In the first two articles of our Supercharged Future of Energy Retailing trilogy, we examined not only the need for energy players to adapt fast due to changing goalposts, but also the savvy strategy of being bold to enable a successful future. In this third and final article, I will analyse why this is the moment energy retailers need to commit to (sometimes radical) transformation and what the key capabilities are that will enable success.
From energy trilemma to digitise, decarbonise & decentralise
The UK energy retail market is extremely challenging and is expected to get tougher. Market consolidation continues, as seen with the recent M&A activity between Octopus & Co-op, Ovo & SSE and E.ON & NPower. Baringa predicts that within the next five years the number of B2C suppliers will halve from their peak of 70 in 2017.
The shape of the market is also changing. EVs, decentralised generation and other new technologies will have a profound effect on the market and force an opportunity to drastically change how to interact with energy customers. To enable this, energy retailers will need to radically change the roles they fulfil. With more ‘behind the meter’ technology, an evolving competitive landscape and a greater focus on flexibility, the capabilities needed to survive in this new market will be significantly different.
In the future we will see radically different service-based roles
Consumer needs and technological innovation are creating opportunities way beyond beyond the traditional supplier role.
Figure: Opportunities for energy retailers in the future energy system
When considering the service provider of tomorrow, there are a variety of roles that energy retailers could play. There is a role for “innovators”; developing new, next generation technology for in the home or “vehicle to grid” EV propositions, that allow the customer to simply take advantage of the proposition without seeing the cost of EV charging equipment.
The future supplier doesn’t necessarily need to operate across the whole value chain. There will be a role to play in certain areas of the market, homing in on what the business can excel at, being highly efficient and offering core services. This could mean becoming a “lean and mean” commodity supplier with a narrow product set that is executed excellently and at a low cost to serve.
There is also a place for those who want to be customer-centric, for example, by offering a range of “concierge services” for the home. This role will be much broader than that of today’s suppliers and provide the consumer with a wide spectrum of propositions - potentially covering media, broadband and home energy services.
A clear, differentiated offering and service vision will be a central element of success
The key message for today’s energy retailers is to get clarity on where to play in the future market; what propositions to offer, and at what innovation and service level. Are you going to be an innovator, a narrow, lean and mean supplier, or a life concierge that manages all the complexity of the interaction with the market, so the customer doesn’t have to?
Successful retailers of the future will be dynamically different types of businesses and require a new set of capabilities to make this change happen. They will need to:
- Develop agile approaches and create a widespread culture to move at pace and fail fast;
- Evolve business models to serve the changing market and accept they can’t do everything alone; partnerships are key in areas where others have leading-edge expertise;
- Provide the right offer and desired experience to the customer whilst maximising margins.
Energy retailers will have some common ground in terms of the capabilities required to set their strategies in motion. They will need to innovate, to move at pace and fail fast, enabled by data-led propositions and a culture of customer service excellence. With a shift away from today’s generic services, a future customer-centric world will see a step change from today’s anonymous one-to-many interactions to one-to-one, made possible through ruthless digitalisation and automation.
In many ways, the energy industry is in the middle of a rollercoaster ride. To get through the bumpy ride, it is vital that energy retailers have a clear vision of the role they want to play in order to guide the evolution of their business models through this unprecedented period of change.
To the energy retailer of today, we say three simple things: adapt, be bold and commit.