opinion
RWE, Germany's second biggest utility, announced at the start of the year that an increase in household bad debt was partly to blame for a 26 per cent decline in annual operating earnings to GBP472m at Npower, its UK unit. It warned that the UK recession would cause bad debt to rise across all customer segments, and would be a contributing factor to the significantly lower operating results it expects to post for the year. At the same time Eon has warned its investors that its overall earnings in 2010 may be reduced by just under half a billion pounds due to falling industrial power consumption and an increase of bad debts across its wider customer base.
These warnings suggest that utility providers face a growing issue; that the troubled economic climate combined with rising energy prices will result in greater numbers of indebted consumers struggling to repay their utility bills, and could even lead to some simply giving up trying to pay altogether. Collections activity will therefore get tougher and utility brands need to make sure they have well oiled collections capabilities in place to stand a chance of being first to the consumer wallet.
So what can be done to make greater inroads? For utility providers, perhaps the most important objective moving forward will be to engage actively with their debtors. In other words opening a dialogue with customers and offering them support and guidance to help manage their finances, and ultimately pay back what they owe. Given so many consumers 'stick their heads in the sand' when faced with financial instability, taking this partisan position, especially at an early point, massively differentiates the brand from what may be a large number of other potential creditors.
The key is responding to the notion that consumers respond well to being treated, or crucially feeling like they're being treated, as individuals.
For years marketing professionals have used phrases like CRM, but how far through an organisation do these principles go? With CRM yesteryear's news, marketers are instead talking one to one personal relationships and beginning to use sophisticated technology to manage those relationships; technology, process and philosophy that can be applied to any communication requirement, with proven ability to increase response, advocacy and results. And response is what we're looking for here.
So what communications principles can we borrow and turn to our advantage when collecting outstanding debt?
The first concept to introduce here is that all communication channels are useful but which to use depends on many factors. Let's examine two; consumer preference and the stage of arrears.
Core to deriving value from cultivating personal relationships is a brand recognising each individual's channel preferences. Permission marketing has become something of a marketing mantra in recent years, not least because the simple act of identifying and remembering how a customer likes to be communicated with can be fundamental in being able to present them with communication they deem relevant and welcome.
A consumer's preference for communication channel(s) (explicit or implied) may relate to factors such as age or the way they engage with the brand. A simple example could be that older customers may be more responsive to traditional communication channels like telephone and post, whilst other demographic groups may be receptive to digital communication like email and SMS.
Having understood some simple illustrations for consumer channel preference, let's now look at channel usage according to the stage of indebtedness; how communication is handled in the early stages is extremely important.
An early indicator that a consumer may be approaching financial difficulty could be a change of payment method, perhaps from Direct Debit to quarterly as they believe that will give them the breathing space they need. They're not yet strictly in arrears but identifying early triggers allows you to act quickly. Engaging on the consumer's terms at this early stage gives rise to greater opportunities to yield results, through the cultivation of a supportive and non intrusive relationship; one where they can benefit from help and advice before their problems escalate. Provide them with subtle prompts of support services they can use, make these support services easily accessible (e.g. online, such as bill calculators and energy saving tips) and most importantly make it easy for the customer to interact with the brand and these services without them feeling like part of 'the debt club'.
Once a consumer is in arrears and you are actively trying to collect, increasing your range of channels through implementation of a structured communications plan is a well advised next step. Customers at this stage are generally worried but may still be open to a conversation, so trying their preference first may elicit a response. But if the customer is trying to ignore the problem, you will need to move on to other techniques. Methods like digital channels can help to create an instant connection. But the main objective here is to provoke a response, even if it has the potential to make the customer feel uneasy at first; remember that resuscitating the relationship at this stage can be far more successful than if left to escalate further. Once a response has been achieved, a relationship can be created and help and support provided. The importance of 'talking' to the customer, in a supportive and non-threatening tone, shouldn't be underestimated. This is a key stage in a brand's ability to manage debtors and investing in the use of a broad range of channels here, including digital channels reaps rewards aplenty. Low risk customers in early arrears may turn around, perhaps as they are disorganised rather than deliberately avoiding payment, and vital human resources can be used to rescue those further down the line.
When we are dealing with customers who are really struggling, they are quite likely to be running away completely; consequently they're less likely to interact online or via email, or be responsive via their preferred channel(s). They may also find themselves being chased by several other creditors. Here it's imperative to illicit a response by any means, so any and every line of communication should be used.
Overlay on this a segmentation according to the likelihood of the customer to pay back and you have the basis of marketing campaign technique; channel preference, stage of arrears and propensity and ability to pay all feed into a set of communications rules; a slower-burn, softly softly approach, or straight to a more direct means.
Here is where we need to introduce marketing technology. Marketing campaigns tend to succeed on the basis of using data extracts and running scoring and decision rules against this data to determine what to do next. Any new piece of data may change the course of action and the more often data are gathered the more frequently, and accurately, your decision engine determines the next action. The technology directs activity by producing files for written communications, outbound calling, SMS communications, email, etc.
Of course as with any marketing campaign, a test and learn approach will refine and hone decision rules to determine the optimal approach.
It's not a big leap to imagine how marketing sensibilities coupled with the inventive use of new media channels, such as web content, banners, email, SMS, etc. integrated with more traditional communications channels into campaigns, can be used to collect outstanding bill payments in a truly one to one fashion that yields increased success.
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