Energy retailers around the world face a similar set of challenges: decreasing demand, new competition, changing customer expectations, and regulatory pressures. To discover sustainable success amid such a complex environment, retailers need to embark on a major upgrade of both strategy and operations—and the sooner the better.
Maximizing value in the energy retail industry has never been straightforward. If retailers raise prices in order to increase annual revenue per customer, they encounter higher churn and only short-term revenue growth. If they seek out acquisitions as a means of increasing the number of customers, they have the promise of higher revenues in the future—but decreased revenues in the short term. Customer retention measures, likewise, will bring better long-term revenues but disappointing short-term results.
Energy retail transformation that addresses short- and long-term concerns requires an approach addressing three critical areas: overall retail excellence, digital energy retail, and noncommodity energy retail.
Retail excellence requires the use of a range of improvement strategies focused on three areas: increasing sales efficiency, improving customer relationships, and building a solid retail foundation.
As they face pressures on multiple fronts, energy retailers have no choice but to go fully digital. Consumer behavior is rapidly evolving, digital newcomers are disrupting the market, and data has become an undeniable pathway to success.
The advantages of going digital are many. When consumers can perform a task themselves and avoid a call center, satisfaction rises. Retailers can see increased margins after segmenting customers at a high level of detail and implementing price hikes based on those profiles. And digital retailers can reduce the cost to serve by up to 70%.
Digital technologies offer both challenges and opportunities to energy retailers. Many traditional energy retailers have responded to the threat from digital newcomers incrementally. Instead, they must be proactive and use their strengths while they can to digitally transform their businesses and pursue new growth opportunities.
To increase margins and retain customers, energy retailers need to reach beyond commodities and explore sectors adjacent to their own. These include:
Utilities can use call centers, for example, as one-stop-shops for home, energy, and other related services. And they can collaborate with other companies to provide smart-home and security devices, providing cheaper prices to customers through the strength of their bargaining power.
BCG’s consultants and industry experts focusing on the energy retail sector partner with leading corporations to face today’s multiple challenges and bring sustainable competitive advantage. These are our experts on this topic.
