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In this article, which supplements our recent webinar, we set out to explore how energy suppliers can leverage proven strategies to create competitive advantage, illustrated by case studies of digital transformation from within and outside of the industry.

Running a successful energy retail business has always been hard. Power and gas selling are commoditising at light speed, in a market which is hyper-competitive, making it challenging for the supplier to differentiate their offering to the customer.

Increasing customer switching rates and thinner margins are directly impacting a host of incumbent retailers, who are already struggling to make money.

Building a business quickly, to a size where economies of scale can be leveraged, has been a focus for many suppliers in recent years. However, to do this profitably has got harder, with events over the past ten months making it harder still.

A price-led marketplace

As we have seen the rise of new competition in the marketplace, the most common model for new entrants has been to grow quickly in order to get to scale and hopefully generate some profits. This model relies upon having a simple low cost-to-serve business model focusing on cost-effective acquisitions, primarily from price comparison websites. The model has almost always been a price-led proposition, which has effectively made the market incredibly one dimensional.

End of an era

It feels like we are coming to an end of a market cycle; the current market model has been effective in introducing new competition and generally reducing wastage in the market. However, it no longer feels like it is fully functioning. Everything is price and cost focused, resulting in commoditisation of the market and destroying profitability which in turn makes it difficult to invest in innovation.

Diversifying the proposition

The savvier suppliers are trying to compete on the proposition level, by diversifying into areas such as green energy, enhanced customer experience, electric vehicles and net-zero enabling offerings like demand side flexibility, heat pumps and domestic batteries.

Some suppliers, such as Octopus and OVO, are doing this as part of their wider offering. Others, like Social Energy, Good and Ecotricity, are segment targeting. However, not yet has a supplier managed to scale this proposition to really make money through diversification.

You may wish to read the following article: The effects of covid on the retail energy market

Software is critical

A large barrier for the suppliers is IT. Many of the mature suppliers are entrenched in massively complex legacy IT infrastructure and processes, which makes agile innovation very challenging, whilst other suppliers have never properly invested in a platform and capabilities that allows them to offer something truly differentiated.

Typically, investment in the energy sector has been focused on lowering costs in order to compete on price, enabling them to retain and grow their customer base. There has not been enough focus on acquiring and utilising customer data and using it to change customer behaviours.

Transactional relationships

If suppliers acquired customers through a price-comparison website and have done nothing with them apart from issuing a bill, then it’s not surprising that their offerings have become commoditised.

These challenges aren’t unique to energy and there are some good parallels to be drawn to adjacent sectors who have been trying to address the balance of commodity products, price, regulation, competition, aging architectures and business models and customer experience.

The banking sector

If you boil the banking sector down to its basics then, fundamentally, banks enable you to put money away or allow you to borrow when you need to.

From a retail banking perspective, much like the energy sector, most suppliers have tried to differentiate but have struggled to engage with customers on anything but price, unless of course something goes wrong. The products are generally all the same, so the race to market is about how a brand can package the products differently in order to retain the current market share or in order to attract a different demographic of customer.

This is why we’ve seen a rise of new banking brands such as Monzo, Marcus and Starling. These brands are born from new entrants as well as existing brands, doing something differently. For example, Monzo has entered the banking sector with a new and interesting experience, whilst established retailer Goldman Sachs has brought to market a new offering under the brand Marcus.

How has the banking sector started to evolve?

The first thing they’ve all started to focus on is understanding their customer base really well through research and understanding what will resonate with their target market.  Once this is understood, companies have wrapped a message around a proper product design capability so that they create a value proposition which really resonates Simply put, they market a product with an experience.

The key difference here is customer involvement and feedback – effectively the customer base is helping to design and build the proposition iteratively, as opposed to internal teams running big programmes to build solutions that you think customers want.

A good example of this is the way in which Monzo categorises and visualises a consumer’s credit and debit activity into different areas, through their app, providing a helpful and engaging customer experience.  This is a really simple service which helps customers, in particular the younger demographic, understand where their spend leakage is, enabling them to make informed decisions and adjustments in the way in which they manage their money.

Energy retailers can learn a lot from fashion retailers

Another example is the fast-moving fashion sector, where the objective is to drive brand awareness and desire through strong marketing; identifying and initiating trends and then amplifying these trends in order for the brand to pivot quickly.

Linked to this pivoting is the notion of micro segmentation, which involves really getting to know your customer – their interests, likes, dislikes, motivators and pain points. This enables a brand to provide a tailored experience, proposition and message that will resonate at the micro segment level.

Energy resellers can learn from this by creating more tailored user experiences. As the energy consumer is changing, adopting a green agenda and greener technology such as air source heat pumps to heat their home, the energy supplier needs to provide a service that is tailored to the specific need of the consumer. A one-size fits all approach is no longer compatible.

How do you do micro-segmentation at scale and cost effectively?

The answer to this is through a blend of data insights and a good software platform that can help companies to use this insight and turn it into ‘actionable insight’, to drive better user experiences. Successful energy organisations will blend and merge open data sets with their own internal data to complete segmentation and to target customers effectively.

Targeting techniques can include models such as factor analysis, retention and lifecycle modelling as well as performing look-alike modelling for spend and usage patterns.

Ryan Thomson and Ben Morgan are from Baringa Partners and have worked with a number of suppliers to help them segment their customer base, informed by customer behaviours and data insights. They’ve found the key challenge for businesses in energy is how to take this further into micro-segmentation in order to turn it into a personalised and automated proposition, at scale.  Getting customer insights is one thing, turning it into cost efficient actions is another altogether.

Ryan and Ben believe that the days of the homogenous customer are long gone. Energy suppliers must shift the focus away from price and be able to offer propositions that both the customer and the supplier values; then they need to be able to effectively, efficiently and compliantly target each of the micro-segments within their customer portfolio and the wider market.

Getting started

Getting started is often the hardest part and Baringa Partners have been looking at what it takes for an organisation to make a significant improvement in its competitive performance. You can discover their insights in a series of blog posts, which are on the Baringa website.

The research starts off with some interesting questions, challenging if the value is in your existing business model still holds true. They then go on to explore the ecosystems, the propositions and experiences, the platforms and data, and the underpinning people and organisational aspects of a transformation. If you work for Bulb Energy you’ll find you get a very complimentary mention in the report where you look at cultural alignment.

The series is called The Twelve Shifts of Digital and you can access it here.

 

If you’d like to discover more about Gilmond and the services we offer, please get in touch.

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Creating Competitive Advantage in Retail Energy 

On Tuesday 8th December we hosted a live webinar.

The panel consisted of Steve Elsham, CEO at Gilmond alongside Ryan Thomson, Energy Specialist and Partner at Baringa Partners and Ben Morgan, Digital Transformation Leader at Baringa Partners.

To assess the recorded broadcast via our YouTube channel, click this link.

Ryan and Ben referred to a series of free insights, called The Digital Shift. You can access them here:

https://www.baringa.com/en/insights-news/trending/twelve-shifts-of-digital/

If you’d like to get in touch with a member of our team, or one of the panel, please contact us

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Register for our next FREE webinar

Creating Competitive Advantage in Retail Energy

Tuesday 8th December at 2.30pm

 

Suppliers core energy offerings are increasingly commoditised. To differentiate and compete sustainably they need to offer greater product flexibility, improve customer experience and lower their cost to serve.

To lead in a price-competitive energy market, suppliers should look to proven best practices from other (retail-led) sectors. User experience should be designed and leveraged to drive acquisition and retention, and increase responsiveness.  Digital transformation should reduce process and systems complexity, lower operating costs and enable suppliers to compete sustainably.

In this webinar we set out explore how energy suppliers can leverage proven strategies to create competitive advantage, illustrated by case studies of digital transformation from within and outside of the industry.

Steve Elsham, CEO at Gilmond will be joined by guest speakers Ryan Thomson, Energy Specialist and Partner at Baringa and Ben Morgan, Digital Transformation leader at Baringa.

Register for free

Book your place >>> REGISTER HERE

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Utility Week Online is happening on 24th – 26th November 2020.

Gilmond has a booth there and we are welcoming visitors to meet with us live. You can book a time slot on any of the three days by clicking on this link.

We’ll be demonstrating our impressive software solutions for energy suppliers, along with our new Energy Data Platform, which underpins the suite of software applications by Gilmond.

 

If you haven’t already registered, you can register FREE by clicking on this link

About Utility Week Live Online

A new immersive, digital exhibition and conference for utilities professionals working across assets, operations, engineering, innovation, and technology, Utility Week Live Online provides an opportunity for utilities and the utility supply chain to connect at a time when face to face contact is limited. Faversham House launches Utility Week Live Online, November 24-26 2020

Faversham House, the organiser of Utility Week Live and publisher of Utility Week, has announced the launch of Utility Week Live Online (UWLO), a virtual exhibition and conference running from November 24-26 2020.

UWLO show director Rachael Lyon said: “Sitting behind the UK’s energy, gas and water companies are a wealth of innovators and solution providers, developing new and better ways of delivering services on site, in the field and in the office. The creativity and innovation of utilities industry and their supply chain never ceases to amaze us – and we’re delighted to bring the industry together in a virtual space at a time when face to face contact is limited.

“We’ve been working hard behind the scenes with a host of platform providers to develop a digital experience that recreates all the most-loved features of Utility Week Live – and much more. We believe that virtual events offer a unique opportunity to find a new way of connecting exhibitors and visitors. Our sophisticated AI-powered matching technology will ensure that visitors discover the exhibitors, products and content that are right for them, and our multiple networking functionalities offer a host of ways to find and meet the people you need to talk to.”

UWLO will be a practical, hands-on event for utilities professionals working across assets, operations, engineering, innovation and technology. It will feature two conference programmes, one on operational excellence and one on innovation, both created by the award-winning editorial team behind Utility Week. Focus areas within the pan-utility operational excellence programme will include: asset management, workforce, smart metering, cloud and AI for business resilience, water treatment, and leakage. The programme will also include a number of ‘supplier showcases’, where suppliers in these fields will outline their latest innovations and product development. Further details of the innovation programme will be released shortly.

UWLO will be hosted on the Swapcard digital platform, with sophisticated AI-powered matching technology directing visitors to the content, exhibitors and products of interest to them. As well as two concurrent conference programmes, it will include virtual booths for all exhibitors, which include company details, products and content. There are multiple opportunities for visitors and exhibitors to find one another and schedule video meetings, as well as opportunities for training sessions, product demos and interactive workshops. Content will be available on-demand after it has been screened live, and the show will remain open for viewing for up to a year after the live dates.

UWLO takes the place of Utility Week Live, which had been planned to take place at Birmingham’s NEC in November 2020. Faversham House announced last month that the show has moved to 18-19 May 2021, where it will reunite the industry at the NEC.

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The government announced in October that the energy price cap has been extended until the end of 2021, in order to support vulnerable and struggling consumers  affected by the coronavirus pandemic.

 

The energy price cap is at its lowest level

First introduced in January 2019, the price cap has been recently reviewed and reset to its lowest level in October 2020, at £1,042 a year.  The price cap is reviewed six-monthly by industry regulator, Ofgem. To date, the price cap is estimated to have saved British consumers over £1bn a year since it’s been in place.

 

Why is the price cap lower than ever?

The price cap was introduced by Ofgem in January 2019 in order to protect consumers from being over-charged energy prices. In other words, it limits the amount an electricity supplier can charge a consumer per unit of electricity consumed. Covid-19 has meant that consumers need more protection from rising energy prices – in particular, the elderly and the vulnerable – and so the cap has been reduced further, which is set to remain until the end of 2021.

 

What does this mean for the energy supplier?

Whilst this is great news for the British public, who have saved on average £75 – £100 per year since the introduction of the price cap, in an industry that is already challenging for energy suppliers, this is another factor that will inevitably affect profit margins. It’s very difficult for the energy supplier to make money these days as we’re in a highly competitive marketplace that is highly governed. It means tough times ahead, but the agile retailer will be sailing away from the competition.

 

Reduce your cost to serve

If you think your cost to serve is as lean as it can be, then think again. There is always room for improvement when it comes to driving down your costs, and you need to start with simplifying and streamlining processes. This is where your software plays a significant part. Are you really getting the most out of your software platform? Automation is the key forwards; if you can automate everything that can be automated then you will inevitably drive down your overhead costs.

 

Is it time to re-look at your software solution? To request a demo, click here

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What impacts, challenges and opportunities is Covid-19 presenting to the energy retailer?

The KPMG economic research around the impact of Covid-19 has seen UK GDP contraction of 10.3% in 2020. The vaccine outcomes will influence further contraction or recovery, which are expected in 2021. KPMG analysis suggests this could have a further impact by 4 – 8%. The third factor that will impact economic recovery is the Brexit outcome. All of these contributory factors create a very challenging macro-economic environment which will, inevitably, impact the energy sector.

In terms of the global energy market, the IEA are predicting a 5% lower demand due to Covid-19 impacting oil demand further.

On a recent webinar, hosted by Gilmond, Amy Marshall, Director and Smart Energy Specialist at KPMG explains how these economic factors are likely to translate in the UK energy retail market.

There’s a clear distinction between the B2B and the B2C sectors

Overall, the global demand for electricity is down. In the UK we saw a 12% fall between April and June in 2020. Although we’ll see some recovery, the demand will be depressed by the current economic situation.

 Industrial demand over this period was down 17% while domestic demand was down by less than 2%. This is a clear reflection of changing working patterns; more people spending more time at home and industrial demand clearly impacted by business closure. As we see fall-out in the wider economy, KPMG predicts this will mean a slower recovery than the domestic sector.

However, despite the overall domestic demand being less impacted, Amy advises that suppliers should think about how the extent to which demand curves and demand patterns have been either temporarily or fundamentally impacted by the pandemic, which will have a knock-on effect onto forecasting processes, buying policies and hedging policies.

The on-going consolidation in the UK energy retail market will accelerate 

In relation to UK energy retail, we are definitely seeing on-going consolidation which is likely to be accelerated by the pandemic. There hasn’t been a huge amount of fall-out so far and Amy reasons that this is down to three macro factors, which are:

  1. The Government furlough scheme, which has been extended.
  2. Some industry protection schemes, such as payment holidays offered by the distribution network.
  3. The trends in wholesale price has been low and this has provided some protection to the immediate impact of Covid.

However, further consolidation in the UK B2B and B2C UK sub sectors are definitely to be expected. This presents challenges for some businesses, but opportunities for others.

Strong businesses with solid future-proof business models will survive

Amy believes there is a fundamental truth before Covid-19 that will remain a fundamental truth during and beyond the pandemic, which is that strong businesses with solid future-proof business models will survive.

Amy breaks down into three key factors what a strong business in the energy retail market looks like:

1/ Energy retailers who invest in the customer experience and keep the customer at the heart of everything they do.

2/ Businesses who focus very strongly on operational efficiency and maintaining cost to serve.

3/ Those who keep one eye on the future and, specifically, the energy transition. This includes new energy services and having the agility to change your business model.

You might also be interested in a report by KPMG:

Covid-19: A new reality for Energy & Utilities

Rob Gildert, Co-Founder at Gilmond, reflects upon his experience at founding and running both an energy software company and successful energy retailer. He co-founded I-Supply in 2012 before selling it to Vattenfall in 2017, who were attracted to the business because of its low cost to serve and the cultural fit of company values.  He believes the key to a successful business is reflected within your business model; it’s about having a robust plan to build a sustainable business model.  However, Rob warns that cash is king. You need to manage and project your cash position carefully in order to grow sustainably; this is all about understanding what you can and can’t afford to do.

Covid-19 has hit an energy retail market, which is already under financial stress. Wholesale energy prices did decrease originally during the lockdown period and suppliers with open positions may have benefited from that, but such trading strategies are not sustainable as volatilities are always around the corner. Debt management remains a challenge for any energy supplier.  it’s imperative to have an efficient process that reflects both the regulatory requirements and the necessary standards of care. Covid will exacerbate this challenge and ultimately will increase the write offs as the true impact on households with hardships materialises.

Suppliers have been able to delay some costs, such as transportation costs, which can help short-term working capital, but these do come with a charge and cost. There’s been a delay to smart meter and faster switching programmes – but these programmes must ultimately be delivered.

How do energy retailers weather the storm?

1. Focus on customer service excellence.

Many energy retailers have adjusted to a homeworking model for their customer service staff and this has seen an interesting trend. After an initial period of adaptation, various suppliers are reporting that this homeworking model has led to a surprising improvement in core response times and general availability, as homeworkers are able to be more flexible.  Therefore, there has been an improvement in customer service as a direct result of lockdown.

Again, by necessity, there has also been a noteable digital switch. This is something that suppliers have been trying to stimulate with their customer base, in order to remove the reliance from the phone and traditional communication, in order to become more self-sufficient using digital methods. This naturally enhances customer experience and adds value to the consumer. Suppliers should focus on investment in the digital switch and creating excellent digital consumer experiences.

Amy and Rob believe you must focus on greater customer experience and that begins with stronger customer communication. Invest in marketing your brand by building strong brand awareness, customer trust and brand reputation – this will put your company in a strong and resilient position for future growth.

2. Operational efficiency, in particular cost efficiency.

The technology platform that the energy retailer uses is fundamental to maintaining a good cost to serve and a good cost to serve underpins good economic performance. In constrained economic circumstances, suppliers should definitely look to review their technology platforms and consider how they can or are helping them to reduce cost to serve and how the technology will support them as they transition through the energy evolution.

Based on his own experience of running an energy retailer, Rob Gildert believes that the suppliers who win are those who focus on a low-cost operating model to give them the advantage over others. Selling below cost isn’t a strategy that’s sustainable. A company needs to understand its cost base and strive for the lowest cost base. Rob also stresses that getting and keeping as much working capital in the business as possible is key.

You may be interested in “How to really drive down your cost to serve”

On a more granular level, the more specific challenges thrown up by Covid-19 include the change in demand levels and what this does to demand forecasting, hedging and the approach to the balancing market. This shift has the potential to either positively or negatively affect some cost assumptions that suppliers were taking pre-Covid.

On an even more tactical level, suppliers will need to focus on debt management and better commercial practice over the coming months. Through the hardest part of lockdown, Ofgem were very careful to be clear with suppliers that the wellbeing of customers, their connectivity and showing empathy towards constrained personal circumstances were the priority, which meant payment holidays, and other mechanisms that were outside of normal commercial practice, were very much supported by the regulator.

However, we’re now back into a regulatory world where debt management and good commercial best practice is expected by the regulator, but equally retailers must demonstrate empathy to the individual consumer and comply with regulatory guidance that surrounds vulnerable customers. This is quite a balancing act, which the retailer needs to get right.

 3. Seek out the opportunities of the energy evolution

Amy and Rob encourage retail suppliers to take advantages of the great opportunities offered by the smart revolution and the transition.

The smart meter role out will change the way suppliers engage with customers. The customer engagement process will become a more positive experience as smart meters ensure better supplier competence around meter readings and associated billing challenges. As we go through the next five years, we’ll see smarter management of energy by accessing the house, through the smart meter. We’ll see generations moving from centralised to localised energy – even more so than we have thus far. This will enable a further transition from carbon-rich to renewables and there will be a greater awareness of CO2. A mature supplier will seek to become a partner in the home. We’ve only just scratched the surface with solar panels and EV. The smart future presents plentiful opportunity for the energy retailer of tomorrow.

The robust energy supplier is the supplier who is focussing on customer experience and cost efficiency while investing in the future of energy technology.

Setting the standards in the energy sector

KPMG Nunwood annually survey consumers in order to assess their perception around levels of customer service excellence provided by B2C brands, across all industries. Five years ago, there was never an energy supplier featured in the top 100 brands of excellent customer service. In recent years, Ovo was the first energy retailer to enter into the top 100 brands, followed by Bulb and Octopus Energy. Octopus Energy are the sole utilities provider who remain featured in this report for 2020. Amy believes they’re also the best example of UK innovation and customer service excellence. They’ve managed to build brand presence, trust, high levels of customer service and innovation around both their tariffs and through the depth of their service offering. They’re a strong example of a UK retailer who has got it right in the UK market and are now establishing themselves globally.

Decarbonisation and digitisation 

Covid aside, the energy retail sector is at a turning point. In particular, decarbonisation and digitisation are macro trends that have been affecting the sector for some time. What we’re seeing over the Covid storm is that the decarbonisation journey is globally expected to accelerate, in fact the IEA predicts a 7% decline in global energy related carbon dioxide emissions in 2020. Partly stimulated by government economic recovery packages but partly because it was an unstoppable train before we entered this phase. Technological offerings that have been conceptual for some time are now at a stage of commercial viability. As we see EV uptake starting to accelerate and other platforms that can tie together the mini power plant and the virtual power plant proposition in the domestic world, integrating photovoltaics, storage and EV etc along with innovative and fully-flexible tariffs – these are all now being enabled through smart meters and can fully change the customer experience.

There will be winners and losers

While the future is rather unpredictable for any sector, there is indeed one certainty: There will be winners and there will be losers. With all the challenges Ofgem represents, including price caps and enforcing regulatory compliance that financially hits suppliers… topped with Covid and then Brexit, the energy retailer faces many economic forces and factors. However, turbulent times can bring opportunity for some and the future-proof supplier with a long-term vision, strong customer focus, excellent cash management and a robust technology platform will win.

Here are some reports, courtesy of KPMG, which support this article:

Covid 19: A new reality for Energy & Utiltiies

Green Fiscal Stimulus: Why the UK needs one and how to implement it

To listen to the full webinar broadcast:  Click here
To find out more about the software solutions from Gilmond:  Click here
If you’d like to request a demo or discuss your needs further:  Click here

 

 

 

 

 

 

 

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The evolving energy landscape: are you prepared for business change?

On Tuesday 29th September we hosted a live webinar.

The panel consisted of Steve Elsham, CEO at Gilmond, alongside Robert Gildert, Co-Founder of Gilmond and Amy Marshall, Smart Energy Specialist and Director at KPMG.

To access the recorded broadcast via our YouTube channel,  click this link.

Amy Marshall, Director of KPMG referred to some free insight reports, during the webinar.

You can access them here:

Covid-19: A new reality for Energy and Utilities
Green Fiscal Stimulus: Why the UK needs one and how to implement it

 

If you’d like to get in touch with a member of our team or one of the panel then please email: info@gilmond.com

 

 

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Register for our free webinar

The Evolving Energy Landscape: Are you prepared for business change?

Date: Tuesday 29th September

Time: 2.15pm

In an industry that is already evolving, we’ve been hit by a pandemic, creating further change to the sector. With our guest speaker, Amy Marshall, Director and Smart Energy Specialist from KPMG, we discuss the effects of Covid-19 in the energy sector including how it has impacted, and will continue to change, the industry.

  • What have businesses operating in this sector learnt during this period?
  • What risks and opportunities does it present?
  • How does this impact the evolving landscape of the energy sector?
  • What you can do about it and what role your technology and software needs to play to facilitate it

Hosted by: Rob Gildert, Founder of Gilmond, Steve Elsham, CEO of Gilmond and Amy Marshall, Director at KPMG

Register for free

Book your place ›