Where’s the money? How big is the economic opportunity? These are the most frequent questions I get asked about energy consumption data, or ‘energy insights’. These are simple and important questions to ask but has been a challenge to give a confident response to. Customers enjoy better understanding, control, and reduction of their energy use. The economic value to energy retailers or other parties is less clear.
We can point to the potential value streams, using logic and results from small pilot studies. Yet, until now we haven’t had the evidence base from a range of strong case studies to support this reasoning. We were not alone. We surveyed industry contacts with a remit for energy insights in summer 2021. The findings showed that solid evidence is rare amongst European energy retailers. This is understandable as the market is still developing. Instead, energy companies use customer benefit, business metrics like customer churn, and smart meter rollout progress to influence investment decisions. The survey results highlighted the need for evidence to shape industry views and inform decision making. So that’s what we set out to uncover.
The value streams
We focussed our research on the customer end of the value chain. So, we excluded some economic benefits like improved demand forecasting from consumption data. Within this scope, we identified the key value streams as cost to serve reduction, churn reduction and cross-sell.
- Cost to serve reduction, particularly from fewer inbound calls, releases value immediately
- Churn reduction, a key challenge in many European markets, unlocks value typically over 1+ years
- Cross-selling new energy products and services, takes several years to scale and assign value to energy insights
Customer engagement is not a primary value stream by itself. But it plays a vital role in underpinning, amplifying, and fast-tracking the other value streams.
Figure 1: The principal sources of commercial value from energy insights
The ability and confidence to assign a monetary value to these activities varies. It depends on the quality of the evidence base. We have gathered strong evidence of cost to serve reduction and churn reduction from energy insights. We are therefore confident in declaring the contribution of energy insights to these value streams. Evidence from other value streams will take a few years to emerge. So, we are being conservative is our calculations for now.
We analysed case studies from incumbent and challenger energy companies across European markets. It is not easy to completely isolate the impact of energy insights in a real-world market test. And that’s without the impact of lockdowns and high wholesale energy prices to contend with. However, we have uncovered and selected case studies for their overall robustness rather than for their results. We used examples with longer timeframes to minimise the effect of seasonality, or other company or market factors and used larger customer cohorts as far as possible. In total, analysis of value creation was derived from 200K+ customers registered for energy insights.
By way of example, let’s look at churn reduction.
Customer retention is an industry-wide issue. We are seeing annualised churn of 20% on average in countries like Belgium, the Netherlands, Norway, and the UK. Many companies fare worse still. Internal tariff switching to less profitable tariffs is an extra challenge eroding margin. Lost customers mean the residual value that the customer would otherwise release is forfeited. Of even greater significance is the acquisition cost to replace those lost customers. This is important to keep total customer numbers up for a major retailer or to keep a growth trajectory for a challenger.
Energy insights services stems this loss by providing both rational and emotive reason for customers to stay loyal. Tangible benefits include greater energy transparency and understanding amongst customers using energy insights. This helps them to identify where, when, and how they can better manage their consumption. This improves the customer experience, steers the supplier choice decision away from price, and builds positive perceptions of the supplier providing the energy insights service. The fear of losing this benefit can be a powerful added incentive not to churn.
So, what about the evidence of commercial value? We looked at examples from different retailers and markets using ~150K customers, with ~50K registered for energy insights. Energy insights users and control groups were tracked as cohorts over 12 months to understand annual churn. The results are compelling to show that energy insights services reduce customer churn. The next step is applying this insight to specific market and company conditions.
Applying the knowledge
Many factors influence the potential value from energy insights. Company nuances include the rate of customer churn, how digitally advanced their contact channels and customer base are, or whether they use offshore call centre resource with its associated cost structure.
We therefore developed an Excel model for clients to input their own data. This helps them personalise results and informs business case and scenario planning. They can also use data points from the case studies to understand the likely impact of energy insights for their business. The model balances realism with simplicity. Inputs to the model include:
- Situation – size of customer base, number of inbound calls and cost per call, customer churn, % of lost customers replaced and its associated cost etc.
- Energy insights implementation – energy insights take-up, conversion of newly acquired customers, set-up, and ongoing licence fee costs etc.
- Energy insights impact – call volume reduction, customer churn reduction etc.
The types of questions this model helps address include:
- How many customers, at what cost, will an energy insights service save us over what timeframe?
- How quickly can we expect to break-even?
- What is the impact on the value of energy insights if we half inbound calls over the next 5 years?
- What is the impact on the value of energy insights if customer churn rises 10% over 3 years?
We believe this unique evidence base and model helps in two ways. It supports business case and scenario planning for energy insights services. And it reduces risk and uncertainty in investment decisions.
For more information on the commercial value from energy insights, and how you can apply this, do get in touch.