Moving from Energy Customers to Energy Partners

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Karen Ehrhardt-Martinez's picture

Karen Ehrhardt-Martinez is the Director of Customer Insights and Behavioral Science at ICF. Karen is internationally recognized for her work on the human dimensions of energy efficiency,...

  • Member since 2020
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  • May 28, 2020

This item is part of the Utility Customer Care - Spring 2020 SPECIAL ISSUE, click here for more

The move to distributed energy systems and time-differentiated rates requires a rethinking of utility customer relationships—one that involves deeper and broader engagement with customers and results in a symbiotic partnership between utilities and customers. But what does deeper and broader engagement look like, and how do we get there?

As utilities modernize and customer service expectations evolve, customer care will take on new dimensions of service, becoming increasingly customer-centric and offering tailored solutions to the diverse interests and preferences of different types of customers. This transition requires new investments in customer research that can provide a better understanding of the customers being served and the factors that motivate them. In addition, as energy resources become more distributed, modern energy management will require customers who are more highly engaged and empowered.

Such efforts represent a major departure from traditional approaches to customer care and are likely to benefit greatly from the proven insights and strategies offered by social science research. Not surprisingly, the value of social science has gained much recognition over the past decade among both utilities and utility partners. Tapping the insights offered by social science provides the opportunity to apply innovative new approaches to program design and communications that result in more engaged, empowered, and activated customers. In short, the use of customer research and social science can help answer questions, such as:

  • What do different types of customers value and how do customer values influence energy consumption and relationships with their utility?
  • ­­How do values and perceptions influence customer choices and behaviors now and in the future?
  • Which customers are likely to engage with utilities and new technologies, and in what way?
  • What are proven strategies for engaging, empowering, and activating customers?

Customer Care and Customer Research
When it comes to customer care, understanding customer engagement and the values that motivate engagement is key. According to a recent study performed by the Smart Energy Consumer Collaborative (SECC), a customer’s level of engagement is linearly related to their perceived importance of smart energy benefits. However, simply informing customers about these benefits is likely to be insufficient in changing perceptions or levels of engagement. Instead, effective customer research is needed to understand customer segments and how they correspond to customer values and customer engagement.

As anyone working in customer care knows, customers are not made from a single mold, and it is important to understand differences in customer perspectives and preferences. According to SECC, utility customers tend to fall into one of three engagement buckets: always engaged (44%), selectively engaged (41%), and rarely engaged (15%). Selectively engaged customers are important because they represent untapped potential for increased engagement. Among selectively engaged customers, the study found that roughly one-third were most concerned with the ways in which smart energy programs can help save them money. Another third was most interested in using energy wisely, but indicated that they were not aware of how technologies might help them achieve those ends. The final third, labeled “movers and shakers,” expressed a strong interest in smart energy technologies that would motivate them to be more engaged with the utility.

The same research also found that three commonly held customer values play a central role in understanding utility customers and their level of engagement:

  • Financial motivations and cost management
  • Environmental stewardship
  • Technology prioritization

While the first two values are relatively universal, customers who are more frequently drawn to “cool” new technologies were also found to have a higher level of engagement with their utility (i.e., the technology prioritization value).

Interestingly, however, customers do not find all smart energy technologies and smart energy benefits the same. The SECC study mentioned earlier found that customers tend to prioritize some smart energy benefits over others; the most important benefits help keep customers’ lives affordable, safe, and comfortable. When integrated into utility messaging, these three key benefit messages were found to address the interests of 91% of customers while also limiting potential confusion that could come from the use of too many messages.

Customer Care and Social Science
When it comes to customer engagement, empowerment, and activation, social science helps us break through long-held but often inaccurate assumptions about the forces that shape customers’ choices, decisions, and actions. Historically, most utilities have relied on traditional approaches that involve customer information and education campaigns as the primary or only means of engaging customers. Energy efficiency programs, for example, provide information about the return on investment when deciding between energy efficient versus non-efficient products. A current example of this approach can be found among most utilities that are promote electric vehicles and emphasize the long-term fuel saving and lower maintenance costs. More recently, however, social science research has shown that other factors, such as emotions, play a critical role in consumer decision-making. In fact, behavioral economists claim that approximately 70% of our decision-making is emotional while only 30% is rational. And even when attempting to make rational decisions, people are still highly likely to fall victim to well documented but unconscious biases that result in suboptimal outcomes—unless programs and communications are consciously designed with these biases in mind.

One example of the biases that customers are often forced to grapple with is choice overload. While people like to have choices, having too many choices can backfire because an abundance of choice often results in customers feeling overwhelmed leading to decision-making paralysis. The impact of choice overload was illustrated in a simple experiment where some customers were offered 24 different jams to chose from, while others were offered 6 choices. Among shoppers in the first group, only 3 percent ended up making a purchase compared to 30% in the second group.

While biases can lead to negative outcomes, they can also be used in an intentional way to increase customers willingness to pay and to help customers make good decisions. For example, the strategic integration of biases associated with the endowment effect has been shown to increase customers’ willingness to pay for items that they have spent time customizing. Studies also show that the endowment effect causes people to value items they own and have an emotional attachment to more than a similar item owned by someone else. This effect can be used to the customer’s advantage and the utility’s through approaches that involve customization. When customers customize a direct install kit, for example, we would expect customers to experience an endowment effect, have greater emotional attachment to the kit, and be willing to pay more for it than if someone (e.g. the utility) selected the product mix for them.

The decoy effect provides another useful example of how irrational customers’ preferences can be and how utility programs and communications can be designed to guide customers toward more desirable/optimal outcomes. Here’s an example based on an actual choice set associated with three publication subscription options – internet only for $59, print-only for $125, or the combination package for $125. When 100 people were asked to choose one of the three subscription options, 16 people chose the first option, no one chose the second, and 84 people chose the third. But when the print-only option (the decoy option) was removed, 68 people chose the internet only option and only 32 people chose the combination subscription. The shift in preference was simply a function of removing the option that nobody really wanted but that clearly influenced many people to choose the more expensive subscription option.

These examples raise valuable questions about whether utilities are using the most effective approaches to guide customer choices and motivate customer engagement. Rather than relying on information and rational decision-making alone, how can we use social science insights to better design programs and frame communications in ways that offer the opportunity to greatly enhance customer engagement, empowerment, and activation? Insights from behavioral economics, psychology, and other social sciences challenge the persistent and inaccurate assumption that underlie most utility approaches and provide new, innovative and effective approaches for improving engagement strategies.

Final Thoughts
The investment in innovative customer research, when combined with science-based communications and program design, offers utilities more effective means of increasing customer engagement, improving customer decision-making, and ensuring that customers and utilities alike maximize the benefits of utility programs. Whether utilities decide to encourage customer engagement through the use of smart technologies and/or science-based communications, efforts to optimize customer engagement are becoming more important as utilities invest in distributed energy resources, explore time-differentiated rates, and continue to reduce energy waste and lower peak demand. The modern utility is one that requires close partnerships with utility customers and a more sophisticated approach to engagement.


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Thank Karen for the Post!
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