Ofwat is determined that water companies raise their game when it comes to customer service, so for PR19 its is replacing SIM with WaterworCX. Monica Mackintosh assesses the challenge ahead.

For customer-facing companies in competitive markets, providing good service has become a key component of success. However for monopoly markets, like the water sector, companies can be in greater danger of not focusing on customer experience strategy because they don’t have the same level of incentive to actively improve.

The UK water market has historically been non-competitive and, perhaps as a result of this, water companies have mainly not been known for leading customer service excellence and often sit in the lower half of customer satisfaction league tables.

While previously there have been some moves to challenge this status quo, industry regulator Ofwat has stepped up efforts recently to bring the water sector more in line with other sectors through PR19 – part of its Water 2020 strategy – which aims to create a “competition ready” market to improve outcomes for consumers.

Evolution of customer service

Speaking earlier this year, Ofwat chief executive Cathryn Ross warned that companies which fail to provide ambitious business plans will have a “very tough” time during the PR19 review.

When it comes to customer service effectiveness and measuring success, one of the main proposed changes to impact water companies will be replacing the current service incentive mechanism (SIM) with WaterworCX.

A key principle of WaterworCX is to stretch companies to improve their customer experiences. While customers cannot currently choose their provider, there is no reason why they should not expect to receive the same high levels of customer service they are used to from businesses in competitive markets.

So, what are the main changes between SIM and the suggested WaterworCX mechanism? And what steps will water companies need to take in order to both rank well and be rewarded for driving customer service improvements?

Ofwat proposes under WaterworCX to measure customer satisfaction with both contact handling and resolution, whereas SIM only currently measures satisfaction levels with contact handling. This is a positive move because it is important for water companies to consider the customer’s view on resolution of a matter or complaint.

Potentially this could mean some companies may score lower than they would have under SIM if they have simply focused their efforts on improving their contact handling.

However, many water companies will already be taking a proactive approach here and will be measuring contact resolution internally. So in many cases they will not need to massively change processes in order to score well under WaterworCX.

The challenge of engaging silent customers

Under the proposed WaterworCX, water companies will be subject to separate customer service and experience surveys. These will be conducted with customers who have actively contacted a company with an enquiry, and registered bill payers who have not contacted a company, to see how they view the service they have received.

This change, to survey registered bill payers who have not contacted the company, could be a big challenge for water companies. In many ways, water can be considered a “commodity” purchase which does not necessarily invoke particular interest from customers. Bill payers may not know much, if anything, about their water company or what they provide for the community. Therefore, expect to see a step change in community engagement and promotional materials in order to raise positive brand awareness and inform the community about the water company’s policies and programmes.

Can water compete on customer experience?

Ofwat proposes that water companies be benchmarked against other sectors, including highly competitive markets, and to receive the highest rewards, they will be expected to be as good as companies in the upper quartile of the UK Customer Satisfaction Index (CSI), which is compiled by The Institute of Customer Service.

This will be challenging to achieve, given that those in the upper quartile have been operating in competitive markets for years, and are greatly experienced in providing excellent customer service.

A key question for water companies to consider is how much they will need to invest in order to improve their service to be among the all-sector best. If the investment required outweighs the additional incentive being offered, then companies may choose not to focus on achieving this target.

In the July 2017 UK CSI report, no water companies made it into the table of the top 50 UK organisations, but a couple were close to the all-sector upper quartile score, which is the proposed threshold benchmark. So, for the few currently scoring well, this additional incentive could be easily reachable in the near future, while those currently scoring the lowest in the UK CSI may have a lot more work to do.

Reducing complaints and improving complaint handling

Under WaterworCX, it is proposed that the volume of complaints a water company receives will only be used as a reputational measure, rather than being weighted as per the current SIM. While there is a small risk that this could lead to a lower focus on preventing complaints, this risk should be largely abated due to the benefits that come from reviewing customer grievances.

Analysing complaints helps water companies to identify the root causes of customer issues and provides great insight into how to improve overall service for all. Therefore we believe there will still be a big focus on reducing complaints, improving complaint handling and learning from complaints to provide the best customer service outcomes.

Under the new suggested measures, complaints made through any contact channel will be considered. This more holistic measure is a good thing for the customer given the numerous ways customers can now contact their water company and the varying customer preferences when it comes to channel choice. In addition, the shift could well enable water companies to develop stronger, more transparent relationships with their customers.

One particular ongoing challenge for many companies is managing complaints via public social media channels, which the modern customer increasingly uses to air frustrations. However, here the potential damage goes far beyond ineffective complaint management. Water companies, as with businesses in other sectors, are only too aware of the reputational impact social media channels can make. Those who are already active on social media both recognise the need to service it well as well as the opportunities it provides to improve transparency with their customer bases.

Given that Ofwat is advising companies to offer at least four contact channels, with at least two of them online, in another effort to bring the sector into the modern business world and improve offerings to customers, those companies not currently active on social media may need to quickly get up to speed and focus on how they make the best use of these platforms to service contacts and complaints effectively.

The next few months will prove interesting as Ofwat publishes the responses received to its consultation on the PR19 methodology, and its final determination. We may well see some changes to the proposed WaterworCX mechanism during this time, but what is clear is that the UK water industry will be expected to significantly improve when it comes to customer service, as PR19 puts companies under more pressure to do better for their customers.

As customers become increasingly informed via more accessible information being made available, and an increasing focus on customer engagement, this will inevitably lead to a shift from transactional interactions to a more engaging and rapport-driven relationship. The key will be to invest in both talented frontline teams and innovative solutions that help reduce customer friction and improve customer service.