Accenture Utilities Podcast Series Retail Redefined

Transcription

1 Accenture Utilities Podcast Series Retail Redefined An interview with Michael Dary, Accenture Energy Consumer Services offering lead, and Timothy Porter, managing director, Accenture Energy Consumer Services on the topic of retail redefined in North America.

2 Narrator: Welcome to the latest installment of the Utilities Podcast Series. Today we are covering an interview with Michael Dary, Accenture Energy Consumer Services offering lead, and Timothy Porter, managing director, Accenture Energy Consumer Services. Mike, Tim, thanks for joining us for today s podcast. Let s explore and discuss the reinventing of retail that is happening across North America. Tim, thanks for joining us today for our discussion. I would like to start with an overview of retail in North America. Competitive retail in North America, I think, is at an interesting point. If you look north of the border Ontario and Alberta those markets really have slowed. There is some switching, but it is pretty stalled at the moment. If you look at some of the states, like Arizona, there was just something on the docket where they were evaluating opening up the marketplace, but it shut down fairly quickly. If you look at some of the other states that have allowed some competition, specifically states like Michigan, they are still holding off the 10 percent limit level. There is some advocating coming from some of the retail providers the bigger businesses there that are trying to open that market back up. If you move up to the Northeast, about 31 percent of the customers up there have expressed some semblance of choice. In other words, they have selected a competitive retail provider. The problem in that market right now is head room, where there are some interesting rules in terms of stimulating competition things like purchase of receivables and utility- consolidated building. Head room in that marketplace has come down as the regulated utilities have gone back into those markets to procure power at much lower rates than they had historically. As a result, you are seeing choice in those markets stall a bit, with some of those competitive offers being at or above the regulated rates of that market. I think we are just in a period of time before we see power prices become a bit more volatile and allow some of those competitive retailers to be active in those markets again. Probably the most competitive market remains Texas, where 100 percent of the customers have switched and a significant number of those customers have selected brands other than the affiliated retail energy providers (REPs). You are starting to see different types of bundled solutions and different types of retail brands emerge, even under umbrella brands. If you peel that back and look at some of the underlying brands, there is more competition there and switching between brands. A lot of the switch rates in that market remain, in some instances, at 20 to 50 percent per year, so finding different ways of reaching the consumer with unique value propositions in that market becomes pretty important for success. Thanks, Tim. Retail energy providers (or REPs) are increasingly facing destructive forces that are always reshaping the energy marketplace. Tim, in your view, what are the top two or three market forces retail energy providers are responding to in the market? I would say there are three or four key forces we are seeing in the market: regulation and sustainability, the rise of consumerism and the evolving pace of change associated with disruptive technology. In terms of regulation, we are seeing a pretty intense focus now on sustainability, coupled with some of those regulatory pressures. Some of that has to do with how the market is structured, whether there is head room available in the market. If you compare the Northeast markets to the Texas market, the Texas market has retailer billings, whereas the Northeast market has utility -consolidated billings. If you think of the evolution of competitive retail, a competitive retailer would like to have a stronger relationship with a consumer; therefore, there is likely a tipping point in those markets where you move away from utility-consolidated billing to allow more of a competitive retailer billing and shift that responsibility. What results is a much tighter consumer relationship away from the utilities, back to the competitive retailer. You are also continuing to see pushes around environmental efficiency, as well as increased competition with other providers. I think the smart metering deployments in those markets have been pretty interesting as well. If you look at markets like Texas, specifically, where the utilities commission mandated the deployment of 1

3 smart meters for competition and to incent competitors to offer these new products and services for the consumer, you are seeing a plethora of products and services being launched. By last count, there were more than 55 competitive energy retailers in Texas and at least 280 products being offered to their consumers. Compare that to a regulated market or to some of those markets that do not have AMI metering capabilities, and there is a very significant difference in terms of the choice that consumers get versus the choice they do not get. In terms of consumerism, we are seeing a balance-of-power shift here. Consumers are becoming acclimated to the new types of bundled solutions that other service providers non-utility -oriented service providers are offering to them: new types of customer services sales channels, marketing messages, etc. If you think of your large telecommunications firms or cable providers, they are offering the triple play or the quadruple play. You are seeing securities companies begin to offer their own home energy management solutions with security, the Internet, etc., and consumers are starting to be exposed to those items. There is a real trend toward consumers gravitating to bundled solutions, believing they are getting benefits of price and choice, as opposed to a commodity-only play. Consumerism is just going continue to evolve. In terms of technologies, disruptive technologies such as your smartphones and mobile devices, and smart meters the pace of change there is going continue to exponentially increase. In North America, we will be at about 52 million meters, AMI meters, deployed by the end of We have about 145 million homes, so we are getting closer to 50 percent. I think as consumers get their meters, the expectation is there is something more than just the meter and the fees associated with the meter. A significant percentage of those consumers expect advice and products service-type of advice or efficiency-related advice. So I think we will start to see not only the competitive retailers continue to evolve their offering, but I think we will see the regulated utilities continue to have to evolve those offerings as they deploy those technologies. What we are seeing around the country, for sure, is the disruptive technology in terms of distributed generation and solar photovoltaics and potentially electric vehicles and the charging infrastructure. There are some companies offering those solutions now as a bundle. That could be a bundled play for your homes that includes your commodity, as well as your solar panels, and could be financed through your bill; or it could include your electric vehicle, the charging infrastructure and your solar rate as well. Again, I think there are some interesting business models that are being contemplated and some nontraditional partnerships that are starting to unfold with solar companies, competitive retailers, as well as your auto manufacturers. So this is a very interesting space for us in coming years. Thanks, Tim. You mentioned a variety of new products and service offerings that retail energy providers are looking to branch into, and you mentioned tipping points as these markets shift. From what you are seeing in the market right now, are there a couple of new products and services that you believe are going to tip sooner? There are multiple solutions that are being offered and tested in the market, and I think we are at this very interesting stage, when innovation is fast and furious, working in a market that can quickly be copied and scaled. But there are a couple of examples that I think we are starting to see as well that are working. There are some telecommunications providers and markets that are beginning to branch into the energy services market and, in some instances, they are using those energy services as a loss leader in order to improve retention and offer additional home services. Some companies are seeing net promoter scores increase very significantly when the consumer takes advantage of the energy offering as well as telecommunications offerings. We are starting to see increases in average revenue per user and the stickiness of those consumers that are accepting those multiple products or services is going up as well. I think we have seen those examples in a few markets throughout Europe, but I know we re seeing those examples in Texas. We are also seeing those examples with the Australian marketplace, where some of the telecommunications firms are offering bundled solutions with the 2

4 telecommunications play as well as the energy play. In your opinion, Tim, what are some of the must have capabilities that energy providers need to branch into the new products, services and innovative business models? We are starting to see some new markets open up around the world, where traditionally regulated marketplaces are transitioning to competition. In those industries, we really have to figure out how they will grow into that business model or into that new market structure. In other markets, you have unique competition starting to unfold where a regulated utility might not have full retail competition, but they are going to be facing competition from more nimble third parties who can come in to the consumer with some pretty interesting and innovative offerings. It could be a smartphone solution, or it could be a distributed generation-type of solution. And then, finally, from a competitive retail perspective, you have the markets where your competitive retailers have access to AMI metering infrastructure and associated products and services that they can offer versus those competitive retailers who might be underscaled in those markets and might not be as nimble or successful at offering those new types of solutions that consumers want. One of the first things we would recommend is taking a look at the existing business model and the complexity that is encumbering the historical business model. If you think of those new competitors entering the marketplace, they are coming in with solutions and processes that are designed to be nimble and as aggressive as possible. In many instances, those are extremely low cost and focus on the things that matter to the consumer. So they are not encumbered by that history of all the regulatory mandates and changes that historically you would see a company go through over and over again. There are companies that never actually reduced a lot of the complexity associated with that. As a result, we see what we refer to as the economics of dissatisfaction coming into vogue now. We believe that somewhere between 20 and 30 percent of costs are associated with dissatisfaction within the consumer base, and specifically at 20 to 30 percent are the controllable customer costs. That is a big number when you think about it. Taking a step back and redefining your business model, pulling those processes apart and redesigning them like you would if you were a very nimble and flexible competitor, and then rebuilding the capabilities around those core processes, we believe is absolutely key. Focusing on reducing the complexity of your operation allows you to reduce your operating costs. We are seeing a strong relationship, too, when you strip the complexity out and you start to give your resources the information they need to address consumers responses or inquiries. You are seeing costs go down and employee engagement go up, which is resulting in very strong impacts on customer satisfaction. Thanks, Tim. Can you provide a few examples around some innovative approaches that you have seen in the marketplace when it comes to engaging consumers? There are quite a few, and for those folks who live in the Texas marketplace, you cannot drive down the highway without seeing billboards, or turn on the TV without seeing the commercials, or go to your favorite stadium and not see all the ads and the branding. I think Texas has just become an incubator for all these innovative ideas that are starting to unfold around the industry. But even for our regulated utility friends, I would highly recommend you understand what is working and not working, and what has been piloted in the state of Texas, as you think about adopting their technologies and solutions back to your market. There are interesting plays around innovative pricing solutions: Some companies are offering to build your own plan. You can go online to some of the competitive retailer sites and literally build your own plan with I want this term, I want a 100 percent green or 75 percent green or 50 percent green, I want this type of a benefit, I want a $25 gift card, I want these types of loyalty points or I am willing to go with auto pay because it gives me this type of a price reduction on my bill. Because it is online, you can build your plan on these sites and see how your decisions impact your rates. It is live feedback to you, and it fits with the theme around 3

5 personalization that we are seeing in the market as well. We are also starting to see new types of partnerships unfold in those markets. You are seeing unique partnerships in order to get access to the storefronts where those consumers are. We are also seeing tie-ups between some of the big cable providers or TV providers. You are also seeing very unique bundles with new types of technology solutions in the marketplace where you might get a thermostat that is amortized in your bill for a 24-month period of time. I think we will continue to see that type of evolution unfold in the spirit of trying to engage the consumer, improve the acquisition, improve the retention and, to the extent practical, improve the gross margins. Narrator: Thanks, Mike and Tim, and I want to thank our listeners for joining us for this installment of the Utilities Podcast Series. To learn more about the Accenture utilities industry, our New Energy Consumer research, or to hear other podcasts in our series, please visit our website at www. accenture.com/utilities. Thank you. Copyright 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 4