Understanding consumer preferences in energy efficiency.
Greg Guthridge leads Accenture’s utilities retail and business services practice. Email him at email@example.com.
Growing concerns over climate change, security of supply, and volatile energy costs are prompting governments and energy providers to respond with bold new investments. Smart grid infrastructure, renewable generation capacity, and an array of pricing and demand-response programs are just a few of the initiatives under way across the globe. In the United States, some $3.4 billion in federal smart grid grants are encouraging utilities and electricity providers to embrace smart metering. However, as energy providers well know, this shift involves massive operational and cultural change—for providers, as well as consumers.
To their credit, some providers already are taking steps to educate and motivate consumers. Earlier this year, electric power companies and industry groups launched the Smart Grid Consumer Collaborative—a nonprofit that aims to get consumers involved in their energy consumption. Alongside such positive activity, however, high-profile lawsuits, consumer backlash, and tighter regulations are illustrating the myriad of challenges and risks involved in smart metering initiatives. The struggles of early smart technology implementers highlight energy providers’ relative lack of experience and expertise in engaging with their customers.
Put simply, in a smart world, a focus on reliability and cost isn’t enough. To succeed at smart metering, utilities and electricity providers must get to know their consumers—evolving their capabilities and developing a core competence in customer centricity.
In early 2010, Accenture conducted a large-scale study to explore the drivers of, and barriers to, adoption of energy efficiency and conservation programs. For the Understanding Consumer Preferences in Energy Efficiency study, more than 9,000 end consumers were surveyed in 17 countries and it was found that while some consumers are open to the idea of moving to electricity management plans—under which suppliers can actively help households use energy more efficiently through the remote limiting of when home appliances are used—they demand very large price discounts in return. For instance, only 16 percent of consumers would allow electricity providers to remotely limit their use of certain household appliances if they have no option to reverse the action taken by the provider.
Ultimately, the study’s findings challenge many traditional assumptions and provide actionable insights for energy providers as they design products, services, campaigns, and consumer interaction strategies. A review of numerous consumer-oriented smart metering or energy efficiency pilots around the world complements this research. The data and analysis suggest that the time has come for a new approach to consumers: Energy providers must get to know their consumers.
In today’s environment, small changes to the status quo won’t be enough to succeed. Rather, energy providers must build a new core competence and reshape their customer operations. To meet those objectives, they must first identify and understand their consumers—including their behaviors and preferences.
Consumers’ level of enthusiasm for, or commitment to, contributing to energy efficiency and conservation falls into three main categories: “Not Knowing” (i.e., those who fail to recognize the positive impact that regular energy management activities can have on their ecological footprints and on their ability to manage the bill); “Not Able” (i.e., those who can’t participate in energy efficiency and conservation programs because of their socioeconomic circumstances); and “Not Willing” (i.e., those who consider such programs inconvenient or unnecessary). Each consumer type presents a distinct barrier, and energy providers must develop different strategies for overcoming each barrier.
Yet, one requirement crosses all three consumer types—the need to change consumer behavior to make energy efficiency and conservation a mainstay in people’s everyday lives. Effecting such major change requires energy providers to evolve their strategy in two core areas: business processes and customer relationships.
The authors’ research suggests that 40 to 60 percent of core meter-to-cash processes will need to be changed or redesigned with the introduction of a full suite of smart metering and supporting consumer-centric energy efficiency and conservation programs. Furthermore, many policies and programs related to current rates and products—including budget billing, equalized payment plans, low-income programs, economic development initiatives, and credit procedures—will change as providers deploy smart meters and related energy efficiency and conservation programs.
Meanwhile, providers must redefine their relationships with customers, addressing key questions around how to encourage consumer adoption and uptake of energy efficiency and conservation programs at the lowest cost-to-adoption—while running operations at the lowest cost-to-serve. Energy providers should focus on three critical areas: knowing consumers, reaching consumers, and delivering a new consumer experience (see Figure 1).
In the Accenture survey, only 42 percent of respondents recognized the damaging consequences of their own electricity consumption. By contrast, 85 percent acknowledged the negative repercussions of their petroleum usage. The implication is that consumers don’t seem to link their electricity usage to the upstream production required to fulfill demand—even though residential consumers are critical enablers, or inhibitors, of success in energy efficiency and conservation.
The industry has much work to do around educating and motivating consumers, but is only beginning to understand the new energy consumer. Unfortunately, traditional segmentation schemes based on risk, service, and customer lifetime value don’t identify propensity to increase efficiency and conservation. In the smart world, consumers fall into segments and microsegments based on nontraditional criteria. Thus, energy providers need to tap into the power of customer analytics to get to know their customers in a different—and deeper—way than in the past.
Such segmentation should address consumers’ needs, values, and behaviors, and research suggests that those criteria may not be intuitive. For instance, when deciding to adopt an electricity conservation program, consumers placed an average weighting of 17 percent on environmental impact. Interestingly, they assigned a weighting of 38 percent to the impact of electricity bill and nearly as much emphasis (i.e., 37 percent) to the level of utility control through such mechanisms as demand response. In building a core competence in consumer centricity, providers need to develop and apply this type of consumer insight (see Figure 2).
What is the best channel for helping customers learn about, sign up for, and receive support on energy efficiency and conservation programs? The answer is, it depends. Just as consumer behaviors and values vary, so do their preferences on communication and service channels. In fact, there are diverse moments of truth—and energy providers should approach these touchpoints strategically.
In the survey, 37 percent of respondents indicated they consider it most convenient to learn about electricity management programs when they receive their bills. Meanwhile, only 11 percent more participants indicated they would prefer to receive customized advice on electricity conservation online rather than through in-home consultation (i.e., 33 percent compared to 22 percent). Although 37 percent of participants claimed they would like to sign up for a program online, 20 percent reported that they would prefer to do so through the in-person, at-home channel—perhaps because of the relatively complex, personal nature of such programs.
The survey findings also suggest the potential importance of peer pressure in reaching consumers and influencing their behaviors. As with the movement against littering, social signals can have a significant impact on uptake of energy efficiency and conservation programs and practices. However, social signals alone won’t drive widespread adoption of electricity management programs. Energy providers also must develop marketing plans that combine push tactics—which create demand by selling directly to consumers—with pull tactics—which are designed to make consumers ask for the program they are being enticed to purchase.
Ultimately, the challenge in reaching consumers is to build an operational model that puts sales—rather than service—at its center. That change is a tall order, requiring energy providers to evolve personnel, systems, and business processes. However, such transformation is essential to delivering a new consumer experience (see Figure 3).
Because energy efficiency and conservation programs aren’t commodities, traditional go-to-market approaches aren’t appropriate for the broad range and various combinations of these products and services. Continuing to approach customer interactions reactively is a recipe for failure. To succeed, providers need to strengthen trust, create tailored offerings, and continually address consumer needs throughout the product and service life cycle.
When it comes to trust, utilities and electricity providers have much room to improve. Only 29 percent of respondents indicated that they trust energy providers to inform them about actions to optimize their electricity consumption. By contrast, 53 percent of respondents said they trust environmental associations, and nearly as many (i.e., 51 percent) trust academics, schools, and scientific associations. To build greater trust, energy providers need to offer greater transparency and increase interactions—social media may prove to be valuable tools. Equally important, though, is aligning products and services to consumer needs, preferences, and values—and addressing those factors from product creation through retirement.
In the end, the energy providers that succeed will be the ones that redefine their customer operations—building capabilities that support consumer centricity in every business process and customer interaction.
Call to Action
No matter the strategy or approach to managing demand, all energy providers face one fundamental task: They must get to know their consumers. Across business models and regulatory frameworks, realizing the full potential of smart metering benefits requires a new core competence in consumer energy support. A consumer-centric approach is essential to creating and managing customer segmentation, managing channels, enabling emerging channels, developing new products, managing campaigns and, ultimately, delivering a service model that creates and supports a strong consumer experience.
In other words, when it comes to dealing with consumers, the game is changing. Is it truly possible to drive widespread, lasting mass adoption by consumers? Undoubtedly, the answer is yes—but only for providers that take a bold, fresh, and systematic approach to reshaping their strategies and understanding, reaching, and engaging with new energy consumers.