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CRM and the Bottom Line in the Utility Industry

Utilities in the UK, Sweden, and Germany are currently facing declining retail margins as rates for residential customers are cut while standards of service are raised. They therefore face a double squeeze upon their profitability: falling prices and increasing demands for customer service.
 
In contrast, suppliers to the non-competitive markets in Italy and Spain (likely to deregulate in 2003) and France (2007) are in a more comfortable position. Constant prices ensure constant returns, but the spectre of competition - and competition with the increasingly efficient utilities that have developed in the UK, Sweden and Germany - must drive them to fundamentally reassess the way that they serve their customer base.
 
With this in mind, Datamonitor examines one aspect of CRM in the context of the utilities industry to establish a business strategy that is directed at ensuring that every customer is handled effectively, according to their own profile, and that management decision-makers are empowered with timely and appropriate information. At present, few decision makers are sufficiently aware of the specific costs to serve a residential customer in their respective national markets, and consequently are failing to take the initiative. The key to reducing costs for suppliers, whilst retaining a high level of service, is balancing the demands of each.
 
Many utilities have taken the plunge in buying costly CRM technology to integrate the front and back office, allowing the transformation of the call centre into a contact centre. The result of an integrated IT structure opens up many doors for suppliers wishing to raise service and reduce costs, but too many suppliers are regarding integration as the end result. In most cases, CRM technology should only be regarded as the means to an end, rather than the solution per se.
 
A good example of this can be seen in the way that utilities handle customer queries through the call centre. IT integration has allowed the development of contact centres in most utilities, so that customer support representatives (CSRs) can receive calls by phone and the web, and have the ability to view a customer's profile upon contact. This may well improve the level of customer service, but fails to maximize the full potential of the technology. It may now be possible to track which customers are calling and how often, which is a useful guide in judging the success of the "one-and-done" goal - where customer queries are resolved in a single contact. However, Datamonitor research shows that across Europe 1.86 contacts are currently required to resolve a query. So where are utilities going wrong? The answer lies in the way that CSRs are trained and motivated. CSRs are commonly incentivized to reduce call duration per contact with a view to reducing costs. However, these incentives are having a negative effect upon the bottom line, as customers repeat their queries at a later stage either through the call centre again, or through more expensive communication channels such as the post or face-to-face at a company's offices. CSRs must therefore be incentivized to provide a quality service that both the customer and the bottom line appreciate, whilst paying regard to the length of call.
 
Nevertheless, the call centre manager should not assume that customers enjoy the experience of calling the call centre, or that they would not prefer to serve their own needs given the opportunity. CRM technologies can identify the most common customer queries in any given month, and then management can take this information and act upon it to significantly reduce costs. By placing this information upon the Internet, where the customer pays for the cost of the call, suppliers can dramatically reduce overheads at the call centre. Indeed, Datamonitor estimates that utilities can enable customers to answer 19.2% of queries currently being made to the call centre. These include address changes, meter submissions, tariff queries, and changes to payment plans. Where customers do need additional help, they can e-mail the supplier rather than using the phone. The respective average costs per contact incumbent upon the supplier are radically different, at $0.70 for e-mail resolution and $19.36 by telephone.
 
So why haven't utilities taken advantage of these cost savings? Part of the reason is that they have been slow to collate and act upon the information that CRM technologies can compile. Secondly, too many utilities are using the website as another means to advertise their own products and services, rather than taking the customer-centric attitude and addressing the customers' own wants and needs.
 
Yet some utilities, most notably in the regulated markets of Italy, Spain, and France, continue to offer face-to-face service through retail outlets and customer contact points. The cost of providing these services is likely to be prohibitive in the competitive market, where cost is the major factor in determining a customer's decision to stay with a supplier or switch. For example, the average cost of processing a customer's bill payment in a company branch office has been calculated to be $1.71 in comparison to $0.10 for a direct debit payment. Customer service costs per query are as proportionately expensive by face-to-face means in relation to the Internet. The customers may well be happy to receive such service, but it remains a fact that the provision of this level of customer service will simply be untenable as these utilities enter competition.
 
Nevertheless, CRM technologies are now enabling CSRs to understand the individual needs of the customer, and provide the kind of personalized service that one would hope to receive when in a company branch. Indeed, the fast recall of customers' profiles may actually be quicker and better than the service provided on a face-to-face basis.
 
Overall, therefore, utilities need to step back and analyze from the customer's perspective what is needed to keep them content, but also have a firm understanding of what the provision of each service costs. Datamonitor's "Minimize the cost to serve and achieve customer satisfaction" has been written with these two crucial considerations in mind, establishing exactly where typical utilities in the UK, Germany, Sweden, Italy, Spain, and France are shouldering the costs of serving their customers. Until utilities have this cost basis per communication and transaction channel, for which Datamonitor used a large pan-European customer survey in addition to expert interviews and analysis, the aim of ensuring that every customer is handled effectively will remain a distant goal. The ultimate cost of failing to achieve this goal may result in the decline or fall of many a utility in the competitive marketplace.
 
 
Readers wishing to learn more about this subject should contact Jane Simmonds in the Datamonitor PR office on 020 7675 7824.
 
The following two Datamonitor reports analyse the costs of serving residential utility customers, and the best means by which utilities have been able to reduce these costs without harming customer satisfaction:
 
"Minimize the cost to serve and achieve customer satisfaction" ;and "Best practice in residential Customer Relationship Management - Maximizing efficiency & profitability"