Energy companies are facing global challenges that are putting their growth at risk. Experts Philip Daus, Nare Janvelyan, Marc Weisglass, and Jani Wijnands emphasize the crucial need for effective customer retention strategies. They also highlight the importance of utilizing digital tools to prevent customer churn.
The energy industry is faced with compounding issues that put customer satisfaction and retention at risk. With overcrowded markets, customers now hold the power and expect a personalized approach to their energy account management. If businesses in the energy sector fail to cater to customers’ needs, they risk losing their customer base as switching providers has become easier than ever.
Digital natives such as Amazon Web Services (AWS) and Google, have exhibited B2B growth rates of over 30 percent in the last year – demonstrating how quickly an industry can shift. Though not direct examples of energy companies, these companies delivered a solution and filled a gap in the industry. Traditional companies, therefore, need to undergo digital transformation if they’re to catch-up to these digital giants. While energy companies can enhance growth through digital transformations—utilizing tools like House of Utilities Model--optimizing customer retention remains an important part of the growth and stability for providers.
By avoiding common customer retention pitfalls and instituting smart solutions through a digital tool, energy companies will have a clear path for growth. Simon-Kucher has outlined how to navigate this evolving space and plan for long-term stability by optimizing customer retention.
Optimizing customer retention is key
Rather than focus on new customer acquisition, companies should prioritize their existing customer base. Not only is it five times cheaper to retain customers, but current customers are 50 percent more likely to test new products. Moreover, 95 percent of existing customers contribute to a company’s profit pool.
Optimizing customer retention, therefore, is crucial. To do so, companies need to allocate their budgets accordingly to new and existing customer actions. Nevertheless, many companies have significant problems allocating their budgets optimally to new and existing customer actions. These usually come down to three common pitfalls:
- Excess or shortfall in retention spending due to lack of cost transparency.
- Lack of alignment between the additional revenue obtained vs. the budget allocated for acquisition and retention.
- Allocated budgets aren’t adequately invested in the segments with the highest customer lifetime value (CLTV).
Simon-Kucher’s MyBase: A modular customer base management solution
Our philosophy of customer base management is based on three pillars:
- Establish a good foundation with a data-based approach: This enables companies to assign a specific value and churn risk to customers. It also helps segment customers based on customer value, churn risk, as well as other relevant factors.
- Improve customer base management through context-based customer engagement: Measures can be taken along the customer journey that can increase customer loyalty, create lock-in effects, and assign rules to segments. This action further increases customer loyalty as it helps develop specific cross-, up-, and deep-sell campaigns according to the customer value and churn risk.
- Make it stick with the right organizational mindset: Companies should create an organizational mindset for best-in-class customer base management.
Our MyBase solution has proven successful in many industries where we’ve developed tailored, industry-specific processes. Companies using MyBase have experienced:
- 10 to 30 percent churn reduction
- 2 to 5 percent gross profit margin increase
- 5 to 10 percent revenue growth
- 1 to 3 percent cross- and upsell volume increase
Case Study: Optimizing retention management for digital subscriptions
- A German regional newspaper publisher faced high churn rates for their digital subscriptions
- We utilized our MyBase solution to carry out a holistic approach to retention management
- We delivered:
- A churn prediction model
- An effective customer segmentation tool
- Efficient retention measures along the customer lifecycle (I join, I use, I pay, I leave)
- So far, our processes have helped the company reduce overall churn rate by 10 to 30 percent
It’s clear that energy companies are facing tough challenges ahead. In order to succeed, they must focus on retaining existing customers. And it’s only by undergoing digital transformation and using tools such as MyBase that they’ll be able to do so effectively.