Tapped in or Trapped in

The strong focus on customer engagement was one of the notable successes in the new approach used for the last water price control (PR14).

Companies were encouraged to pay much closer attention to what customers want, both in terms of the overall business plan and the specific outcomes and performance commitments. While not all aspects of the PR14 engagement worked perfectly, there was general agreement that something important had started.

Ofwat’s recent report “Tapped In – From passive customer to active participant” simultaneously reinforces the importance of continuing customer engagement and further raises the bar. The report challenges companies to engage customers as “active agents in the water experience”, working with customers to find ways to innovate to deliver better, more resilient services, at a lower cost.

On the face of it, Ofwat’s report is a timely challenge, encouraging companies to build on the good work already being done and stretch their thinking further. However, while there is undoubted potential in the report’s proposals, to unlock this potential companies will need to overcome some fundamental challenges.

We think that the key challenge stems from the fact that customers have already begun to change since the last price control and now have much more power. The arrival of hyper-connectivity, through the combination of technical advances in mobile communications and the internet, has enabled a fundamental change in the way individuals and companies interact with each other. This has led to the emergence of significant new behaviours, for example customers trusting the opinions of people they’ve never met, either through forums or social media channels.

This has brought a fundamental shift in the balance of power between companies and customers, creating what we have called “Customer 4.0”.

In the water sector, the focus on customer engagement and Outcomes at PR14 has helped move the relationship with customers to Customer 2.0 and in some aspects Customer 3.0. But crucially, the customer centric world that the Ofwat report envisages is still focused on the services that the companies provide. It does not go far enough in shifting the focus to being truly customer-led, putting the goals that the customer wants to achieve at the heart of thinking about what services to provide and how to deliver them.

In a Customer 4.0 world, no amount of engagement on the water sector’s plans, or the latest innovative technology offering for water saving, will interest customers if it is focused on the water sector. It has to be focused on the customer and what they want to achieve – areas such as personal lifestyle goals, being able to pay all their household bills or safety and security in the home.

An example of a customer-led approach – water affordability

Consider the customer-led goal of “ensuring access to affordable water charges (for customers in water poverty)”. Instead of asking customers how social tariffs or other affordability related schemes should be structured, the company should ask questions such as “what would make access to affordable water charges easier?”

What impacts the accessibility of affordable water charges? Awareness of the availability of such schemes clearly has an impact, as does the variety and/or complexity of the schemes on offer. The eligibility criteria also has a bearing on accessibility, both in terms of ensuring that the relevant customers are entitled to support but also in terms of ensuring that they can easily find out if they qualify.

So what could a water company do to help achieve this goal? It could provide simple affordable tariffs which are well promoted, easy to understand and where eligibility is clear. The process for signing up for such a scheme, and remaining on it, could be made as simple as possible for all relevant customers.

Another customer goal is to be on top of all their bills and understand the debt they may have across their utilities. A water company could join up with other utility providers and help customers across their services rather than forcing a customer to choose between the debts they have with each utility.

Even though there are still monopoly elements that inhibit some aspects of customer choice, water company customers are already used to living in a world of empowerment and choice. Re-orienting and fundamentally rethinking an approach to respond to this change is already being used across a number of sectors. Organisations in the financial sector like HSBC Premier are talking to customers about their life-goals for investment rather than promoting particular products. And retailers like asos.com are going beyond brand promotions and asking their customers to co-create fashions and loyalty to their brand, extending their own systems and platforms as social media outlets.

Understanding the range of customers and customer goals is the first step each water company must take. It is important to recognise that this is not traditional customer segmentation using standard measures. It requires a segmentation based on a much wider range of factors and that is aligned to customer goals – such as water affordability or reducing day to day stresses. These may then need to cut across traditional measures such as age, income or geography. This has the potential to identify both significant change in how existing services are defined and provided, and customer needs which are not currently being met.

The Ofwat report and its drive towards greater customer participation and the key focus on innovation is very welcome. There is no doubt that successful innovation can deliver benefits for customers and companies alike. But if the innovation does not drive the transition to a customer-led universe, “Tapped In” risks becoming “Trapped In”, creating an approach that customers simply find irrelevant.