How utilities can leverage analytics and communications to better serve and educate customers

Jay RobinsonSenior Consultant, Professional Services & SoftwareRicoh Production Print Solutions

Utility Payment Conference

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“Would it be more honest—and therefore more credible—to acknowledge that electricity prices will almost certainly rise going forward and that active management, at best, can mitigate that rise? It's

tempting to say customers will "save money," but if it turns out not to be true, the industry has

squandered significant good will on billions of dollars of investment by customer...”

“Would it be more honest—and therefore more credible—to acknowledge that electricity prices will almost certainly rise going forward and that active management, at best, can mitigate that rise? It's

tempting to say customers will "save money," but if it turns out not to be true, the industry has

squandered significant good will on billions of dollars of investment by customer...”

- Phil Carson, Editor-in-Chief, Intelligent Utility Daily, May 7, 2012

Today’s presentation will cover:

Factors driving the imperative to better communicate with you customers

Two great strategies for addressing targeted, relevant and high rate of adoption customer communications Predictive Marketing Analytics Case Study #1 – NW Utility utilizing predictive analytics to

achieve greater response, lower marketing costs, broader reach

Customer Statement Redesign Case Study #2 - How the Los Angeles Department of Water

and Power turned a dated, confusing billing statement into a clear, colorful and behavior modification vehicle

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Now more than ever utility companies and their customers need to be in sync

Volatility of pricing

Environmental Concerns

Evolving portfolio of energy sources

Increasing costs of all services to customers and the endless drive for efficiency

Increased diversification of customer base and the attendant language and technology challenges

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Rapid evolution in customer communication methods and technologies

Traditional Statements Paper - complex platforms

New Channelswebsites, email and mobile

Education Avenues

social media intersecting print, television and radio

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Print/Mail/Fax

Web

Email

SMS/Voice Message

Records/Archive

Connect

Rapid evolution in customer communication methods and technologies

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TAKEAWAY:

Complex, rigid and aging customer communications vehicles and

infrastructures aren’t flexible enough to adapt to the new marketing capabilities

Challenges to better communication

Lot’s of data, less information, little knowledge

Inflexible legacy CIS, CRM and Print/Mail systems

Unable to accommodate evolving methodologies:

“adaptive/real-time”, multi-channel, integrated, predictive and feedback driven communications

This inflexibility results in no support for new communications opportunities: Made available by huge amounts of data from AMI/Smart Grid systems Needed for rich customer dialogue necessary to support Demand

Management Pricing

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Some enabling technologies and data levers

Customer Marketing Analytics Multi-channel communications

engines Composition tools Color printing platforms Customer aggregators Workflow Managements tools Campaign management and

evaluation tools Cost efficient SaaS and On-site

Managed Services models

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Leverage and integrate these to create and manage an adaptive, targeted customer communication strategy

The Result: A Fully Integrated Advanced Customer Communications Infrastructure

CUSTOMER MARKETING ANALYTICS

One strategy to increase the effectiveness and broaden the reach of you customer communications is to utilize

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New York TimesApril 23, 2011

“Internet era technologies are doubling the quantity of

business data every 1.2 years.”

“The estimated number or agencies involved in managing California’s

water supply.

Analyzing the data they generate can make water management more

effective.”

*HBR November 2010

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Reverse Engineer – “Start at the End”

Reverse Engineer – “Finish at the Beginning”

“From Start to Finish”

? ?

? ?

Your FeedbackDelinquent AccountsGoing ElectronicService EnrollmentCall Center ActivityGreen AdoptionUsage EstimationsCustomer AttritionOthers ???

Key Takeaway

“We need to improve the connection with our customers.” Richard McNutt @ Southwest Gas

Today’s QuestionsHow do we quantify electronic vs. paper? How can I affect ‘change management’?How much does it cost to go from generic to

specific?How can we establish ‘proactive’ pricing vs.

‘reactive’?In the absence of data, how can we better

understand our customers?Survey, Test, Measure

A Typical Customer CampaignBudget for communicating to

100,000 customers Key metrics to achieve

1,000 new accounts$1 million in revenue

Achieved stated objectivesRepeat campaign

Business Rules

Segmentation Profiling(look a likes)

Predictive Modeling(behavior

based)

Analytical ContinuumLow High

#1 #2 #3 #4

Volume of DataMinimal Extensive

95% (Results)

40% (Mailed)

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100,000 Mailed1,000 New Accts$1M in Revenue

Six Months Prior Current

ScoreNumber of

HHLDsCumulative Households

Cumulative % of Households

Cumulative New Stays

 

Cumulative Response Rate

Cumulative % of Responders Captured

 

Group Response Rate

1 20,000 20,000 5.00% 374 1.87% 1.87% 40.17%2 20,000 40,000 10.00% 554 0.90% 1.39% 59.51%3 20,000 60,000 15.00% 695 0.71% 1.16% 74.65%

4 20,000 80,000 20.00% 768 0.37% 0.96% 82.49%5 20,000 100,000 25.00% 795 0.14% 0.80% 85.39%6 20,000 120,000 30.00% 829 0.17% 0.69% 89.04%7 20,000 140,000 35.00% 857 0.14% 0.61% 92.05%

8 20,000 160,000 40.00% 885 0.14% 0.55% 95.06%9 20,000 180,000 45.00% 897 0.06% 0.50% 96.35%

10 20,000 200,000 50.00% 901 0.02% 0.45% 96.78%11 20,000 220,000 55.00% 910 0.05% 0.41% 97.74%12 20,000 240,000 60.00% 915 0.03% 0.38% 98.28%13 20,000 260,000 65.00% 916 0.01% 0.35% 98.39%14 20,000 280,000 70.00% 921 0.03% 0.33% 98.93%15 20,000 300,000 75.00% 927 0.03% 0.31% 99.57%16 20,000 320,000 80.00% 927 0.00% 0.29% 99.57%17 20,000 340,000 85.00% 927 0.00% 0.27% 99.57%18 20,000 360,000 90.00% 930 0.02% 0.26% 99.89%19 20,000 380,000 95.00% 930 0.00% 0.24% 99.89%

20 20,000 400,000 100.00% 931 0.01% 0.23% 100.00%

Good segmentation

A B

C D

Bad segmentation

A B

C D

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? ?

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Take away: Good segmentation allows for campaign learning.

Proper segmentation is critical

Establishing sound portfolio segments

HIGH VOLUME ENGAGED

CONSERVERS OCCASIONAL

(LOW RISK / HIGH POTENTIAL)

(HIGH RISK / HIGH POTENTIAL)

(LOW RISK / LOW POTENTIAL)

(HIGH RISK /LOW POTENTIAL)

HIGH VOLUME

ELITE

ENGAGEDELITE

HIGH

Usage

Payment Risk

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HIGH

LOW

The Audience•40,000 customers

•5% of your customer base•25% of all your power usage•Ave kwatt usage per month: X

Product Information•Average of 4.3 services

•10% of customers have ‘Auto Pay’•85% of customers have ‘Even Pay’

•Average amount due= $275.00•Average revenue = $4,000

Demographic• Tenured customers

•9 years under current address• 35-44 age range

• Home owners• Approx home value = $235,000

Sample Strategies

–Quarterly Campaign: Promote incentives around ‘Auto Pay’ and ‘Even Pay’ to address delinquency

issues in the portfolio

–Education: Personalize your communications to this segment via portfolio analytics for improved

efforts and targeted / relevant messaging

HIGH VOLUME ENGAGED

ONE OFFOCCASIONAL

(LOW RISK/ HIGH POTENTIAL) (HIGH RISK / HIGH POTENTIAL)

(LOW RISK / LOW POTENTIAL) (HIGH RISK / LOW POTENTIAL)

HIGH VOLUME

ELITE

ENGAGEDELITE

HIGH

LOW

UsagePotential

Risk PotentialHIGH

OffPeak20%

Peak80%

0

2,000

4,000

6,000

8,000

10,000

12,000

Single Service 2 Svcs 3 Svcs 4+ Svcs

First Year Year 2 Over 2 Yrs

Over 20,000 households that have been customers for over 1 year are single service or two service members, presenting a significant cross sell opportunity

# Households per Service Mix

+ = 20,000

Where is your communication opportunity?

RecapNew York Times

Quantity of business data doubling every 1.2 yearsHarvard Business Review

400 agencies involved in managing California’s waterThe need to improve our connection with customers

Richard @ Southwest GasEnablement technologies that are available today

Analytics, Composition, Workflow, Printing, Electronic

Why you should care

Improved revenueDecreased customer delinquencyDecreased call center activityImproved green adoptionImproved service enrollmentTargeted customer pricingOthers

Utility Variables for ModelingAgencyAssistAmountPast12Mo DisconnectOrdCompletedPast12Mo

AgencyAssistPaymentsPast12Mo DNPCantWork12Mo

AmountPastDue_0_29_Days DNPDisconnectPast12Mo

AmountPastDue_120__Days EmailPromotionsOkay

AmountPastDue_30_59_Days FifteenDayNoticesPast12Mo

AmountPastDue_60_89_Days FiveDayNoticesPast12Mo

AmountPastDue_90_119_Days KWhUsage_Past12Mo

AvgMonthly_BillAmount MeterNumber

AvgMonthly_KWhUsage PastMonth_BilledAmt

City PastMonth_KWhUsage

County PayChannelLastUsed

CustomerCode PremiseCode

DateAccountEstablished TimePaymentAgreement

DateCustomerCodeEstablished Year_Month

Summary of Utility Solution Set Offering

Analytical Toolkit Predictive Models

Risk Models (2) Attrition & Late Pay

Service Models (4) Equal Pay, Electronic Billing, Renewable Energy & Usage

Customer Segmentation Behavior Index & Risk Index

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A ‘behavior based’ suite of predictive models designed to optimize marketing budgets and improve how utilities communicates with their customers.

Campaign Selection Process

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Full Utility Population 500,000

If customer is in the “Frontier” segment and; 100,000customer has an “Equal Pay” score of 1, 2 or 3 30,000customer has a “E-Billing ” score of 1, 2 or 3 9,000Then customer gets offer “A” 9,000 Offer “A”

If customer is in the “Explorer” segment and; 85,000customer has an “Equal Pay” score of 1, 2 or 3 25,500customer has a “Late Pay” score of 1, 2 or 3 7,500Then customer gets offer “B” 7,500 Offer “B”

If customer is in the “Stable” segment and; 130,000customer has an “Equal Pay” score of 1, 2 or 3 39,000customer has a “E-Billing” score of 1, 2 or 3 11,700Then customer gets offer “C” 11,700 Offer “C”

If customer is in the “Explorer” segment and; 100,000customer has an “Equal Pay” score of 1, 2 or 3 30,000customer has a “Late Pay” score of 1, 2 or 3 9,000Then customer gets offer “D” 9,000 Offer “D”

Deploying the solution (Segmentation & Models)

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Frontier

Challenger

Explorer

Promote Renewable Energy (scores 1-3) and improved usage (scores 1-3).This group is showing propensity for signing up for more services and is a minimal risk from a payment perspective.

Leverage the service models to identify who to target with specific services.

Promoting Equal Pay (scores 1-3) and Electronic Billing (1-3). This group is showing propensity for signing up for more services and is a high risk from a payment perspective.

Leverage the service models to further integrate and mitigate the known risk that this segment is showing.

Promoting services will prove difficult in this segment. Improving clarity around billing options, call center help lines and overall content to mitigate late payer volume.

Consider testing special campaigns into this group to further understand their profile and what (if anything) the utility can do to improve delinquency in this segment.

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Case #1 Utility Electronic Billing Campaign Validation

To assess the Utility’s recent electronic billing campaign, vendor offered to score their test population as well as their full May 2011 customer population through its electronic billing solution model. The first chart illustrates the results of vendors campaign distribution.

The Utility marketed to 220,634 customers. The campaign brought in 2,332 responders to the e-billing offer. Vendor took the 220,634 audience and scored this population through our e-billing solution model, as illustrated in the next chart.

pge_decile # AccountsCum % of

Accts# E-bill Sign-

upsDecile E-bill

rateCum E-bill

rateCum % of E-bill

captured1 37,030 17% 436 1.18% 1.18% 18.70%2 88,832 57% 1,081 1.22% 1.21% 65.05%3 73,769 90% 623 0.84% 1.07% 91.77%4 21,003 100% 192 0.91% 1.06% 100.00%

220,634 2,332

PGE Deciles (220,634 Audience)

Ricoh_decile # AccountsCum % of

Accts# E-bill Sign-

upsDecile E-bill

rateCum E-bill

rateCum % of E-bill

captured1 55,856 25% 880 1.58% 1.58% 37.74%2 57,407 51% 628 1.09% 1.33% 64.67%3 53,413 76% 501 0.94% 1.21% 86.15%4 25,288 87% 171 0.68% 1.14% 93.48%5 7,034 90% 39 0.55% 1.12% 95.15%6 5,550 93% 36 0.65% 1.10% 96.70%7 4,127 95% 19 0.46% 1.09% 97.51%8 5,035 97% 29 0.58% 1.08% 98.76%9 3,831 99% 13 0.34% 1.06% 99.31%

10 3,093 100% 16 0.52% 1.06% 100.00%220,634 2,332

RICOH Deciles (220,634 Audience)

Had the Utility’ leveraged the predictive model we would have recommended cutting off the campaign selection at score 3. This would have enabled Utility to market to 76% of this group while capturing 86% of the responders.

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Electronic Billing Campaign Validation

In addition to this the vendor scored the full Utility’s portfolio for the May 2011 time frame. This allowed us to see who outside of this 220,634 we would have targeted with our model selecting the audience.

Ricoh_decile # AccountsCum % of

Accts# E-bill Sign-

upsDecile E-bill

rateCum E-bill

rateCum % of E-bill

captured1 30,516 5% 481 1.58% 1.58% 28.70%2 28,180 10% 484 1.72% 1.64% 57.58%3 34,017 15% 431 1.27% 1.51% 83.29%4 61,226 25% 181 0.30% 1.02% 94.09%5 73,138 37% 25 0.03% 0.71% 95.58%6 63,402 48% 13 0.02% 0.56% 96.36%7 56,991 57% 18 0.03% 0.47% 97.43%8 63,586 68% 14 0.02% 0.40% 98.27%9 65,925 79% 16 0.02% 0.35% 99.22%

10 129,689 100% 13 0.01% 0.28% 100.00%606,670 1,676

Deciles (1-3) 92,713 15% 1,396 1.27% 1.51% 83.29%

RICOH Deciles (Additional Group)

Had the vendor leveraged its electronic billing model on the May 2011 file we would have selected 92,713 customers outside of the vendors modeling selection. This group went on to respond to the electronic billing services at a 1.51% rate, accounting for an additional 1,396 additional e-billing customers.

Electronic Billing Campaign Validation

Response Rate1.21%

166,676 Marketed2,009 Responders

Response Rate0.60%

53,958 Marketed323 Responders

Response Rate1.51%

92,713 Selected1,396 Responders

Predictive Model

Utility Model

Represents the 220,634 that Utility model selected

Represents the population predictive vendor would have selected

STATEMENT REDESIGN

Another huge opportunity to drive program adoption and lower customer service is through

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Little known statistics…

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The typical consumer reads a billing statement 2.3 times

Source: CMO Council Research, November, 2009 Why Relevance DrivesResponse and Relationships: Using the Power of Precision Marketing to Better EngageCustomers,

Nine out of ten consumers open monthly bills delivered via

traditional mail, compared to 72percent who open bills delivered

via email

If you want customers to…

Make fewer calls to your customer service Pay bills on time and migrate to more advantageous

payment programs Adopt energy efficiency programs Adopt electronic communication channels Understand demand management, AMI and tiered

pricing programs Have a better opinion of the Utility value; when

services are affected (weather outages, etc.) they are less inclined to become angry/take action

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Combining Promotional messaging with the Transaction statement will produce greater results

TransPromo

Business Statement

Direct Marketing

Targeted, relevant messages

Typical redesign utilizing this concept

Case Study #2 the Los Angeles Department of Water and Power

Nation's largest municipal utility, delivering water and electricity supplies to more than four million users in homes and businesses throughout the City of Los Angeles

LADWP was established in 1902 to deliver water to the City of Los Angeles. Electric distribution began in 1916.

The Department serves four million residents, with approximately 1.4 million electric service connections and 712,992 water service connections.

Also provides billing for City sanitation services (trash and sewer)

Challenges

Dated billing statements with poor readability and use of space

Poor layout to communicate different charges leading to customer confusion and higher customer service (call center) expenses related to bill related customer inquiries

Goal to reduce customer calls by 20%

Aging infrastructure of printing hardware and software to create communications, print and mail

Effort by the Mayor, LA City Council and LADWP effort to meet and mitigate rate impacts of the State of California Carbon mandates for reducing climate change or greenhouse gas (GHG) emissions (Assembly Bill 32) through Green education/adoption of conservation measures

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LADWP addressed these by

Obtaining new high speed color inkjet printers New software to reformat customer communications Design consulting starting with key stakeholder

groups from within LADWP and the payer community Workflow management tools to support adaptive

custom communications with the highest quality from raw data to USPS

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Before: Six Pages of Billing Information

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Clear Highlights

Personalized Summary

Helpful Numbers

Program

After: Reduced the Six to Four Pages, added service category icons and attention grabbing color highlights

Plus: Two Pages of Relevant Marketing To Grow Program Awareness & Value and future personalized communications

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SZ

Summary of New Statement Design Features

• Improved Bill Remittance: Customer total due presented clearly on page 1

• Color: Color used to draw attention to key sections of bill as well as payment.

• Graphical Diagrams: Graphs to show history patterns and peak usage.Visually show when product is used at what times it is optimal

• Improved Clarity: Clear, crisp font makes reading easier on the eye.Swiss font allows for more content to fit in less space, thus saving paper

• Sustainability: Eliminate inserts by using onserts. Messaging nearly guaranteed to be read (as opposed to throwing away a piece

of paper) and reduces paper (supporting green practices)

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Goal = Reduce Customer Call Center volume by 20%

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Recap

Customer communications are becoming more important than ever

There are many benefits to addressing customer communications

There are many technological and marketing tools available to create an integrated adaptive, personalized and relevant communications

Leveraging modern customer analytics tools and redesigning your customer statements are two strategies which can increase return and decrease costs

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