Can utility providers build a loyal customer base?

A couple of weeks ago Npower and EDF Energy announced that they were considering offering special deals to loyal customers who remain on standard tariffs, such as free boiler services.

This came hot on the heels of the latest Institute of Customer Services Customer Satisfaction Index data which showed that utilities companies were languishing 12th place out of 13 industries when it comes to customer satisfaction.

With the amount of political and media scrutiny on the utilities industry, and how easy it has become to shop around for a new supplier to get a better price, consumers are more engaged and empowered than ever before when it comes to their energy choices. People want a good deal and they aren’t afraid to switch to get it.

Customer engagement and loyalty have traditionally not been terribly high on the agenda for utility providers, especially compared with other ‘essential service’ suppliers, such as banks. They all too often place greater importance on bringing in new customers than maintaining existing ones, in part because it can be difficult to convince senior managers of the return on investment that building longer-lasting, more fruitful relationships with existing customer can bring.

However, research released by Bain and Co found that increasing customer retention rates by just 5 per cent increases profits by 25 poer cent and Gartner Group research showed that 80 per cent of a company’s future revenue will come from just 20 per cent of a business’ existing customer base.

However, only 30 per cent of companies say that they are ‘very committed’ to relationship marketing, according to econsultancy. This is especially surprising when you consider that it actually costs around between five and 10 times less to retain a customer than it does to attract a new one.

It’s simple really. Loyal customers help build more profitable business, but what is a loyalty programme and, in an age of cynical consumers, do they really work? In the past, loyalty schemes have centred around points programmes, rewards and discounts, offered by a company to a customer who makes frequent purchases, but these tactics are no longer resonating with consumers like they used to. According to GI Insight, 94% of UK consumers belong to at least one brand loyalty programme, but only half admit to actually using them.

Creating the vital ‘pull’ factor that keeps consumers coming back for more is, ultimately, what will make or break a business, but as the world changes, it is no longer enough for businesses to rely on transactional, rational points or cashback programmes. While these have a role to play, loyalty and engagement are increasingly driven by emotional factors.

The likes of Amazon have changed the way that consumers like to be treated, how they expect to be known by a company and what they expect a company to know about them. A ‘one size fits all’ approach will no longer appeal to customers in a world where there is so much choice. It is no longer sustainable to simply satisfy a customer during a single transaction. And, that’s arguably where many utility providers go wrong.

They think customer loyalty is primarily about keeping prices low but creating an army of loyal brand advocates requires greater effort from across a business to ensure that every touch point resonates with a customer. Meeting the initial needs of your customer is just the start of a journey towards customer loyalty.

It has been proven that quantity matters and the more products a company provides to a consumer, the more deeply embedded into a customer’s everyday life that company becomes. However, that needs to be taken one step further. Loyalty programmes that work today are about providing customers with a product or service that supports their wider lifestyle at a time that is relevant. This is what really adds value.

Placing your organisation at the heart of as many different areas of a person’s life as possible is the way to prevent churn and foster a deep, long-lasting connection with customers. For example, banks do this by providing cyber security protection and travel concierge services and telcos like O2 offer priority concert tickets and restaurant deals.. Achieving a loyal customer base will provide organisations with lower customer churn and will ultimately make them cheaper to manage, helping to create a healthier bottom line.

With more competition than ever before, utility providers need to seriously consider their approach to their existing customer base. Yes, everyone needs a gas or electricity supplier, but the number of suppliers now means that customers no longer need to put up with high prices and poor customer service. Other industries, such as financial services providers and retailers, are ahead of the game when it comes to customer engagement, but there is room for utility providers to follow in their footsteps.

It will require a step change in the organisation to allow for greater emphasis to be placed on building longer-lasting, emotional and personal connections with existing customers. But, this is the only way that utility companies will be able to extend their reach into their customers’ lives – and it is this which will drive advocacy, loyalty and business growth.