Best Practice Customer Retention - Cost effective strategies to maximise Residential customer loyalty

SUMMARY

INTROUDCTION

Increasing costs of replacing customers and the strategic need to develop the customer base has placed greater focus upon delivering best practicein retaining customers to improve lifetime value. As direct sales tactics continue to win even those customers who are satisfied with their utility,new strategies need to be employed if customer value and margins are to be preserved.

SCOPE OF THE REPORT

• Stage 1: Consistent Service Competency how to eliminate dissatisfaction through the provision of reliable and consistent levels of service.
• Stage 2: Customer Lock-In building barriers to switching or creating positive reasons for the customer to stay - current and best practices
• Stage 3: The Safety Net ongoing efforts by utilities to identify and catch customers in difficulty, thereby improving satisfaction.
• Stage 4: Crisis Point Emergency efforts to retain customers in danger including home moving and winback strategies used in Europe.

REPORT HIGHLIGHTS

The Future of Customer Retention chapter provides a jigsaw of identified best practices from Europe, America, and Australia to improve customerloyalty from an optimistic 10% in 2003 to 30% by 2006.

Case studies of 26 companies across all retention-influencing aspects of contact and theproposition in general provide an excellent overview of where utilities can improve. This includes 9 detailed case studies that can be used as a modelfor emulation.

Analysis of the key drivers for retention in 2003, plus how these can be expected to change to 2006. This involves an assessment ofthe role of perceptions, expectations, and the management of these factors by the utility.

KEY REASONS TO BUY THIS REPORT

• Learn how to improve customer loyalty by up to a factor of three by 2006 by following best practice examples.
• Understand how to build a powerful brand by first eliminating the underlying dissatisfaction with the customer proposition.
• Achieve business and product uptake objectives by retaining customers for development -retention is now a more important priority thanacquisition.

TABLE OF CONTENTS

Overview

Introduction

STAGE ONE: CONSISTENT SERVICE COMPETENCY

Basic customer satisfaction revolves around uninterrupted power supply. However, to build upon this the utility needs to gain aperceived level of competency in meter reading, billing, payment, and query resolution. The first stage of a customer retention strategy, therefore,is to reduce the proportion of dissatisfied customers in the customer base by ensuring basic levels of service.

• Eliminating dissatisfaction
• The role of the call center

Eliminating dissatisfaction

• European utility industries at best have dissatisfied 12% of the customer base, predominantly due to billing and service issues.

The role of the call center

• A survey of call centre managers reveals what is best practice, with questions of speed, efficiency, training and complaint managementspecifically addressed.
• Case studies of an American utility\'s call centre, British Airways\' complaint management processes.

STAGE TWO: CUSTOMER LOCK-IN

This chapter assesses how to build upon basic customer satisfaction in order to develop more lasting customer relationships.

• Locking in the customer by increasing the perceived cost of leaving the relationship.
• Provide the customer with positive reasons to continue to choose your utility over and above the competition.

Customer lock-in

• Bundling services: examples of British Gas and Powergen\'s efforts to widen their propositions.
• Tariff retention: examples of Integral Energy, Sydkraft and TXU Energi

Positive reasons to stay

• Case studies on how to improve bill clarity, service, self-service, loyalty and affinity schemes. These include Eneco, Bangor Hydro, CreditUnion Australia, Natwest Bank, Helsinki Energy, Union Fenosa, and Green Mountain Power.

STAGE THREE: THE SAFETY NET

In a business of millions of customers, errors and misunderstandings are bound to occur. Utilities must therefore employ a"safety net" to catch these customers in difficulty and return them to the fold of ongoing and profitable service.

• Front-of-mind awareness: communicating with the customer
• Price and value for money: two sides of the same coin
• Best practice safety nets: Datamonitor\'s opinion

STAGE FOUR: CRISIS POINT

Customers targeted by sales teams may consider moving supplier for price or service reasons. Whilst many of these customers willundoubtedly be lost as a result of price considerations, a significant proportion that varies by market can be retained or won back by the utility.

• Winback strategies in the UK and Scandinavia
• Budgets for winback strategies
• The customers at risk (includes home-movers)

THE FUTURE OF CUSTOMER RETENTION

This chapter summarises where we stand today in terms of customer retention, and where we should be aiming to be by 2006 ifcustomer losses are to be stemmed. This includes a framework for action built from the range of best practices assessed in the report.

• What opportunities and dangers face the utility in 2003 for retention
• What threats are likely to emerge by 2006, and how should they be handled?
• A framework for an effective customer retention strategy

DATASETS

Table 1: European customer satisfaction with elements of the electricity supply service

Table 2: Why do customers leave their utility?

Table 2: Estimated costs of customer replacement with variable levels of annual customer loss in a customer base of 3 million

Table 3: Spread cost per customer of switching given varying costs of customer replacement

Table 4: Budget per customer at risk for retention efforts in varying market conditions for winbacks and customer replacement

FIGURES

Figure 1: A re-appraisal of the service proposition is required if utilities are to improve satisfaction ratings in the more demandingcompetitive market

Figure 2: Customer propensity to switch varies according to the customer\'s attitude towards their existing supplier, but price messages remainan ongoing threat to retention

Figure 3: Small changes in customer retention will have a major impact upon the average lifetime value of a 3,200 kWh customer

Figure 4: Small changes in staffing levels have a major impact on service levels achieved in the call centre – American utility example

Figure 5: Over 40% of UK customers still find that their complaints are handled badly or very badly

Figure 6: The channel of acquisition impacts upon the likelihood of customer retention in the UK

Figure 7: Utilities must concentrate on minimizing the longest call waiting times that impact upon customer retention, rather than improvingaverage and fastest response times

Figure 8: Customer communications: customer-centric and driven by brand values, not by sales pitches

Figure 9: Utility executives\' opinions on the factors that drive customer winback success in 2003

Figure 10: Channels used for customer winback strategies across Europe

Figure 11: npower provides conveyancing services for home movers – a revenue stream and a means of tracking the moving customer

Figure 12: Home-move tracking can greatly improve retention as large numbers of customers are lost when they move outside the incumbent supplyregion

Figure 13: 2003 – the stages of development towards customer loyalty

Figure 14: 2006 – improvements towards brand resonance and customer loyalty

Figure 15: Utilities must make full use of each of the few customer contacts in order to build customer loyalty 74