Top 10 challenges for retail utilities in the reforming UK Water market

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2 Top 10 challenges for retail utilities in the reforming UK Water market The Water Bill is no longer just on the horizon, it is looming over many businesses as the water market sits on the precipice of reforms that will re-shape the industry like never before. The introduction of this legislation and its coincidence with the latest five-year AMP 6 cycle sits at the core of water utilities plans. The hurdles these utility retails businesses face are plentiful but not insurmountable. We sat down with Gentrack s market reform experts in London, Australia and New Zealand to list what we believe to be the top challenges the UK water industry will face over the coming years with the evolution of a contestable I&C water market. 1. Market interaction vital to success Many water businesses are likely to become both wholesalers and retailers and will enter an environment where the control they have over the relationship between infrastructure costs, the cost to serve and the bill that a customer receives is disrupted. This market interaction and the provision of information between wholesalers, retailers and consumers is an entirely new challenge for the water industry. Effective market systems are essential to enable rapid customer switching processes, automated responses to requests for data and the provision of accurate market files to input critical billing, customer care and field services activities. It is one area of the reforms that could be very costly if water businesses are ill prepared. The software deployed by water businesses will dictate the success of this transition and the interaction process of the industry as a whole. 2. Customer segmentation The importance of customer service in what will soon be a competitive retail environment cannot be overstated and the foundation of effective customer relationship practices is understanding and segmenting the consumer in the first place. In the world of utilities, where the market is diverse and everyone is a potential customer, water businesses have to introduce effective and efficient segmentation practices. A utility company s ability to create and communicate a tailored offering to a range of potential customers is a vital cog in the new business machine. The right set of tools to undertake customer segmentation and to track customer engagement is also critical. 3. Service Service Service... or customers will leave Water retailers must remember that they provide a service to paying customers who need to be taken on a journey throughout the market reforms. It s essential that they are interacted with in a way that meets their expectations, and in a way that clearly conveys the tangible benefits and changes in their bills and the information available on water usage and conservation. Customer service standards in some areas of the water industry are proven to be poor and as it stands many retailers are simply ill prepared for the reforms. From a utility billing and CRM 2 Gentrack Whitepaper Top 10 challenges for retail utilities in the reforming UK water market

3 systems perspective, many water businesses simply don t have sophisticated enough systems in place to manage the required billing processes that the market will demand and they need to update and replace accordingly. Time is ticking! 4. Get in quick to beat the brain drain In the UK there is a relatively small number of companies capable of delivering the software products the water industry requires as part of the reforms. A utility company should have already recruited partners and started implementing new systems to ensure sufficient time is available to bed-in new customer service and IT systems. The success of these projects will underpin the response to demands from the commercial and industrial sector for improved services. 5. Understanding customer motivation Understanding the motivation behind purchasing decisions and what drives choice in different segments in the I&C market is vital and a major challenge for any utility retail business. A series of European-wide surveys by Accenture found that business customers make purchasing decisions based on four factors, all of which are very relevant to water retailers in the UK market: Helping boost the bottom line 52 percent of the respondents operating in a noncompetitive market believed that utilities should help them manage their energy costs more effectively. Tailoring products and services 87 percent of the survey respondents believe it is important for utilities to offer solutions tailored to their business. Understanding business cycles one of the best times for utilities to approach nondomestic customers is during the budgeting period for the year ahead. Helping businesses to attract customers 76 percent said they are more likely to purchase from a business that was certified as green and over half would be willing to pay more for products from a green business. 6. Price is everything (almost) The reforms are going to be costly, but the impact on consumers should be minimised and any extra capital investment shouldn t result in a drastic cost increase to the customer. It is evident from the smart meter roll out in the energy sector that trust in current supply and billing arrangements is at a low point. Customers want to know and increase their understanding of what they are paying for so they can make conscious decisions in order to save money. With this in mind, increasing the cost of water services in order to provide more detailed bills and usage information is probably not a well advised strategy. Gentrack Whitepaper Top 10 challenges for retail utilities in the reforming UK water market 3

4 7. Reform is continuous The Water Bill will not be the Silver Bullet that fixes the water sector once and for all regulators and legislators will push for constant change and improvement in response to public pressure. Substantial water and energy market reforms in Australia, New Zealand and the UK are all cases in point. No doubt there will be changes to the underpinning focus and goals of legislative tools and utility businesses need to factor this in to their thinking a rebalance of customer centric policies and water security is always a possibility. In light of this evolution and continuous change, UK water utility companies need to maintain flexible systems and processes to enable rapid compliance with market charges. They need to strive for improvements, and innovation, and try to keep ahead of the curve by anticipating and driving developments in the market. 8. Regulators Sonia Brown, Chief Regulation Officer for Ofwat, gave a keynote speech at the 2013 Water Conference and discussed the obligations that water companies will face throughout the coming AMP cycle. It was made clear in her speech that reducing bills and water security are not the sole priorities of the organisation as they have been in the past; there is now a vested interest in improving the customer relationship and the overall billing experience. standards during the coming cycle. These are strange waters for many utilities in the sector that will be well advised to consider partnering with businesses that have experience in the energy sector, and preferably in markets that have been through deregulation. 9. Communicating and engaging In the past water companies had to do no more than take calls and react accordingly when issues with billing and service were raised. In the evolving retail market, that model is entirely defunct and needs to change rapidly. New technologies, communication platforms combined with deregulation, an evolving smart grid as well as increasingly tech-savy consumers are shifting the dynamics of the utility customer relationship. Achieving better engagement and more open lines of communication is easier said than done but planning and reviewing a proactive and considered customer engagement strategy is a must. This requires investment decisions on how to interact with customers in the future and how to improve customer service. However there is no one-size-fits-all plan and different types of customers want to be communicated with via various platforms and require individually tailored information which is relevant to them. Ofwat will be driving for better communication practices and improving customer service 4 Gentrack Whitepaper Top 10 challenges for retail utilities in the reforming UK water market

5 10. Competition The switch to an increasingly competitive market will no doubt result in the advent of new retail utilities in the sector. Water businesses will need to develop relationships with new market entrants and brokers while dividing their business into retail and wholesale entities with separate IT and Billing/CRM systems. It is a complex and potentially dangerous process and failures on this segregation can often result in significant penalties. This list is not exhaustive and may to some look daunting, but there is expertise and experience available to water retail utilities which will not only guide them through the reforms but help them thrive. At Gentrack, we have experienced water reform in the Australian market and our services have been relied upon by energy businesses and airports alike. For us, retail competition, customer communication and engagement, business agility and regulatory compliance in a rapidly changing sector are second nature. Get in touch to see how we can support you. info@gentrack.co.uk Gentrack Whitepaper Top 10 challenges for retail utilities in the reforming UK water market 5

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