Churning it over

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The Figure it Out team would like to wish a happy new year to all readers, and we hope that we can excite and entertain you with our messages in 2013. A hot topic in the news over the last year, set to continue as a source of debate this year, is the cost of […]

The Figure it Out team would like to wish a happy new year to all readers, and we hope that we can excite and entertain you with our messages in 2013.

A hot topic in the news over the last year, set to continue as a source of debate this year, is the cost of energy. This week we will be looking at some of the decisions and impacts of changing gas or electricity supply, on the customer and on the utility company…

Just before Christmas we were clearing out some of the cupboards in the Business Analytics area, and we came across a diary that someone had left. There was no name on the diary, so we could not return it, but we thought that it made for interesting reading on this topic.

1st January 2012 – got a new diary for Christmas. Decided to make a resolution to record thoughts as I go through the year.

5th January – New Year, New house. Yes, this busy time was made busier as we moved into our new house today… … of course we read the meters. Don’t know who the suppliers are for this area…

12th January – got a note through the door from the utility company – they have noticed that there are new occupants, and want us to fill in the initial meter readings. Too busy with new house stuff to consider whether or not this is the best supplier – can always change later.

31st March– Got the first bill from my utility company today. It looked a little high, so I went on-line to see whether I was on a good tariff. However the system didn’t work. I tried to call the number supplied, but after 30 minutes of ringing, no one had picked up and so I decided to leave it for another time.

14th May – Just seen a really good advert for a different energy supplier. They guarantee a low tariff and promise to be better for the environment, which is important to me. I am seriously starting to think about switching.

3rd June– Just seen on the news that my energy company has raised its prices. Think I will change, but to which supplier? Have checked all the competition, and the number of tariffs is confusing. However I remember the one that was advertising for a green energy policy. Think I will switch to them

17th August– got my first e-bill from my new utility company – although they have just put up their tariff, everyone else has and so I am happy to stay with them. They were also more helpful when I called, and they pride themselves in being green. Here’s to not having to change supplier again for a long while… hopefully…

It is reported that around 80% of home movers switch supplier, or in industry terms, 80% of customers that move home are being lost through ‘churn’.  This costs the industry an estimated £126 million a year. ‘Churn’ refers to the situation when a customer(s) leaves their supplier (usually for a competitor).

As you begin the process of moving house, information about you and your move may be collected by third party marketing companies. Take a moment to think about what you might do before you move home – you house hunt, you register on housefinder websites, you could well sign up with moving services. Can it be then, in this age of widespread internet and big data, that suppliers can’t predict when their customers are likely to move home, and in doing so, likely to switch supplier?

Expanding this concept to the customer’s lifecycle more generally, suppliers can use customer data to their advantage – identifying the value and propensity to move of different customers. Looking at switchers more generally, yearly churn rates are around 15% in the domestic utility industry. What makes customers switch? The obvious reason is price, though it is also found that many customers who leave do so because they have experienced poor customer service (e.g. activation failure or fulfilment issues, dispute over a bill). With this level of churn, utility companies need to constantly work to maintain market share. While this could mean that competition in the market is reasonably healthy, which regulators encourage, it makes sense that utilities want to try to keep churn rates as low as possible – customer churn is costly. Suppliers need to invest in acquiring new customers in order to retain market share, and when customers leave, they still need to put effort, time and money to process them.

Given this, it is no wonder that companies are looking to use the data they have on their customers more effectively in order to predict churn – in order to pre-empt it, so as to avoid the “too little, too late” offer scenario.

Customers are assessed for their propensity to churn, which will depend on what type of customer they are (e.g. needs, channel preference and price sensitivity) as well as where they are in the customer lifecycle (e.g. how long the customer has been with the supplier). What suppliers will also want to assess is the value of each customer. Different customers will have different costs depending on their likelihood of using easy processing methods (e.g. direct debit), and being able to pay on time. Suppliers will not invest as much marketing effort in a customer who is expected to have a high tendency to churn and is of low value to them.

So the next time you get handed over to the customer retention team when you try to cancel, perhaps spare a thought as to why your provider hadn’t anticipated you ‘churning’, or indeed, why they are willing to let you go? Or flip the situation on its head and secure a better tariff, if you can tolerate the customer service a little bit longer.

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