25/05/2007

Rises in household utility bills over recent years has had a dramatic impact on Britain's poorest families, and with domestic energy prices on the increase it is expected that more households will fall into fuel poverty. Utility companies face an uphill struggle to meet the Government's aim of eliminating fuel poverty in vulnerable households by 2010 (and all households by 2016), especially when you consider that up to two million households in England alone will face fuel poverty by 2009 (National Energy Campaign and National Right to Fuel Campaign). Although the industry is moving in the right direction, it is not taking full advantage of the technology that is available to help handle customer data and contact those customers who are hardest to reach. Lower income customers need to be reassured that their supplier is committed to eradicating fuel poverty, but how can utility companies do this if they do not manage their databases, both customer and prospect, effectively?

Fuel poverty
During 2004-05, the poorest 10 per cent of households in the UK (around 2.4m homes) spent 5.7 per cent of their annual expenditure on gas and electricity (Guardian, 25 July 2006). But the recent rapid rise in the cost of wholesale energy has pushed up the average gas bill by two-thirds and the cost of electricity by a half in the last three years. This means that the poorest households are now paying as much as 10 per cent of their income on fuel, the level at which households qualify for the fuel poverty scheme. These consumers are entitled to grants from the Government to help pay for heating and insulation. The Department of Trade and Industry estimates that for every 1 per cent real term rise in fuel bills, 40,000 households in England fall into fuel poverty.

As best practice, correctly managing customers that are fuel poor should form a natural part of utility companies' corporate social responsibility, protecting brand reputation and helping to fight the current 'switching' culture.

However, identifying who qualifies for fuel poverty is one of the utility sector's greatest challenges. This is easy to understand when you consider that amongst all industries, it is often the utility companies that have the largest databases. Recent consolidation in the industry has further enhanced this, with Centrica and EDF having 22 million and at least 5 million records on their customer databases respectively.

Many of these companies face significant integration issues due to systems not working together and an historically silo driven approach to legacy systems. This means that they need to look to software solutions to help them identify lower income customers as well as the geographic distribution of fuel poverty across the country.

The importance of data
It is clear that the utility industry is not leading the way in handling its customer data. Recent global research by QAS (Dynamic Markets, How Well Do You Know Your Customers? 2005) found that only nine per cent of utility companies can claim complete confidence in the accuracy of their customer databases. In addition, when asked if companies had a dedicated database owner, the utilities industry finished bottom.

Part of the problem lies in data decay. The fact that people move house, get divorced and change names means that it is a continual struggle to keep track of customer data, and those customers which are more likely to be categorised as fuel poor. However, it is in the interest of utility companies to track areas and postcodes in which fuel poor customers live so that they feel as though they are being looked after and can benefit from initiatives and grants found within the fuel poverty scheme.

In addition, by taking a proactive approach to customer data, utility companies can accurately identify which customers are likely to have payment problems and could represent a debt risk to the company. By knowing what type of customer they are dealing with and establishing a single customer view, utility companies can decide what type of finance option to offer to them (e.g., direct debit, paying monthly or quarterly). It also makes high value customers easier to target for cross-selling and up-selling opportunities.

There are three ways in which utility companies can better understand their own data and ultimately identify customers who may be eligible for support.

1. Profiling existing customers
Companies often like to promote themselves as being politically aware and sensitive to the needs of existing customers. In order to do this, they need to be able to take sections of their data and align this to the geodemographic make-up of a specific area by using consumer classification tools, like Mosaic from Experian. By evaluating customers' postcodes, companies are able to identify those living i