In the first article in the Supercharged Future of Energy Retailing trilogy we discussed the current conundrum for energy suppliers, from the newcomers to the industry stalwarts. With this perfect storm of challenges in mind, let us explore why suppliers need to be truly bold with their vision for the future, so they can set a course for success – and get going immediately.
To do this, all retailers need to be strategic: “Where do we want to be in 5-10 years’ time and what do we do now to make this happen?” To simply wait and see is not a viable option. Looking back is helpful in order to plan for the future. When we compare and contrast the state of the energy sector with the UK grocery market, there are some useful lessons to be learnt. Since the noughties, food retailers have undergone dramatic transformations in order to keep up with changing customer preferences. And there are certainly some interesting parallels between the two markets, such as the rise of the discounters, shifting shopping habits, consolidation and diversification. The force of similar impacts is now being felt in the energy sector.
Like grocery retailers in the past, energy suppliers have been slow to react to the existential threat posed by new entrants
In the UK, Aldi and Lidl’s market share grew from 6% in 2011 to 14% in 2018, while Tesco and Sainsbury’s lost ground for not being able to respond quickly enough. Once dismissed as ‘German discounters’, both had a clear strategy from the start: good value for the customer at convenient prices. It was a bold move and a truly customer-first approach. They never strayed from this modus operandi and it allowed them to grab the market share they have today. Meanwhile, the major retailers have had to re-think their entire strategy, driving radical efficiency and differentiation to remain relevant.
Energy consumers won’t exist in 10 years’ time
After a glance sideways at other markets, let’s envision how this could play out for energy retailers. While nothing is ever certain, I can say with conviction that the majority of consumers will no longer buy energy as a simple, separate commodity in the future. We’ll buy bundles of home services: energy + water + broadband, for example. Or we’ll purchase energy as a service, such as buying a car charging package for our Electric Vehicle. Thanks to technology, these services will be more personalised, more flexible and better value than ever.
This new consumer buying landscape will sit in an already margin-squeezed setting for energy retailers. Add into the mix decentralisation of generation, disintermediation of suppliers by 3rd parties (such as automated switching sites) and the perfect storm I mentioned earlier is gathering pace. It’s going to be harder than ever to keep hold of profitable customers. The next decade for energy retailers will be very challenging, but at the same time provide opportunities for those prepared to be bold.
The market is fundamentally changing, and suppliers need to commit to a phased transformational change, with a clear, bold vision of the role they want to play in the future. They must distinguish between immediate and longer-term strategies to enable this success. Cost base transformation is no longer optional, while the ability to test and learn, to fail fast and adapt quickly is key, with the customer truly being at the heart of your proposition (not simply paying lip service to this). Suppliers need to have a clarity on how to differentiate themselves to create a deeper connection with customers and drive value. Having this clear strategic vision will enable them to plot the right course, whilst adapting along the way in response to ever evolving market and customer needs.
To be customer-centric, energy retailers need to be data-led and capable to adapt to evolving technology and customer needs
Figure 1: Where to start? The timing of immediate and longer-term strategies for energy retailers
Energy retailers need a bold new vision, leveraging insight from parallel markets, while simultaneously deciding what radical steps need to be taken now. Retailers of the future must be data-led and highly automated, powered by razor-sharp efficiency and a culture of operational excellence. Those who develop a clear view of customer margin and proactively develop their offerings and services for target segments, will stay ahead. While those who pay lip service to customer-centricity, but in reality operate in silos, will get left behind. Put simply: there has never been a more urgent need to be bold, be different, drive radical change and be the very best you can.
We’ve investigated why energy retailers need to be bold in their vision for the future. In our next Supercharged Future article, James Cooper will unearth the steps suppliers need to take to commit to this vision and succeed in such turbulent times…