March 22, 2016

How was it for you?

Like any healthy relationship, the one between you and customers can, and probably should, have some more challenging moments.

Written by
Guy Champniss

Keeping your customers happy and loyal is no easy task. For utility companies, the challenge is even greater, due to the long-standing factors that shape the customer-company relationship in that industry.

It’s probably fair to say that utilities have not typically been overly focused on providing high levels of customer service and great customer experiences — beyond ensuring the lights stay on and bills don’t get out of control, that is. It has been an industry typified by steady consistency. Yet today, in a deregulated market and an environment of constantly ramping expectations, utilities need to work hard to stop the seemingly near-constant exodus of customers as they go in search of not just lower bills, but other qualities associated with a more responsive supplier and more familiar experiences with other companies. Churn rates within the UK utility market rose 15% in 2015, with over 6 million customers changing suppliers. That’s some 160,000 households a week — 38% of the UK market. As any MBA marketing class will argue — keeping existing customers is far more profitable than attracting new ones, for a host of reasons including acquisition costs, engagement rates, service costs etc.

So how may utilities stem the flow of customers and avoid the additional costs of having to find new customers?

Counterintuitively, we’d argue the answer may be in asking customers to knuckle down and do a little work for the utility — to expend a little effort for the utility — to engage in what is sometimes called ‘co-creation’. There are a few reasons to claim this may work.

Research has shown that we as consumers tend to more highly value objects or outcomes that we perceive having taken more effort to create (e.g. Norton, Mochon & Ariely, 2011). This is sometimes nicknamed ‘the Ikea effect’, after one study that showed self-assembly products consumers felt had been harder to assemble were valued more. In other words, the more effort we put into something, the more we value the outcome. We argue this same effect could apply to the effort required to maintain a relationship with a company — if a little more effort is requested by the company, then the bond may strengthen as a result. One such effort may be to ask your customers to find ways to save energy by working harder to buy more energy efficient products. Giving customers the task and responsibility of doing this is a request from the company to make an effort, and research suggests this may well result in a stronger bond between customer and company.

This idea is supported by research elsewhere that defines such requests and behaviors as ‘extra role’ (Van Dyne and Lepine, 1998), in that they fall outside the terms of a typical consumer-company relationship (‘you sell — I buy’). Again, engaging consumers in ‘extra role’ activities has been shown to strengthen the customer-company bond.

There are obviously limits to what you can ask your customers to do. But asking customers to engage in what can be considered ‘prosocial’ behaviors i.e. behaviors that have positive social outcomes (such as trying to save energy) seem to work well. In research due to be published later this year (Champniss, Wilson, Macdonald and Dimitriu, 2016), consumers who were asked to work with a brand to define and improve the company’s sustainability efforts reported far higher levels of brand attachment as a direct result.

Again, it may not be surprising that prosocial behaviors result in stronger links and loyalty between customer and company; we all like to try and do the right thing, we feel better as a result and are then keen to give credit to those who made it happen. Again, engaging consumers in energy-saving buying behaviors would fall neatly into this category of prosocial effort at the request of the company.

Finally, if a utility pins its colors to the energy efficiency mast and rallies their customers around the same cause, it is highly likely the company will experience what are called strong identity effects, whereby the customer accepts this objective and behaves within the wider company customer group to meet the objective (Champniss, Wilson & Macdonald, 2015).

In other words, the commitment made by the company together with the effort requested of the customer to join in, combine to create a binding group effect. The result is, again, a stronger bond between customer and company.

Good effort and bad effort

This short paper asked the question what could utilities within a deregulated market undertake in order to lower their churn rates. The natural response is to make the customer experience even easier and effortless. But somewhat counterintuitively, we’re suggesting to make the experience just a little more effortful.

To ask something of your customers, specifically within the context of energy saving buying behavior, can be effective in in strengthening the relationship between the customer and the company. Of course, the stronger the relationship, the more opportunities there are to engage with the customer (beyond the bill and standard customer service touchpoints), and the more opportunities there are to become less reliant on the facets of a traditional commodity utility customer experience and expectations.

But it’s important to stress that whilst the request to engage in a prosocial outcome (saving energy) may be considered effortful on the part of your customer, this doesn’t mean the process of actually saving energy should be made complex. In this instance, the utility can work hard to provide the opportunity for their customers to effectively respond to the task.

Whereas trying to save energy (and money) would be seen as a request for ‘good effort’, inefficient or inadequate mechanisms to act upon that company request could easily be seen as a demand for ‘bad effort’, with negative outcomes.

If utilities recognize the potential in making requests of their customers around specific causes or objectives that require their input, and also ensure customers can respond effectively and efficiently via well managed interaction platforms, it may be that the most effective way to reduce churn and improve loyalty is through a healthy session of customer-company co-creation.

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