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Learning from Retailers

Competition and technology could transform the industry.

As the electricity market changes and consumers become more energy independent, utilities will have to become far more creative and proactive to keep their customers happy.

This industry is changing – fast. More and more customers are going solar, buying electric vehicles, and aiming to reduce their energy bills or eliminate them entirely. Furthermore, energy monitoring web portals, energy management devices and smart appliances are being deployed in millions of homes. This all adds up to a connected, savvy, and far more demanding energy consumer.

For most investor owned utilities (IOU), the issue isn’t quite at their doorstep yet, but electricity retailers already are dealing with churn in their consumer base. In fact, customers can – and do – switch providers at the drop of a hat. With consumers across all energy markets asking for more choice and control over their energy purchasing decisions, utilities everywhere – not just retailers – will need to adapt to remain relevant. This is why, for the energy industry overall, what retailers are doing now could provide a template for what all utilities will need to do to differentiate themselves in the near future.

Creative Conservation

So far in the U.S., at least 25 states have set specific goals for reductions in energy use. In 2010, the total budget for utility customer energy efficiency programs was $4.6 billion, more than four times the $1.1 billion spent on such programs a decade earlier, according to the American Council for an Energy-Efficient Economy. These figures underscore the importance of energy efficiency, and serve as a call for action for energy providers. Successful companies will adopt creative ways to increase consumer engagement in programs that can help utilities meet reduction goals, especially when taxpayer dollars have been allocated to help them do so.

Because retailers are under pressure to acquire, retain and improve the lifetime value of customers, competitive offerings – such as energy monitoring tools and renewable energy – are becoming a core part of their business. Over the long-term, retailers also are interested in moving their consumers up the energy value chain, in order to unlock the value of the emerging energy marketplace. While these retailers might start with energy efficiency tools, their ultimate objective is to establish a long-term, two-way dialogue that will lead to success with future programs such as demand response, direct load control and, eventually, whole home orchestration.

Looking at Australia – which has some of the world’s most mature competitive electricity markets – Origin Energy is a prime example of a retailer taking the necessary steps to tailor offerings to the needs of customers. Operating in an unregulated energy market with the potential for significant customer churn, Origin focuses on providing leading-edge technology as a differentiator, and demonstrates a commitment to its customers’ satisfaction.

In 2011, Origin launched Origin Index, a national survey on Australians’ attitudes towards energy and the environment. The survey found that Australians are confused about the impact they can have on their bills and the environment, with 93 percent stating they wanted to be more focused on implementing sustainable solutions in the home, and more than half struggling to make the correlation between energy consumption behavioral change and the resulting impact on the environment.

Customer motivation stems from
setting goals and tracking progress.

Origin saw this lack of understanding as a chance to help its customers, and launched its home energy management system, Origin Smart, to help address the issue. The new system applies psychological and behavior principles, such as tracking use in order to come up with achievable goals, or leveraging competition to address the challenge of reducing energy usage. The program, available via an online web portal, provides visibility on how much power the customer’s home is using on an hourly and daily basis, enables customers to track their energy use over time, lets them compare consumption to similar households, and provides access to experts in energy efficiency.

In this program, customer motivation stems from being able to set savings goals and track progress. The system provides customers with three steps – setting goals, taking action, and reviewing feedback. In this instance, the goal could be to cut energy usage by 10 percent. The action involves tips and hints the system suggests. And feedback comes from the updates of energy usage and other information available through the system, and comparisons with other households in similar situations. Ultimately, it provides customers with a supportive learning environment, which aims to enlist the persistent active participation of consumers in managing their home energy use.

Back in the ’States, we’re seeing the same thing. In deregulated regions, companies like Duke Energy are employing the same sort of tactics grounded in behavioral and cognitive psychology to encourage energy efficiency. Across the country Duke and other energy providers are using social media, competitive games, and data analysis tools to help consumers better manage their energy use. Last summer, for instance, Duke produced a series of videos casting a fictitious family employing different and creative methods of saving energy. Other utilities have sponsored “hackathons” for software developers to come up with the best energy saving app, or hosted competitions for consumers to outdo their neighbors in terms of energy savings.

Lessons from Early Adopters

For retailers now, and the rest of the energy industry soon, there’s significant new market opportunity to establish a dialogue with customers and learn more about what they want in regards to energy efficiency products and services, as well as smarter appliances and compelling apps. Some customers will want a completely automated home with a half-dozen smart devices; others might not care enough to change, while many will simply want to reduce their energy bills. Understanding the needs of the customer base is the first step in establishing and providing them with a unique solution in order to avoid apathy toward home energy management.

Utilities aren't typically early adopters of technology,
but they can become innovators in consumer engagement.

When it comes to customer interaction and relationship building, times are a-changing. Utilities need only to look to their energy retailer brethren to understand that consumers care about energy and efficiency, and that the providers delivering the best service and choice will win out in the long run. This might require a business model shift and education of regulators in regulated markets, but the gains could be immense and create a more mutually beneficial environment than today’s regulatory-driven, rate case approach to energy service innovation.

Overall, the lesson the energy industry should take from energy retailers is that there is no single solution for everyone. There needs to be a two-way dialogue between customers and utilities. Though utilities aren’t typically early adopters of technology, they can become cutting-edge innovators in consumer engagement. Consumers need utilities, and utilities need their customers; that relationship is a powerful business driver, provided there’s a way to make those needs align in common goals. Energy retailers have learned how to do that in competitive markets. Given the projected direction and growth of the market, investor-owned utilities eventually will follow suit.

ABOUT THE AUTHOR: Adrian Tuck is CEO of Tendril, which provides energy customer engagement applications and services.