Customer outcomes are just as important as satisfaction in the utilities market

Posted: 29th September 2016

Measuring levels of satisfaction doesn’t tell you whether you are treating customers fairly or providing them with the right services.

Yes, you’ll find out whether they are happy, and of course this is important for any business that wants to hold on to its customers. What you won’t know, though, is whether you’re mitigating detriment, providing good outcomes and long-term benefits or whether you have promoted and sold products to the right audience.

When it comes to gaining intelligence on the experiences of customers in utilities markets, many firms rely disproportionately on satisfaction data, and do not have a good enough view of the longer-term experiences they are providing. The move of Ofgem and Ofwat to encouraging more competitive markets will mean that customer advocacy will be even more central to strong brand in the future.

One way to illustrate how ‘real outcome’ is more compelling than ‘satisfaction’ is with an analogy from financial services. If a customer walks into a bank (this analogy takes place before mobile banking), asks for a loan and gets approved, they will likely be quite satisfied. A post-sale survey will report back that the loan resulted in a satisfied customer and therefore the firm will be satisfied in return.

In many circumstances, however, declining a loan application is in the best interests of a customer; for example, if the arrangement might cause unmanageable debt. The customer may leave dissatisfied, but they have the correct long-term outcome.

The level of the customer’s dissatisfaction will be dictated by the communication skills of the product provider, who, if they have effectively fulfilled their obligations to that customer, will have explained the reasons for the rejection in a clear and open manner.

Despite the importance of customer satisfaction surveys (Ofgem have just released their ‘complaints to energy companies report 2016’ and their bi-annual survey on suppliers’ complaints handling which focus on satisfaction) the example above is the epitome of why measuring customer satisfaction can be a double edged sword, and highlights the need to test the real outcomes being provided in addition to getting the customer view.

With much regulatory change upcoming in utilities markets, I believe many firms will travel a similar path to their financial services counterparts, who of course moved to principles-based regulation in 2013. Part of this journey will include the evolution of outcomes testing in order to discern the real experiences of customers. So what will this look like?

1. Assessing your Outcomes Testing capabilities

Measuring outcomes post-sale via focused outcomes testing will give firms insight into whether their satisfaction data marries up with the real outcomes they are providing. A customer may have been satisfied with their experience when purchasing a tariff, but if they move into arrears later (especially if this is due to the suitability of the product or sales process), then their outcome may be far from satisfactory.

Firms relying too heavily (or, in the worst cases, solely) on satisfaction surveys are therefore unable to react to the changeable circumstances of customers. Outcomes testing allows for more focus on long-term performance against the business’s strategy and regulatory compliance.

In effective outcomes testing, methodology and documentation processes must be clearly defined and able to be replicated for future products and services, while also allowing for flexibility should new requirements arise (either through regulatory change or internal factors).

2.   Making Root Cause Analysis Strategic

Gaining customer insight via outcomes testing is not the end of the story. Failure to act upon and continuously improve the results can consume effort and resources without providing benefits to the firm or customers.

Therefore, the tactical root cause analysis that often takes place in utilities firms needs to be taken to the next level, and by this I mean the use of strategic root cause analysis.

Instead of reacting to the individual root causes of issues (which can be likened to plugging holes), can your firm diagnose whether the root cause of issues will apply anywhere else across the product range? This is the difference between identifying and curing a symptom and proactively tackling the cause of the sickness itself. A business should examine each tactical root cause and assure itself that there aren’t strategic or cultural influences in place that could lead to similar failures in other areas.

3.   Looking at Return on Investment differently

Increasing or introducing outcomes testing is a capital expenditure, so firms will quite rightly want to know that the outlay is worth the benefits. Many of these benefits are self-evident, but can be nebulous and hard to quantify. Increased trust fits squarely in this bracket: pinpointing the exact amount of pounds and pence that come with a trusted brand is an impossible task, but it should become clear that increased trust equals an increase in both customer loyalty and acquisition.

Reduced operational losses are easier to monitor and should come in good time. Improved outcomes leads to a reduction in complaints and redress, two areas in which firms consistently report a need to reduce their outgoings.

4.   Moving to Risk-Based Outcomes testing

The degree to which outcomes testing is carried out will also have an impact on the business’s bottom-line. Checking 100% of all products 100% of the time will undoubtedly provide a great data-set, but this method is likely to be problematic due to the impact on resource.

As such, a proportional, risk-based approach to outcomes testing will need to be developed within firms in order to focus on those areas that present the highest degrees of risk. Essentially, available resource should be focused where the greatest risk to customers exists, and these areas should be re-assessed over time. However, this is not to say that firms should expect to run sufficient risk-based outcomes testing without some cost implications.

To exemplify a risk-based approach; if a new product is being released, starting with a high degree of testing until you are satisfied that fewer checks are required can be the best method of circumventing future regulatory issues. Areas that might also need a higher degree of testing are where customer demographics that may be more susceptible to detriment and/or vulnerability exist. It is through making these distinctions (and being confident in your justification) that financial services firms are currently forging their own risk-based approach to issues.

Achieving Enhanced Regulatory compliance

Utilities firms may be apprehensive of the changes coming their way and wondering what level of spend they might need to commit to in their bid to protect customers and avoid regulatory censure.

Following a period of enabling work, compliance becomes an issue of ongoing refinement. Organising people, policies and processes in the right way allows firms to avoid the pain of reactive measures, which history tells us take up disproportionate amounts of resource, may need to be performed to tight regulatory deadlines and often deliver a diminished return.

Both Ofwat and Ofgem require firms to demonstrate good customer outcomes, for example, Ofwat’s Service Incentive Mechanism (SIM) and Ofgem’s current focus on outcomes for pre-payment customers. Those firms that act earliest to introduce an innovative and robust approach in terms of their methodologies, documentation and reporting will enjoy good relationships with their regulators and customers. 

The increased regulatory focus on customer outcomes in utilities means that compliance teams will find themselves spending more time understanding regulatory requirements (see principles-based regulation in the energy market or uncertain definitions of vulnerability), as well as educating the rest of the business on these issues. This means the current amount of resource available will find itself having to undertake an increased workload.

Although knowing whether customers are happy using satisfaction surveys is important, risk-based outcomes testing will be the not-so-secret weapon for firms entering into this new regulatory landscape. The benefits are multiple, in that it reduces long-term costs and demand on resource, improves advocacy and trust and provides demonstrable evidence to regulators that you are protecting customer outcomes.