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The power of customer experience in energy retailing

A struggling utility drastically reduces customer complaints, takes out millions in costs, and returns to profitability

Challenge

An incumbent power utility had been suffering a steady decline in market share since the liberalization of energy retailing 5 years earlier. New entrants had piled into the market, one of the most competitive in Europe, and customers could choose from more than 20 suppliers, many competing on price alone. Despite a long history as one of the country’s leading energy suppliers, the utility was finding it difficult to adapt to the new environment and its relentless price pressures. No longer profitable, it was struggling to break even.

With switching increasing year after year, the utility needed to improve customer attraction and retention. But hampered by a bland image and lacking a distinctive value proposition, it had trouble differentiating itself from the pack. Its future as a major energy company looked bleak unless it could reinvent itself to stand out from the competition and win—and keep—more customers. McKinsey was asked to help the client improve its customer relationships to decrease switching rates and, at same time, increase revenues.

Discovery

Before the utility could rethink its strategy, it needed to understand its starting point. We helped to conduct a 2,000-strong survey that provided deep insight into customers’ needs and highlighted critical customer journeys where churn was at its highest.

One of these was moving house, an experience that affected one in seven customers every year and was a major driver of churn, with 40 percent of house movers switching to another supplier. To diagnose what was going wrong, we brought together members of the commercial and operational teams responsible for the many internal processes involved, from reading meters and preparing final bills to setting up new accounts. In the meeting room, we covered one wall with a display of images and quotes that presented the entire experience from the customer’s point of view, from deciding to move to having power switched on at their new address.

The meeting proved to be a breakthrough: it was the first time anyone realized how complex this customer journey was, with 18 separate interactions. It also brought home where shortcomings were—not just in handoffs between groups, but also in communications, which failed to provide customers with information at key points while puzzling them with conflicting messages at other times.

Armed with this understanding, the team sat down to rethink the entire customer journey, using pilots to test ideas and involving customers to ensure the outcome would satisfy their needs. Forging bonds across functional boundaries—among marketing and sales, operations, and customer service—was essential in designing a process that customers would find easy to use, fast, and seamless.

This was just one of several customer journeys that we helped the utility improve in a wide-ranging “fixing the basics” program. It began by addressing commercial levers—branding, pricing, customer-life-cycle management, and online presence—before moving to operations and a customer focus. We supported the client in adopting lean ways of working in teams and processes and ensuring that the customer’s perspective was always foremost.

In addition to addressing customer journeys, we helped the client pursue operational excellence by transforming shop-floor processes and performance systems. To enable improvements to be sustained over time, we worked with frontline staff and managers to nurture customer-centered mind-sets and behaviors. We helped the top team align on the new strategy and supported the client in designing new key performance indicators and meeting structures, which were then cascaded through the organization to ensure that the transformation would stay on track.

The final part of the program was devoted to continuous improvement. It involved defining the utility’s common purpose—a succinct explanation of the intended customer experience at an emotional level, designed to motivate employees and provide meaning for their work. We arranged for middle managers to work with the Disney Institute to see the power of common purpose in action. Embedding this in employees’ hearts and minds enables a business to push decision making down to the front line, giving staff at all levels the autonomy to satisfy customers without the need to adhere to rigid rules or seek time-consuming approvals.

Impact

Putting customer experience at the core of its commercial transformation has enabled the utility to reverse the decline in its market share, reduce customer churn, and return to healthy profitability, with financial results increasing by more than €75 million.

For customers moving house, dissatisfaction with the utility’s processes halved and costs fell by €4 million in the first year, and these savings are set to double in the second year. Other process improvements have led to similar gains: for instance, introducing a transparent and welcoming process for new customers has not only reduced churn but eliminated wasteful touchpoints and call-center traffic. With staff now enthused and empowered by common purpose, cross-selling has achieved twice its target value.

Since embarking on its transformation, the utility has won a raft of awards for its new customer focus, with accolades for its call center, website, and complaints handling.

The program was not a one-off effort but a means to design, introduce, and sustain a whole new way of working. Cross-functional teams from marketing, sales, and operations continue to meet every week to review customer journeys and find still more opportunities to improve them.

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