Are Europe’s utilities ready to build a new business model?

European utilities are in a double bind. Regulators are asking them to sell what amounts to a more expensive version of their product (renewable energy, rather than energy from fossil fuels) — and, simultaneously, less of that product. Doing either would naturally push prices higher. But in one of the most expensive energy markets in the world, that’s not an option.

As a result, European utilities are feeling pressure to cut deeper into their margins, which are already worn thin by greater competition in the marketplace, and facing the threat posed by distributed generation and cheaper energy storage.

However, while these challenges are not to be under-estimated, the value to European utilities in successfully addressing them is huge. Drawing on our research utilities can increase the return on their customer relationships by 20 to 55 per cent for every household they engage.

But in order to draw this value out of every one of those relationships (without selling customers more energy) European utilities need to develop a business model that’s centred on the energy services that consumers want.

Winning Customers’ Hearts
When it comes to customer engagement, any strategy should begin by acknowledging that the average European consumer interacts with their utility for just nine minutes a year. That’s an incredibly small window of opportunity. But as Amazon and Netflix have proven, the key to breaking through is about delivering a message that’s perfectly, personally targeted.

So when it comes to a British family with high winter energy usage, low income, and an expressed interest in replacing their boiler, they shouldn’t be on the receiving end of a refrigerator rebate marketing campaign. The family should be getting a highly personalized offer from their utility for a new, more efficient boiler — something that’s really worth some of those nine minutes.

With the arrival of smart grid technology and sophisticated data analytics, that level of customer engagement is within reach. And over time, it can build trust, helping to reduce customer churn and deliver real, lasting business value. Plus, a utility’s reputation for delivering great experiences can make it a magnet for high-value customers, who are receptive to a broader set of energy services.

Bottom Line Revenue
By boosting customer acquisition and building brand loyalty, utilities can also ward off the threat of a so-called ‘death spiral’, where consumers flock to distributed generation and energy storage, and leave utilities with huge stranded costs and no way to make money.

But creating great customer experiences is about more than risk management. It’s also about strengthening the bottom line. Returning to our study, it was found that the 20 to 55 percent increase in the value of the customer relationship would create an extra €15-€40 in incremental, annually recurring revenue. Given that European utilities are under tremendous pressure to deliver more value to customers while simultaneously reducing cost to serve, this new business model has to represent a better way forward.

Indeed, by pivoting around the customer, European utilities can steadily evolve their business — delivering less energy and more services, and redefining themselves as trusted energy advisers. That’s what consumers want. It’s what regulators need. And for utilities, it’s a path to stronger returns in the years ahead.

John Webster is Vice President of Marketing & Strategy, EMEA at Opower

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John leads Opower’s EMEA and APAC marketing efforts, overseeing corporate communications, field marketing and solutions marketing teams, and is responsible for creating and executing Opower’s go-to-market strategy in Europe, Middle-East, Africa and APAC regions. The position focuses on activities spanning solution planning, positioning, messaging, sales tools/training development and delivery as well as media and analyst relationships. Prior to joining Opower, John has led global product marketing, pre-sales and consulting teams at various technology and management consulting organisations across Europe.