Much has been made of the opportunity in the utilities market for partners to grab extra revenues, and profits, from their customer’s. From April 2017, the water market will be the latest industry to deregulate allowing partners that deal in energy to complete their utility portfolios. Here, we hear from some of the market pioneers about what the Channel can expect from a newly defined water industry.
The business market is going to be the initial area providers are going to be able to sell to. The residential market will open up in two years’ time. For many, this initial two-year period is an opportunity to hone their market proposition and steady themselves or the rush of residential in 2019.
The English market has been looking at the successful deregulation of water in Scotland, which took place in 2008, with wide eyes. Many are hoping the same story can be replicated on their home turf, but it may not be a simple copycat market.
We asked John Haw, Managing Director at Fidelity, why partners should be looking to get involved in water right now.
He said, “If you are not offering water, others suppliers will and they may also use it as a Trojan horse to engage with that client before selling other products.”
Danny Woods, Sales Director at Channel Utilities, agrees. He said, “The advantage of engaging on water for the Channel is about an alternative route to market and protecting existing clients from the approach of other utility providers.”
Darren Leipnik, Director at Think Telecom, added, “Being able to utilise water with other products in your business really does create value I think. It’s one more link to your customer which makes them stickier. I think it is all about that customer journey now and how many ancillary products you can sell into them. Also, the more products you sell into your customer’s then the more valuable your base becomes.”
Skill Sets
Following deregulation of the telecoms market we saw an explosion of resellers entering the space. However, at the time it was a new market where the rules of engagement hadn’t been clearly defined. The skill sets required to provision, deliver and bill water share a lot of synergies with telecoms. The Channel is coming into water with their skills already honed, this could see the market move quickly and Sean Marsh, Director of Ebb Solutions commented, “When people went into telecoms they had no experience of the market. People coming into water from telecoms are going to have that experience in how to service, commission and build a base which puts the telecoms market ahead of everyone else. This market has never been open before which means you can go in and can carve your own niche.”
Frazer Durris, Managing Director, Businesswise Solutions, commented “There is a lot of technology and man power required in-house to be able to offer a full water procurement and management service, with a whole lot of training required before you can confidently go out to market.
Working with a partner provides instant access to these resources, giving you the ability to manage water for your existing clients right away, as well as a multi-utility offering to attract new clients going forwards.”
Margin Opportunity?
The top line figures suggest that the savings for businesses at first are going to be in the 3-5% range. When you factor in the partner, wholesaler, broker and/ or a consultant, which all have to be paid within that saving then suddenly it’s not quite the lucrative opportunity everyone is hoping for.
Haw continued, “However (and it’s a big however) there is very little money in water at present and the savings to the end client will be small. We are seeing suppliers offering around £100 profit per meter for a 3 year sign up of a big meter! Which makes it a reactive sale and not a proactive one. The deregulation has been badly handled in England, unlike the deregulation in Scotland which was a great success.”
Leipnik added, “The opportunity is going to be limited at first, but it was the same in the Scottish market too. The government stepped in shortly after the market deregulated in order to make it commercially viable for new market entrants. We fully expect the same thing to happen in the rest of the UK. It’s important to use this initial phase to get yourself operationally ready and build a base for when that happens. Really, it’s about being ready for the residential market in two years.”
“I think there may be a bit of scaremongering going on at the moment which is to be expected as there are a lot of people with a vested interest in this market.”
Haw says, “If you are already selling utilities then this is an easy add in and makes sense. If you aren’t then I can’t see many telecoms partners investing time and money for such a small return, the commercials just don’t stack up.”
Drivers for Switching
Persuading customers to switch to a new supplier for a 3% saving sounds like an uphill struggle for the Channel. However, there are a number of other benefits which can help drive the sale. A reduction in administration will be especially attractive for multi-site companies. Suddenly dealing with one supplier rather than several, and having one bill, can yield significant operational savings for customers.
There is also an opportunity to verify the accuracy of the existing metering in place. Energy suppliers overcharging their customers are common stories. By offering an accurate evaluation service of the existing suppliers could be another way to add value.
In Scotland, the savings enjoyed by customers have risen to the 10-25% range over the eight years since liberalisation. Whether we will get there in England is clearly up for debate.
Marsh says, “Although the savings for customer’s sound small they can add up to be significant over the course of the contract. For a business that is a large consumer of water, saving 3% can be significant. From my time working with two of the top ten water companies in Scotland, I can tell you that their margins vastly improved over time too.”
“The further advantage for new entrants coming into water industry compared to telecoms when it was deregulated, is that there was very little in the shape of systems and software back then. Over the past two years, working in the Scottish market, we have created and refined our systems and software solutions to build in the expertise to allow new entrants to hit the ground running.”
Woods said, “Ofwat will want the English market to become more competitive as per Scotland over time and so will no doubt ensure further regulation in the future to drive more competition.
With greater domestic demand forecast over the next decade due to growing population, and more houses, then the emphasis will be on efficiencies and regulatory levies to pay for infrastructure improvements. Therefore, water will eventually get dearer.”
Frazer Durris added, “When Scotland deregulated water back in 2008 they had no benchmarks; we do. Research by the water companies shows expectations of earlier switching and better savings much quicker than enjoyed our Scottish counterparts.”
Ed Says…