Mando recently attended the Utility Week 'Water Customer Conference' to find out more about the trends, challenges and technologies shaping the sector.
We’ve identified 4 hot topics for the sector in 2017:
- Competition – pending deregulation of the market for business (and potentially domestic) customers – and the challenges and opportunities this creates.
- New business / operating models – looking to learn from other household services and the possibility of multi-utility markets / bundles to better serve customers and create greater benefits and savings.
- Smart Meter Technology – the challenge of finding a technology that can do for water, what products like Hive and Nest have done for energy.
- Customer experience – the challenge that water suppliers face in being all things to all people; and the need to create and maintain omni- and multi-channel experiences.
With deregulation imminent for business customers, competition is a significant force that will shape the sector, but, a key question being pondered is – should the market for domestic retail customers also be opened to competition?
On a quick show of hands in the room, it appeared that 80% of those present (and working in the sector) would welcome the opportunity to be able to change their home water supplier. Recent research carried out by OFWAT found that:
- 56% of customers think choice in the water market would be a good thing.
- 61% expect choice to lead to innovation.
- 45% would be likely to switch if retailers offered additional services such as water efficiency, or leak detection, even if there was no cost saving.
- 25% is the average saving that would make customers consider switching.
This highlights some key considerations for water suppliers. First of all, customer experience and the level, range and quality of value added services may play a more important role in a customer’s decision to switch than price. This reinforces the findings of a recent Gartner survey which found that 89% of CIOs / CEOs now expect that their business will compete primarily on the basis of customer experience. Indeed, there has been a huge growth in customer expectation across all sectors, from retail; with one-click payments, Amazon dash buttons and same day delivery; to content and transportation where we now see on-demand and immediate services (think Uber and Netflix). These customer-centric services have made life that little bit easier and consumers expect services to be personalised, relevant and contextual. Put simply – the right content, for the right audience, at the right time, in the right place.
It's certainly worthwhile considering that water suppliers are seen to be slow to adapt, and they face the challenges of Asset Management Plan (AMP) periods that lock-in funding for 5 year stretches. This means that many water suppliers haven’t planned for the scale of investment required to keep pace with the velocity of digital change and transformation taking place in other sectors.
Deregulation is arguably the biggest change the sector has seen since privatisation in the late 1980’s and it’s sure to lead to significant opportunities for customers and water suppliers themselves. We’ll be keeping an eye out on the impact of new entrants to the market who may be able to design a service from the ground up – as we ask ourselves, how would the likes of Amazon, Apple, Tesla and Google design a water service today?
2. New business / operating models
OFWAT’s Director of Strategy & Planning, Ian McGuffog, gave an illustration of three possible scenarios that the introduction of competition could bring to the domestic market:
- £8 annual saving
Market with lower cost, widespread innovation, strong competitive activity.
- £4 annual saving
Market with lower cost, some innovation and good competitive activity.
- £3 annual saving
Market with higher costs, some innovation and good competitive activity.
- £3 additional cost per year
Market with high costs, little innovation and weak competitive activity.
OFWAT’s research suggests that customers would not consider switching on the basis of cost unless this generated an average saving of 25%. However, the reality of low margins means it will be difficult for water suppliers to generate significant enough cost and efficiency savings with the introduction of competition. The best possible scenario currently assumes that customers could save up to £8 per year. Given the low-energy switch rates that have been seen, and which have the potential to save customers up to £200 per year it’s unlikely this level of saving will have a significant impact on customer behaviour.
A more compelling cost saving was proposed by Simon Oates, Chief Customer Officer of Southern Water who suggested that bundled multi-utility packages could create a significant saving for customers. It’s worthwhile considering that at least 66% of UK households currently have bundled bills that include tv, telephone and internet services, or, gas and electric. This bundled offering of water with energy and other household utilities seems to make sense. Many of us would be happy at the prospect of managing all of our household services through one supplier, with one bill and one payment – and importantly, the estimated cost saving of a bundled service including water is £95 per year – the kind of saving which may encourage more people to switch. However, it also raises issues which are in some ways unique to the water sector. After all, clean water to wash and drink is seen to be a basic human right – we cannot turn water off if someone does not pay their bill – and this could create a scenario where only the better-off and more affluent benefit from bundled cost savings and economies of scale.
3. Smart meter technology
Smart water meters have been a hot topic for years now but there are still challenges in developing a suitable technology. Many of the solutions currently claiming to be ‘smart’ simply aren’t. Jeremy Heath, Innovation Manager at Sutton & East Surrey Water explained that smart water technology is defined as a solution that enables water suppliers and customers to be informed of, and change their behaviour based on near-real time information relating to their water consumption (and near real-time means sub-hourly updates, ideally every 15 minutes).
Those claiming ‘smart’ water metering capabilities at present are technologies that utilise Automatic Meter Readers (AMR) and Advanced Metering Infrastructure (AMI). AMR allows for remote and automatic reading of meters, but this still requires someone to be proximate to the meters (i.e. driving past) and the process is therefore lengthy and as such, not undertaken frequently. AMI is certainly smarter than AMR, in that it enables two-way communication and it should in theory enable utility companies to more quickly diagnose any significant changes in water consumption and to proactively identify repair needs and leaks through this two-way communication. However, the positioning of meters in the UK (i.e. usually on a property boundary) creates connectivity issues to the fixed networks that are generally required to enable the two-way signal. The networks are expensive to set-up and given that range is currently an issue, far too many installations would be required to make widespread roll-out economically feasible at this stage.
Despite the challenges, there are a few new technologies that may yet overcome these issues – we’ll be keeping an eye out on NarrowBand Internet of Things (IoT), a low power wide area network (LPWAN) that may help usher in a new era of water consumption awareness.
4. Omni and Multi-Channel Customer Experience
Unlike many other businesses that target a particular customer base, water suppliers have to be accessible and inclusive to all people, from all backgrounds across the socio-economic strata. This is a challenge, and in order to meet the expectations of all customers, suppliers are keen to ensure that they are not, in the words of Louise Beardmore, Customer Services Director of United Utilities, ‘digital by default’. By this, Louise is referring to the importance of maintaining traditional communication channels such as telephony and face-to-face contact. We heard Hilary Bennett, Head of Customer Contact at Severn Trent Water talk passionately about the journey they had embarked on to bring their digital estate up-to-date and more in line with customer expectations. In order to do this, they’ve introduced new channels of communication across the likes of Whats App, Pingit, Facebook and Instagram – in addition to work undertaken to simplify their website and introduce live web chat. Some channels have been used to great effect, and has perhaps led to unintended benefits for customers, such as the example of a customer who used webchat to change the name of an account due to a relative’s passing away. The benefit to this customer was the ability to engage via text when speaking may have been emotionally difficult.
However, whilst these channels help water suppliers to engage with more of their customers, they now have to consider the tone-of-voice and other requirements that this myriad of channels creates. As such, water suppliers are recognising the need to develop content and channel strategies. Suppliers have realised that they must consider these changes as part of a holistic process of digital and business transformation – that considers how people (culture, skillsets, organisational structure), process, and technology adapt together.
Underpinning all of the days’ discussions was an appreciation that the water sector must evolve to create great customer experiences for all. For many of the suppliers present this meant trying to do the seemingly impossible of being all things, to all people – it means retaining robust telephony systems and customer service staff, a robust social media presence and responsiveness, live webchat, chatbots, - and importantly, a better understanding of who customers are – a holistic view that considers the life events, financial situation, mental health and well-being of their customers. There is a growing desire to temper digital innovations with a human understanding and appreciation of the complex needs of modern society.
With deregulation looming, it seems that water suppliers will be looking to turn the trust they’re trying to generate and maintain into loyalty. Water companies will increasingly seek to differentiate themselves through customer experience across an ever-broader range of channels.