Wrkit – usually a specialist in employee engagement and rewards. The scheme offers high street discounts, cashback and offers from retailers such as Curry’s PC World, Halfords, M&S and Nespresso, as well as discounts and cashback from leisure companies and restaurant chains. It might be a generic solution, but it is certainly better than nothing and provides some tangible benefits to loyal customers.
Co-op Energy: This retailer-branded offering is a white-labelled service supplied by Octopus Energy. It is affiliated to Midcounties Co-operative and customers are able to earn membership points on the money they spend through the energy tariffs, as they would when using other parts of the business such as broadband, food stores and funeral care. Points are accumulated throughout the year and distributed in the form of vouchers each November.
Sainsbury's Energy: The Sainsbury’s proposition, supplied by E.ON, offers some attractive rewards such as up to 12,000 Nectar points for new customers (rewarding disloyalty and new customers!), but also offers bonus Nectar points when shopping in Sainsbury’s. Importantly, the marketing literature includes the phrase “We'll carry on rewarding you for as long as you're with us” and the scheme also rewards changes in spending, with customers receiving triple Nectar points every time they shop with Sainsbury's for buying both electricity and gas as compared to double points for just buying one fuel.
Shell Energy: Similarly to Sainsbury’s, Shell Energy benefits from being part of a broader consumer-facing ecosystem that has an existing loyalty mechanic. As such, Shell Energy customers can benefit from an exclusive 3% saving on fuel at Shell service stations through the Shell Go+ rewards programme. Customers can also benefit from other Shell Go+ features, including personalised offers and other surprises. The Shell Go+ programme sees customers who spend £10 or more on fuel or £2 or more in the shop receiving 10% off all hot drinks, deli2go and Jamie Oliver deli by Shell food ranges.
Utilita: A pay-as-you go energy provider, Utilita offers benefits for extending spend into telecoms. In addition, as a sponsor of two arenas in Newcastle and Birmingham, it is also able to offer customers perks such as competitions to win free tickets and early access to concert tickets etc.
Elsewhere, a number of other providers like Ovo (tree-planting), Outfox the Market (contributions to the Healing Little Hearts charity) and ScottishPower (special tariffs that contribute to Cancer Research) have all provided some degree of motivation to remain a customer.
The future and opportunities
As in so many aspects of life, the provision, consumption and monitoring of home energy has already become heavily digitised through the deployment of smart metering, smart thermostats and heating systems and other IOT-powered innovations such as smart lighting and appliances. It is not implausible to consider a future where the delivery of, consumption of, monitoring of and payment for home utilities are all bundled together in a smartphone- and IOT-enabled ecosystem that make the entire process as seamless and efficient as possible.
The fact remains though, that, even with the ongoing instability and consolidation caused by rocketing gas process, that there will still be a significant degree of choice in terms of providers and that customers will be faced with an annual, largely price-driven, choice between them.
How can utility providers make their relationship with customers less transactional and functional? How can they create a more emotional connection between themselves and their best customers that will make the annual merry-go-round of defections less likely? Our solutions would be largely found in communication, community and rewards…
Communication: Many customers opt out of communication channels such as email and SMS, justifiably weary of a torrent of irrelevant messages and promotions from a wide array of commercial entities. Furthermore, those that are opted into communications merely receive generic, impersonal messaging that do not express acknowledgement of, or gratitude for, loyalty. Adding insult to injury, communications from utility providers are often linked to renewal dates. A recommendation here would be for more personalised communications that acknowledge duration of custom, the value of that custom and at least a thank you. The cadence of communication should be decoupled from renewal dates – generating at least a faint hint of surprise, if not delight.
Community: Customers appreciate businesses that give back to the communities in which they operate. This can be achieved through charitable or environmental endeavours as outlined in the examples above, or perhaps through empowering employees to embark on direct community action programmes. Such initiatives have been well-regarded when conducted by enterprises in other sectors like retail and hospitality and have been proven to strengthen affinity when consumers have to make choices between similar businesses.
Rewards: As discussed, a number of utility providers have participated in rewards schemes that offer all customers (regardless of tenure) a variety of discounts and rewards. While this is a welcome progression, we would argue that more needs to be done to reward a provider’s best customers – those that have been loyal for years and/or those that spend a hight than average amount or are engaged across different fuels and other services like telecoms.
tcc has a great track record, both here in the UK and in other markets around the world, helping a variety of service providers in areas such as utilities to say thank you to their best customers, through physical, experiential, and digital rewards. Get in touch to see how we can help you supercharge your relationship with customers to help retain and support growth.