Drawing on customer communications to weather deregulation

England’s water sector is one of the last major regulated UK markets not to be fully competitive. When it opens the non-household retail market to competition from this year, firms will have to invest in strategies to retain customers for the very first time.

Competition could be extended to individual household consumers by 2020. With Ofwat likely to encourage competition from the energy sector and the entry of new challenger brands, the quality and relevance of communications will soon be the measure of whether incumbent suppliers will grow or shrink.

New brands will be able to quickly carve out a niche position in the market. They’ll also be able to target customers with the largest bills and lowest risk profiles. This could very quickly leave existing suppliers with a higher concentration of vulnerable customers and those that have small bill values or bad payment histories. Getting ahead of the curve by personalising communications will help protect against a mass exodus.

I saw this in the telecoms sector over 20 years ago, when the telephony and broadband markets were deregulated. While the incumbent BT had significant historic advantages, there was immediate competition between existing firms in the industry. Then we saw a new wave of more agile, customer-centric challenger brands who quickly became established, often through a focus on a specific market segment.

Similarly, bigger players from other sectors moved in to create consumer-facing telecoms brands. Now supermarkets offer mobile phone contracts and TV companies, broadband. It’s an entirely different market and together they now own a significant market share which had belonged to BT.

Telecoms is different to water in that there is a tangible variation in quality depending on price paid. With water and sewage, customers differentiate brands predominantly on price and service. The former will likely start to converge as competition increases, meaning customer decision making and loyalty will soon be based foremost on service.

Business customers are now more pre-disposed to switching on this basis than they were at the time of the energy and gas market’s deregulation in the mid-nineties. The brands that make customer centricity their core focus will be braced to weather the storm.

Challenger brands will have a head start in all markets unless incumbents take action now. Challengers will be built from the ground up in the digital era and the use of big data in their customer service strategy will be second nature. Meanwhile, established players are vulnerable because of their current remits over a specific region. They don’t have systems in place to profile customers nor extensive retention strategies because they’ve never needed them.

Big data allows companies to effectively personalise all communications, making them relevant to the customer. Established firms will likely know very little about their customers beyond the bill payer’s name, address and payment details. The first step in ordering this data, alongside payment history and contract value is to gain an overview of the level of marketing investment needed to suit each customer profile.

Using third party data to segment customers even further will enable personalisation. For business customers this means finding out the company’s size and its sector. In the domestic world it means differentiating marketing collateral depending on different stages of life – from young families to pensioners. Through personalised printed direct mail, email marketing, and interactive video, brands can improve the service and present customers with information in a way that makes them feel valued.

Making all communications proactive and relevant can also build trust between customers and brands, by helping arm customers with the correct information. This can significantly help reduce in-bound queries and call centre costs.

It also enables brands to target customers for life. Financial services firms will invest significantly in student marketing as once someone joins a student account, they are likely to continue to bank with them for years to come. Water firms could create a similar strategy for their business customers by marketing to start-ups and SMEs, building relationships at the beginnings of the businesses’ life cycles and adapt how they market to them as they grow. This all begins with robust data.

Competition will ultimately overhaul the entire market and new entrants that know customer communications inside out will quickly grow market share. Existing utilities companies will need to establish retention strategies and ensure these are underpinned by data and personalisation to improve customer service. Those that do so, will be in the best position to protect themselves in the short term and seek growth in the long term.