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29 October 2020 / Opinion

There's power in loyalty: shifting customer focus in the energy sector

Victoria Yusuf / Junior Planner

Existing customers might be energy’s secret weapon to succeeding in a post-COVID world, making retail the perfect paradigm for utility brands.

A whole new world

Like most other sectors, to say energy brands have faced a challenging 2020 is somewhat of an understatement. From missed smart meter installation targets, to reductions in demand from commercial customers due to lockdown, the wake of COVID-19 has exacerbated some existing challenges and birthed new ones.

A new world means a need for new tactics, and as the pandemic induces unprecedented levels of customer churn within the utility market, retaining customers is set to be harder than ever before. Energy brands may find that relying on dormant customer behaviour and aggressive customer acquisition strategies are no longer enough in the post-pandemic world.



Retention should be energy’s priority

What can energy companies learn from other sectors to battle this apathy vs acquisition balance? Retail may be the perfect paradigm for energy brands looking to retain customers. Could a shift from acquisition to retention and loyalty be a more sustainable and rewarding strategy? With many businesses focusing on survival right now, developing a customer loyalty strategy may be far from front of mind. But for energy brands, it may be the only viable option.

The Covid Churn

Firstly, energy has typically enjoyed the benefits of dormant customer switching behaviour, but with covid-induced churn levels, we can expect customer retention to be more of a challenge in the future. 2020 has seen “a quarter more UK households switching suppliers in comparison to last year”, as households deal with higher energy bills due to spending more time at home during the lockdown. In the run up to Christmas, we can only expect these churn levels to increase as household finances are squeezed and colder weather hits, so shopping around for cheaper alternatives is likely to be more of a priority than ever (USwitch).

Mainstream media has also added fuel to the fire, headlining that loyal customers are overpaying to fund seductive new customer incentives. It’s simply a numbers game… energy brands that rely on customer acquisition in the future run the risk of ending up in a never-ending loop, where for every “hundred thousand customers recruited, more existing ones leave".

A Sea of Sameness

Secondly, the energy market is becoming increasingly crowded and ever more competitive, with challengers not only amongst suppliers, but aggregators too. MoneySavingExpert.com has recently launched its own auto-compare-and-switch system, a tool that they claim makes switching energy suppliers ‘easier than ever’. Whilst this model isn’t new, it’s expected that a trusted mainstream brand like MSE – with a huge community and following in its own right – could prove to be a significant threat to the industry. Which, alongside the extended price cap and increasing wholesale prices, means that brands previously using price as their differentiator, will need to find new ways to connect and stand for something beyond cost.

A focus on retention strategies can serve as the antidote to sameness, as it means refining a distinct and intangible brand identity, that creates a long-lasting emotional bond with customers.

A Faltering Future for Acquisition?

Lastly, whilst energy suppliers rely heavily on price comparison websites (PCW) for customer acquisition, they are rapidly losing trust due to their affiliate structures. Consumers are becoming increasingly savvy and undertaking their own research. Could this be a stepping stone towards a future where the masses opt for auto-switch sites and seek out non-profit PCW’s like Citizens Advice instead? Fortunately, retention strategies, more often than not, also lead to acquisition and are much cheaper, as loyalty from existing customers typically inspires new recruits through word of mouth (The Drum).

Despite the allure of chasing new customers, there are countless benefits to putting proportionate energy into retaining existing ones.



Lessons in loyalty: what can energy learn from retail?

Roots in Retail

We know that even in the most challenging times, the answer to survival is building loyalty and being rewarded with advocacy, but how? Getting customers to consciously choose to repeat purchases with the same brand, regardless of changes in the environment or market, but simply because of the positive sentiment towards the brand, is true brand loyalty.

In such an aggressively price-driven market, it’s safe to assume that this is not the case for most energy brands. The key building blocks for achieving this are in strengthening the relationship between the brand and the customer through brand story, personalisation and rewards.

As a massively customer-centric industry, it’s unsurprising that the roots of loyalty go all the way back to 18th-century retailers and still remains a successful strategy in retail today (Smile). But with physical stores closed and supplier chains strained as a result of the COVID-19 lockdown, many “auto-pilot brands have been out of stock”, or failed to adapt their online offerings, forcing consumers to abandon brand loyalty and buy from smaller, substitute brands.

Stats show that “39% of consumers globally, purchased from new brands during lockdown” (Marketing Week). With smaller retailers scrambling to hang on to their new swell of customers and bigger ones trying to bounce back by retaining their existing ones, for the first time, retailers seem to be running the same race as energy brands, as the industry collectively ramps up its focus on loyalty (Bynder).



3 challenges we pose to the utilities industry to drive power in loyalty

1. Lead with purpose

Research shows that crafting an authentic brand story that people can resonate with is a powerful tool in activating loyalty as “63% of consumers prefer to do business with brands that share their personal values and beliefs”.

Nike’s “award-winning Dream Crazy ad campaign, featuring NFL star Colin Kaepernick is arguably no better proof of that”, as a brand they have always leveraged powerful storytelling to transcend being merely a sport goods company (Bynder). Nike has become a “mindset, a way of life” and you will notice that consequently, price is irrelevant and rarely mentioned in their messaging. By “leading with purpose”, they have successfully “driven positive change on some of society’s most pressing issues, while attracting a loyal fanbase” that has and pretty much will, last a lifetime (Bynder). COVID-19 only increased purpose led brand messaging, as under the world’s watchful eye, brands were forced to back up their purposeful words with action.

Retail arguably took lead on this, as we saw the likes of Kurt Geiger inadvertently boost sales, after warming the hearts of customers when its CEO sacrificed his salary and they generously donated shoes to key workers and Brewdog, adopting a public service role by adapting its operations, to meet hand sanitiser demand.

Like retailers, energy brands need to build a strong and consistent brand story that transcends price, to stand out in this increasingly competitive market. Some energy players are already correctly leveraging purpose-filled stories, by moulding the green energy conversation into their identity.

However, price still seems to be the motivating factor embedded within the fibres of these stories and with everyone beginning to talk about being green…soon nobody will stand out. For energy brands, communicating a more distinct and unique “why” of their brand wouldn’t go amiss.

Apart from the green conversation, trust is a potentially underutilised angle for energy brands. Following allegations around overpricing after the last economic downturn, the energy industry was amongst the least trusted in the UK, but during the current pandemic, the industry has been front and centre in the national fight against COVID-19 and in turn, is slowly rebuilding public trust in the industry (OFGEM). Could bringing to life an identity centred around trustworthiness, through strategies like price guarantees for example, be a different way for energy brands to stand out and resonate with consumers?

2. Empathetic personalisation

Brand loyalty is also built through the consistent delivery of a brand promise and experience and there’s no better way to create a better customer experience than to personalise offerings. This strategy relies heavily on having a deep understanding of customers and it all starts with data and there is no better example right now than Gousto.

In response to COVID-19, Gousto completely abandoned conversion for retention strategies, by going as far as completely “stopping all new sign-ups to focus on delivering boxes to existing subscribers, putting prospective customers on a waiting list and sending them the brand’s weekly newsletter to keep them engaged” (Marketing Week). They have also put all hands-on deck to develop an “empathetic” data strategy, shifting from “A/B testing and growth hacking for purely conversion means, towards empathy, insight” to create more meaningful engagement and a better experience for their customers (Marketing Week).

Energy have the advantage over retail when it comes to personalisation, in that, “suppliers have a more complete picture of their customers than retailers do, with years of contractual relationships and behavioural data on energy consumption to draw upon” (McKinsey). However, the key challenge is knowing how to capture the right bits of the data and generate valuable insights from it, that can influence communication strategies to create the best customer experience and consequently drive loyalty (McKinsey).

Utility brands could use existing data to identify and test specific events or “triggers” that can be allocated to specific customers. For example, we know that by tracking homes rather than individuals, energy brands typically lose a lot of quality customers when they decide to move house.

If your data happens to reveal customers browsing through FAQ questions around home moves on your site, could you automate messages promoting home moving service and a new tariff, encouraging that customer to stick around as they move home (McKinsey)? Energy companies should also commit to refining their data systems and structures to get the most out of their data and start delivering retention-based personalisation. For example, in the past, it took Gousto 16 recipe suggestions before they could get an idea of new customers’ tastes, their investment in data science and machine learning means that they now gain faster insights, and can get a picture within only 8 suggestions (Econsultancy).

Incorporating real-time data and automated algorithms could help energy brands accurately predict the behaviour of particular customers, enabling them to then quickly and proactively respond to those insights. For example, identifying customers with a higher chance of cancelling their contracts, means brands could intervene with a personalised offering, before they make the jump (McKinsey).

3. Tailor your treats

When it comes to reward systems, we have seen retailers emphasising experiential benefits, as traditional points-based loyalty schemes are no longer enough to maintain “true customer loyalty” (Retail Week). For example, as the pandemic drove customers to online shopping, Tesco began providing free delivery to its Clubcard Plus loyalty scheme, whilst all other supermarkets were still charging for delivery at the time (Retail Gazette). Tesco went beyond merely gifting points for purchase and built loyalty by tailoring their program to insight, delivering what customers needed most at the time.

Some energy brands are already succeeding in deploying loyalty and advocacy strategies e.g. cuddly toys and refer a friend rewards, but personalisation of the loyalty strategies and customer experience is an underutilised opportunity in the sector. By using data to tailor messaging and incentives to individual customers, energy brands could improve “upselling, cross selling and retention”.

From bespoke energy products at contract renewal, based on previous usage e.g. “bundling the electricity contract with a smart-home device or heating system” (McKinsey), to free holidays/savings advice for those facing financial challenges due to the recession and job uncertainty (USwitch), utility brands can do more to demonstrate the non-financial benefits of staying loyal to a supplier.



A bright future

A strong and clear brand purpose, personalised experiences and tailored rewards have to match competitive price

All in all, energy brands have a great opportunity to set themselves up for a rewarding post-COVID-19 future. With increasingly high customer churn levels, leaning solely on customer acquisition strategies is not likely to be beneficial in the years to come. The retail industry has proved that a focus on brand loyalty and retention can be just as, if not more, worthwhile than acquisitional strategies in the long run.

The pandemic has expectedly turned the industry’s gaze towards digital transformation, new service offerings and M&A opportunities and rightly so, but in all of this excitement, energy brands should not overlook the simplest yet most powerful weapon in their armoury…existing customers. Energy brands need to tap into more powerful brand stories, also leveraging AI-driven customer personalisation processes, to stand out in a crowded market and barter with more than just price.