Customercentricity in the utilities industry todayDue to anumber of factors, some utility service providers have already begun the shifttowards more customer-centric business models (source). However, at the present, there are somesignificant obstacles which stand in the way of a widespread transformation ofthe utilities industry from product-based to service-based.
Motivation for customer centricity in theutilities industryConsumer’s perspectiveThe consumer’s eagerness fora more service-oriented industry can be characterized in a number of ways.First, by a desire for greater transparency of information. In a study ofperceptions of power providers conducted by Appalachian StateUniversity using a nine-item scorecard, the strongest correlation wasfound between level of customer satisfaction with the utility company and theease with which the the customer’s utility bill could be understood (Mueller,2017). An additional stimulus leading customers toward customer-centricutilities is the attractiveness to take on a more conscious and active role intheir relationships with energy providers, in contrast to the passive customerinteraction associated with the commoditized, one-way utility model of the past.In the context of smart grid projects in Europe, motivation behind this decisionhas been most highly attributed to mitigating environmental damage, reducingpersonal energy expenses and achieving an optimal level of comfort (Gangale,Mengolini, & Onyeji, 2013). “Prosumers”, consumers who also produce andsupply energy, represent a significant stakeholder group in the context ofsmart grids and need a marketplace to sell their excess energy (Zafar, 2018).Additionally, customized solutions are searched for by both corporate customersto reach their sustainability targets as well as by cities and towns to developmicro-grids and/or smart cities, or to incorporate a greater percentage ofsolar and wind energy (Gimon, 2016).Provider’s perspectiveThanks to certain trends in the utility industry, many utility companiesare recognizing the need for business model innovation.
With the loss of halfof the European utility industry’s value between 2008 and 2013, the entrance ofnew players in Germany and both declining demand and wholesale prices, Germanyutility companies are faced with the necessity of offering more services totheir customers as a means of differentiating themselves (Helms, 2016).Additionally, when searching for financing, utilities may note that when giventhe choice between business models with a focus on “operational excellence”, “productleadership” or “customer intimacy”, investors in renewable energy indicated aclear preference for the “customer intimacy” model, signifying the importanceof a company’s emphasis on service leadership (Loock, 2012). One studyindicated observing, understanding, motivating and empowering the customer astop reasons for smart grid projects to promote customer engagement activities(Gangale et al., 2013).
A slew of management consulting firms has been advising utilitycompanies to focus on customer centricity for some years already. Bain &Company cites the ever-growing ease with which consumers can switch betweenutility companies and recommends putting a heavy focus improving the customerexperience to achieve customer loyalty, supposedly the key to long-termprofitability and growth (Dullweber & Petrick, 2011). Accenture Strategy notestime, convenience and value as the main three criteria for selection of autility company and recommends that a combination of embracing innovativebusiness models, which streamline processes, and investing in employees as ameans to improve the limited customer interaction with the utility company(Mezger, 2017). Customer centric utilities businessmodels (more sources?!)In a review of business models related to the transition to renewableenergy, three main categories were identified. The first of which,customer-owned product centered business models, refers to the sale of renewableenergy technologies as well as devices designed to aid with demand sidemanagement. The second main category, third-party service centered businessmodels, refers to financing, installing and maintaining renewable energy technologies,sending price signals to the customer to encourage demand response as well asenergy efficiency services to produce savings from the generation side. Thethird main category, energy community business models, involves facilitatinglocal players to create and manage their own renewable energy communities withthe aim of maintaining control over the electricity supply source as well as sharinginherent risk associated with renewable energy generation (Hamwi, 2017).Technologies in the customercentric utilities industry of todayIn orderto exchange information with the customer, utility companies have begunimplementing different communications technologies for different purposes.
Though more expensive upfront than one-way communication methods, two-waycommunication methods are preferred, as they offer the ability to accuratelymonitor and verify the real-time impact of demand response initiatives among awide array of users. Wireless options such as Wi-Fi or ZigBee protocols haveproven themselves to be appropriate at the local level, however unusedtelevision networks have recently presented themselves as a valid option toachieve longer range and greater reliability, even when line-of-sight is notavailable. Where an even longer range is necessary, cellular wireless networksor broadband wireless access networks are more appropriate. When even morereliability and robustness is required, power line or fiber opticcommunications should be implemented (Siano, 2014).Monitoringsystems represent an additional subcategory of relevant technology related toputting the customer at the focus of the utility business.
To provide customerswith information about their energy consumption as well as to gather remotebilling data, utilities have begun smart meters which records usage parametersin time intervals ranging from 15 minutes to one hour. Energy managementsystems (EMS) represent a series of sensors, switches and algorithms whichallow the user to implement their strategies for energy savings in one buildingor even a campus of buildings. In addition, smart thermostats provide a possibilityfor the user to program their personal preferences in order to respond to pricesignals from the utility (Siano, 2014).Successful implementation of customercentricity in the utilities industryIn 1993, Salt River Project, the third largest public utility company inthe U.
S., implemented a successful pre-pay program for electricity. On average,consumers rated the valued the pre-pay program 9% more than that of thetraditional utility rate structure and mentioned benefits such as betterawareness of their energy usage, increased self esteem and saving money (Casey& Jones, 2013).In 2006, the Energy Services Directive in Finland set a national targetof 9% reduction in energy consumption between 2008-2016. Companies accountingfor 90% of electricity sales agreed to participate in the initiative, whichincluded obligations to provide customers with energy saving advice, tocommunicate records of real-time consumption to the customer and to provide the customer with usefulinformation for comparing current energy consumption with their personalhistory as well as with the consumption of similar energy users. By 2012,significant increases had been seen in customers using hourly metering (+900%),customers attending stakeholder events (+500%), customers signed up for onlineenergy consumption monitoring (+200%), energy saving website visits (+150%) andcustomers receiving energy saving advice by phone (+40%), indicating a positiveconsumer response to an increase in service options (Apajalahati, 2015).
In 2008, Amy’s Kitchen undertook a renovation of their controls systeminorder to participate an automated demand response program offered by PacificGas & Electric (PG).In 2010, Commonwealth Edison (ComEd), Illinois’ largest utility company,initiated a Customer Appreciation Pilot (CAP) to better understand the effectof advanced metering infrastructure (AMI) on its customers’ electricityconsumption behavior. Of the 130,000 homes in the network equipped with smartmeters, random participants were selected and offered the opportunity to switchto participate in a study in which they would receive either one of fivedynamic rate structures or a flat rate. Of significance was the response toelevated pricing on peak days, on which participants exhibited 20% averagereduction in energy consumption, indicating the importance of customereducation. Additionally, customers on the dynamic rate structures exhibited astatistically significant higher level of satisfaction than the group on a flatrate, indicating the preference of consumers to take on a more active role inthe transaction with their utility companies (Casey & Jones, 2013).
In 2012, San Diego Gas & Electric (SDG), a regulated publicutility company with a customer base of over three million Californians, becamethe first utility company in the United States to respond to the White House’sGreen Button initiative, intended to provide consumers with easy, securemethods of accessing their electricity, natural gas and water usage data. WithSDG&E’s service “Green Button – Connect My Data”, users were able to choosefrom over 60 third party applications which provided useful ways for consumersto engage with and understand their usage patterns. In line with the launch ofthis service, SDG began efforts to reward reduced energy consumption forconsumers who purchased an additional “smart” thermometer, which had theability to remotely control home temperatures on certain days throughout theyear.
These efforts led to over a half million consumers receiving rewards fortheir participation as well as a 500% increase in online viewing of energyusage data (Casey & Jones, 2013).Introducedin 2017, Foreseeä is a customer-centric home energy management systemwhich uses machine learning to identify user preferences and balance variablessuch as cost, comfort, convenience and emissions. According to simulationsusing existing field data, the system is able to reduce overall energyconsumption by 7.6% without the need for major behavioral changes (Jin, Baker,& Christensen, 2017).Obstacles for growth of customercentricity in the utilities industryThe transformation of theutilities industry to focus on customer service faces challenges, howeveropinions vary on which pose the biggest threat.
A qualitative and inductiveresearch of utility companies in Germany and Switzerland cites the following asmajor inter-company roadblocks in the way of a shift toward customercentricity: the difficulty of transforming the center of a business fromtangible to intangible assets, shifting a corporate mindset from riskminimization to entrepreneurship as well as simultaneously balancing theexisting product-centered business model with a new service-centered businessmodel. Additionally, in this research, market factors in the way of “servitization”were identified to be the inability to define profitable and scalable servicesin an immature market, mistrust of the utility companies providing offeringswhich compete with their traditional business model as well as a lack ofin-depth knowledge of the customer and their preferences. Even with a carefullyorganized transition strategy and buy-in from all levels of the corporation, anunfavorable legal and regulatory environment can prevent utility companies fromreaching their ultimate service providing potential (Helms, 2016).Along with the difficultiesassociated with a company’s transition from a product- to a service-basedbusiness model, personal opinions of utility representatives were also shown tobe a hindrance. In a series of focus groups conducted in the U.
S. withrepresentatives from seven different states, a positive correlation was shownbetween the perceived importance of renewable energy and of customer engagementopportunities. In states where the need for a shift to renewables was lesspopular, such as in Texas, opportunities for customer engagement were also morelikely to be framed in a negative way (Stephens, Kopin, Wilson, & Peterson,2017).In addition to difficultiesfaced by companies in making the transition towards customer centricity, thereare also things which stand in the way of customer acceptance. Despite theiroverall favor of the utility industry adopting customer centricity in anappropriate way, Accenture notes that 44% of energy users are not interested ininteracting with their utility companies and that consumers spend just tenminutes on average interacting with their utility companies throughout the year,indicating that a shift of core business model may not be advantageous (Mezger,2017). In the context of smart grid acceptance, privacy of detailed usage data,radio frequency (RF) safety and possibility of rate increases are seen as thebiggest obstacles (Ellabban, 2016).