One of the foremost challenges for energy suppliers over the next five years is how to meet the changing needs and expectations of their customers. In the broadest sense, these customers can be seen to sit on a continuum, ranging from disengaged with energy and climate change, to highly engaged (see diagram).
For the disengaged customers on the left of the continuum, energy supply is little more than a form of taxation that they would rather not have to think about. Conversely, with the highly engaged customers on the right, you find early adopters and innovators keen to participate in the energy transition and prepared to spend significant amounts of money, without necessarily expecting much of a return on investment.
Finally, there is a reluctant-but-interested middle group, sympathetic to the goals of the energy transition but not willing to take a great deal of personal action or to spend a lot of money enabling it. Today, the largest proportion of customers reside in the left group. However, thanks to a combination of rising environmentalism, the growth of green technologies like electric vehicles and solar PV as well as a cross-sector explosion of digital innovation, the picture is gradually altering and shifting customers from left to right along the continuum.
This has energy companies of all shapes and size asking themselves an essential question: which type(s) of customer should our efforts be focused towards?
Incumbent energy suppliers have naturally focused their efforts on the left of the continuum, with huge legacy customer bases traditionally delivering steady, attractive profit margins. Meanwhile, start-ups and challenger energy suppliers have naturally tended towards the right hand, engaged, customer segment, targeting early adopters with advanced, technology-focused energy supply and services. Looking forwards though, I see both types of company increasingly shifting their focus towards the centre of the customer continuum; where a largely passive but growing group of environmentally concerned customers can offer both scale and value.
For large incumbent energy suppliers in Europe, refusing to engage with the energy transition is unlikely to be considered socially acceptable. However, no matter how strong the calls for change become, they will want to remain attractive to the change-averse left-hand customers, who for so long have offered meaty profit margins. The trick therefore becomes ‘changing, without changing too much.’
The most promising strategy here will involve offering customers an optional journey from old to new energy that emphasises good value and a ‘common sense’ approach to going ‘green and digital’. This would likely include practical green measures that help customers save money (e.g. a smart thermostat or insulation); the provision of more advanced options but in an easy to understand way (e.g. a straightforward EV bundle including charge point, static time of use tariff and public charging access); and improved digital customer service (e.g. an energy insights app or AI-powered chatbot). If done effectively, the end result should see incumbents repositioned as solution – not commodity – providers with a newly engaged, digital and climate-positive base of customers which occupy the centre of the continuum.
Similarly, start-ups will approach the passive, middle segment as their initial base of highly engaged, tech-loving customers will only scale so far and may not grow large enough to satisfy investor aspirations. Start-up propositions targeting this emerging middle-segment should be digitally native, sensibly priced and ‘just work’ (i.e. require minimum responsibility / effort). Of course, there will remain room for more advanced options, like dark green energy, home energy management and vehicle-to-grid EV charging services. However, the key will be that whenever the customer decides that a given option is perhaps a step too far, the journey (s)he has made and the destination (s)he has reached should still make sense on their own terms.
Ultimately, the precise journeys taken by companies will vary immensely. However, as incumbent energy suppliers look to steady their ships after a testing few years, and start-ups / challengers look to take their businesses to the next level, I predict that we will see a new battleground emerging around this middle group of passive, but environmentally concerned, customers.
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