In today’s connected world, with rising living standards and with the proliferation of digital gadgets, consumption and demand for electricity should ideally be growing steadily. However, reality offers a different picture. A quick look at the statistics from some of the developed countries shows us some quite surprising trends. Residential Energy consumption in Australia has actually declined over the last 3 years. Growth in electricity in US households is forecasted to rise by only 0.6% till 2040, a far cry from the 8% growth seen in the last few decades. Europe has seen modest increase in consumption but a lot of it can be attributed to severe cold winters over the last few years.
So why do we see this flat growth in energy consumption globally? Is it the rising electricity prices that have forced consumers to cut consumption? Are all the home solar installations eating into the energy requirements from the grid? These concerns coupled with rampant consumer churn figures in markets like Ireland and Australia have left most retailers scratching their heads.
Utilities are used to little competition and follow the - ‘build it and they will come’ mode of operations. And this requires a sea of change, specifically from a supply side perspective, which indeed is underway. We have seen a few of our own customers re-orienting both their business structures and IT systems focusing on the retail operations within the organization. But this is not enough. The new business model entails taking a leaf out of the traditional retail practices and completely re-orienting your business from a customer centric perspective.
For an industry that is used to worrying more about meters than customers, Utilities, surprisingly are very well placed to better understand and know their customers. A McKinsey paper highlights Utilities as being placed the best amongst organizations in terms of data availability and ease to capture data. Where traditional retail firms spend a lot of time and effort in identifying the customer and linking it back to demographics, Utilities have always had a rich set of household, credit and demographic history for all their customers. In fact, adding the consumption patterns from smart grid data is also providing a whole new view on the customer base.
Clustering techniques can also provide a better view of the customers and enable Utilities to target them better with only the relevant offers. These techniques can also help identify which prospects are more likely to respond to certain campaigns, thus reducing the customer acquisition costs and enhancing the campaign ROI. Identification of the most profitable customers / plans or early view of the potential churn is something that most Utilities will need to know and manage to operate profitably in this new market. With the prevalence of social media, they also need to know and manage their online ‘reputation’. Employing social media analytics and building a response strategy around the same is also going to be critical to improve customer satisfaction.
On a related note, it is not just the customers’ side of things; there are a number of other ways to improve profitability; for example, being able to predict the potential revenues based on weather forecasts or identifying potential defaulters’ thus improving credit collection or better management of peak time demand requirements.
The bottom line is that the Utilities that will prosper are those that will quickly adapt their processes to this fast changing competitive landscape and make the best use of the vast amounts of data they already capture. The era of constantly growing demand with economic growth seems to be coming to an end and the quicker they adapt to it - the better!