Forget your ‘Saves Team’: Churn is a symptom

In the age of competition, it has been made easier for customers to easily search for, and switch, providers.  This worries the utilities; how do we retain customers?

Customer Churn

Customers switching providers is deemed normal in the industry, with senior managers calling it ‘churn’.

The first question when understanding customer churn is always – “is it predictable?”. If it is (it always is) it has been designed into the organisation through the current management assumptions, therefore the organisation has to design churn out, and so retain customers. Bingo!

Organisations in the utilities sector have been designed and are managed as conventional systems. They are driven by a ‘make and sell’ attitude, which results in a customer experience of confusing tariff packages, an endless procession of promotions, and technologies that sell features as benefits. Is it any wonder their customers churn?

When customers do go elsewhere, however, they rarely, if ever, find a fundamentally different service offering. More often than not, customers simply find more of the same. Yet all the players in the sector would have us believe they are doing things to make service better for their customers. The question is, what are they doing to improve service, and will it address the issues that will create the improvements they seek? Their current methods of managing and changing work, stop them achieving the outcomes that they, and their customers, are looking for.

Churn and poor service are directly related to how managers think. Current management assumptions have ‘designed in’ customer churn and poor customer service. If churn is ‘designed in’, adopting different principles can design it out. But changing thinking is not typically where organisations focus when faced with an issue like churn. The typical response is to do more of the same, or, as we put it, ‘Doing the wrong thing righter!’.

Organisations create programmes and projects to ‘manage’ the problem, for example, employing ‘Saves Teams’ – to try and save exiting customers by offering them more, or through ‘buying’ or ‘incentivising’ customers – where customers and staff are subjected to ‘Loyalty’ initiatives. These incentives actually devalue the service more. The problem becomes worse, not better.

The hidden causes of costs

The side effect of competition is increased costs and lost revenue. The costs are in the cost to switch a customer, and when they are gone, the loss of revenue for their usage. Therefore, the logic is, if utilities retained customers, costs would go down, and profits would go up. However, there are larger, hidden causes of costs.

The hidden causes of costs lie in the design and management of work, in particular, managing by targets. Sometimes the sales target is on getting ‘high value’ potential customers to join, other times, when numbers are ‘bad’, the target is to ‘get anyone’. This preoccupation of hitting numbers drives behaviour.

Let’s look at an example. In one organisation, sales staff were incentivised with a monetary reward for each new customer they signed up, and for each new gas or electricity product bought. Sales went up, and, as a result, the projected gas and electricity was purchased in advance to be able to supply to these new customers. After several months, the Operations Director saw that the accounts, in terms of purchases over sales, were in the red. New customers were not using the projected amounts of electricity and gas. Going into the work, what they learned was that in order for the sales people to meet their targets, they had been ‘selling’ to derelict houses and derelict streets. It was only months later, after these new ‘customers’ had been ‘signed-up’, that they realised no one was home.

Churn is a symptom

In utilities when customers do not get a service response that meets what matters to them, their ‘nominal value’, they will churn, or not make full use of the services they have bought. The reason is simple: different things matter to different people; if the organisation fails to deliver against those things, customers go elsewhere. It is the variety problem.

The problem facing the utilities sector is how to improve service to customers; churn is simply one of the most visible symptoms. What is important is understanding and delivering what matters to utility customers, perfectly.

Understand, Redesign, Operationalise

In one organisation, a senior manager spent time with the people who were dealing with disconnections, and was encouraged to find out from them what they knew about customers who were disconnecting. The manager’s focus was; how many people act this way because they are dissatisfied with something we have done – it took a little bit of working out, but the answer was around 85%. It was largely in their control.

Having understood the causes, they removed them by redesigning their services. Now, their ‘Saves Team’ has little to do. Instead, the organisation works on the assumption that nothing should be treated as ‘good enough’, or ‘normal for this industry’. They know that improvement in everything is possible.

When managers have new knowledge, they can see how their current assumptions about ‘the work’, people who do ‘the work’, and the way that the work is done, sub-optimise performance. With this new knowledge, managers can make informed choices, based on data rather than opinion about how and where to act to improve service, reduce cost, improve revenue (and reduce churn).

Theory Into Application

Our utilities sector clients’ have been transformed through the application of the Vanguard Method; all have massive improvements in service, efficiency and revenue. They win awards and are the highest ranked for customer service scores.

Let’s look an example of an organisation putting this unique Method into application.

Moving house when contracted to a large Australasian utility company was renowned within the community as a difficult and painful process. The company itself understood this and had established a specialist group to improve performance.

For over 18 months the group had designed and operationalised conventional approaches for improvement, which had resulted in no discernible benefit to the moving experience.

This is when we received a call. The executive wanted to test if a different method could be used to transform this major, negative, customer experience. The aim was to learn how to ‘move customers perfectly’.

When demand was studied from a customers’ perspective, the real nature of what customers wanted became much more apparent. Customer demands placed on the organisation determined how things should be stitched together. This knowledge enabled the executive to see important and counterintuitive phenomena for the first time, and revealed how the way conventional measures had kept the phenomena hidden.

Once executives understood the problems generated by the current work design, and had a view of what needed to be challenged to improve performance, they agreed to redesign to see if a perfect move experience could be operationalised.

As a result of the redesign, after just a few months, the previous Net Promoter Score of -40 leapt to +80, a 120 point increase. Failure demand generated by the organisation reduced from an astonishing 54% to 5%. Staff absenteeism declined from 12% to 4%. Happier customers became loyal to the company, and consequently, remained with them – they viewed the service as a breath of fresh air, so why move?

Forget your ‘Saves Team’. The problem facing the utilities sector is how to improve service to customers; churn is simply one of your most visible symptoms.