by Malcolm Fletcher
With news of the latest casualty of the UK energy retail disruption, as Brilliant Energy entered the SoLR process, the end of the energy ‘winter of discontent’ seems a long way away. Times are tough for retailers, and a focus on keeping costs low whilst maintaining customer service should be top of mind for all senior execs, particularly as competition for customers remains fierce.
Whilst it’s the smaller suppliers that are currently suffering, in the most part due to lack of capital availability and being unable to hedge effectively, the larger and medium sized suppliers are also feeling the pressure of regulatory oversight – particularly when it comes to margin. The recent introduction of the energy price cap has meant that the only way to increase profits is with an increased focus on internal costs.
Experience tells us that larger and more inefficient suppliers are typically sitting at a Cost to Serve (CTS) per customer of double that of the leaner and more efficient newer suppliers – creating a direct impact on margin. But why the big difference?
We know that traditional suppliers are often trapped with legacy systems and processes that are cumbersome and inefficient, and frequently aren’t smoothly integrated with each other – and that means that they need headcount to paper over the cracks. Historically, and with plenty of negative media attention, big IT change projects have been very difficult for the sector, tying up resource and costing millions over months and years, and often having a direct negative impact on customer service. And suppliers often didn’t feel the need to innovate when there was little competition. There was no internal or external challenge to unwieldy headcount heavy processes – often as a result of poor data quality – when competition was slim and customers ‘sticky’.
Of course, times are now very different, and all of the ‘Big Six’ have seen strong churn away to many of the new entrant suppliers who have leaner and more efficient processes with more attractive apps, propositions or referral incentive schemes. Smaller suppliers are innovating at all levels of their businesses and with more agility are able to transform at far greater pace. These improvements have resulted in being able to better serve customers at lower cost – a win-win situation for the business.
So what can suppliers do to reduce their CTS throughout the business, and get that all important competitive advantage? We’ll be discussing this with attendees at the Future of Utilities next week, as we launch our new white paper on how energy retailers can get a competitive edge in challenging times. We’ve been working with utilities for nearly 30 years to help drive efficiencies in our customer’s businesses.