PR19 - will replacing SIM improve customer service in water?

Providing good service has become a key component of success for customer facing companies in competitive markets, increasingly so as today's consumers become more aware of their value.

However for non-competitive markets, such as the water sector, companies can be in greater danger of not focusing to the same level on their customer experience strategy, because they don’t have the same level of incentive to actively improve.

The UK water market has historically been non-competitive and, possibly as a result of this, water companies have not in the main been known for leading customer service excellence, and in fact often sit in the lower half of cross sector customer satisfaction league tables.

While there have historically been some moves to challenge this status quo, industry regulator Ofwat has stepped up efforts recently to bring the water sector more in line with other sectors through PR19 – which aims to create a “competition ready” market, improving outcomes for consumers.

Evolution of customer service

Earlier this year, Ofwat's chief executive Cathryn Ross warned that companies which fail to provide ambitious business plans will have a “very tough” time during the PR19 review.

When it comes to customer service and measuring success, one of the proposed changes to impact water companies will be replacing the Service Incentive Mechanism (SIM) with WaterworCX.

WaterworCX aims to stretch companies to improve customer experience.

So, what are the main changes between SIM and the proposed WaterworCX, and what steps will water companies need to take in order to rank well and be rewarded for driving service improvements?

1. Handling and resolving contacts

Ofwat proposes that WaterworCX will measure customer satisfaction with both contact handling and resolution, whereas SIM only measures contact handling. This is positive as it’s important for water companies to consider the customer’s view on resolution of a matter or complaint.

Potentially it could mean that some companies may score lower than they would have under SIM if they’ve simply focused efforts on improving contact handling.

However many companies will already be taking a proactive approach and be measuring contact resolution internally. So, for many, they won’t need to massively change processes in order to score well under WaterworCX.

2. Engaging silent customers

Under WaterworCX, water companies would be subject to separate customer service and experience surveys. These will be conducted with customers who have actively contacted their company with an enquiry, and those registered bill payers who haven’t contacted their company to see how they view the service.

This change, to survey registered bill payers who've not been in recent contact, could be a big challenge. In many ways, water can be viewed as a “commodity” purchase which doesn’t necessarily invoke particular customer interest. Bill payers may not know much, if anything, about their water company or what they provide. Therefore, we expect to see a step change in community engagement and promotional materials in order to raise positive brand awareness and inform the community about the water company’s policies and programmes.

3. Can water companies compete with the very best?

Ofwat suggests that water companies be benchmarked against other sectors when it comes to customer service, including highly competitive markets, and to receive the highest rewards, they will be expected to be as good as companies in the upper quartile of the UK Customer Satisfaction Index, which is compiled bi-annually by The Institute of Customer Service.

This will be challenging, given that those in the upper quartile have been operating in competitive markets for years, and are vastly experienced in providing excellent customer service.

In the July 2017 UK CSI report, no water companies placed within the top 50 UK organisations, but a couple were close to the all-sector upper quartile score (the proposed threshold benchmark). For the few currently scoring well, the additional incentive could be easily reachable, whilst those currently scoring the lowest in the UK CSI have a lot more work to do.

4. Effective handling of all complaints

WaterworCX proposes that the volume of complaints a water company receives will only be used as a reputational measure, rather than being weighted as per SIM. While there is a small risk this could lead to a lower focus on complaint prevention, this risk should be largely abated due to the benefits that arise from reviewing customer grievances.

Analysing complaints helps identify root causes of customer issues and provides great insight into service improvement for all. We believe the big focus on reducing complaints, improving complaint handling and learning from complaints to provide the best customer outcomes will therefore remain.

Under the new suggested measures, complaints made through any contact channel will be considered. This more holistic view is good for the customer given the many ways customers can now contact their water company and varying preferences when it comes to channel choice.

One particular on-going challenge is complaint management via social media channels, which today's customer increasingly uses to air frustrations. Here the potential damage goes far beyond ineffective complaint management. Water companies are only too aware of the reputational impact social media channels can make. Those already active on social media recognise the need to service it well as well as the opportunities it provides to improve transparency with customers.

The next few weeks will prove interesting as Ofwat publishes responses received to its PR19 methodology consultation, and the final determination. We could see changes to the proposed WaterworCX mechanism during this time, but what remains clear is that the UK water industry will be expected to significantly improve customer service, as PR19 places companies under increasing pressure to do better for their customers.

As customers become increasingly informed via more accessible information, and an increasing focus on customer engagement, this will inevitably lead to a shift from transactional interactions to a more engaging and rapport driven relationship. The key will be to invest in both talented front line teams and innovative solutions to help minimise customer friction and improve customer service.

Monica.