Expanded product offerings: the future of energy retail?

With traditional revenue sources dwindling and energy retailers now competing for fewer customers, many companies have repositioned themselves as customer solutions providers, expanding their products to include insurance or telecommunications services. Here, we pick apart this trend to see how a diversified product range could unlock a bright future for energy retailers.

In an ever-changing energy landscape where customers scrutinise refrigerator Energy Star Ratings, neighborhood battery programs abound, and nearly three million Australian households use rooftop solar, energy retailers need to stay ahead of customer trends.

Many of the major players in energy retail in Australia, including EnergyAustralia and AGL, are looking at diversifying their product offering, expanding beyond energy retail and looking at new products including telecommunications and insurance.

EY Partner Digital and Emerging Technology, Damien Hudson, said that evolving a product portfolio which includes adjacent services such as insurance and broadband, is a trend that started several years ago and has accelerated in recent years.

Many of Australia’s energy retailers are now offering products such as solar PV, electric vehicles, battery products and smart home devices.

Customers are also seeing the potential economic benefits of renewable energy, and this increasingly environmentally-conscious customer base presents challenges for traditional energy retailers.

“Consumer demand for renewable energy generation is based on, not only seeking an economic benefit by saving on energy bills and potentially selling energy back to the grid, but also they are seeking to make their contribution to a low-carbon, environmentally sustainable society powered by their own home-grown energy generation,” Mr Hudson said.

Traditional energy retailers are also facing competition from new digital-first market entrants, which leverage smart technologies to provide lower energy prices.

Consumer Data Right (CDR), which has carried across from the banking sector into the energy sector, will come into effect in 2021 and allow customers to share data with accredited third parties to provide more competitive quotes. This is expected to encourage more digital-first energy providers to enter the market.

“In the UK, Octopus Energy and OVO Energy entered the electricity market, leveraging their own software platforms (Kraken and Kaluza) to drastically reduce cost to serve and also allow rapid creation of new product or service offerings,” Mr Hudson said.

“Some local retailers have indicated they are making strategic technology investments in Kraken and Kaluza.

“Retailers will increasingly need to create deeper, more meaningful relationships with their customer base to retain them.

“Energy retailers need to be ready with compelling products and services that support the personal sustainability and economic goals of consumers.”

Identifying opportunities

A number of energy retailers have already updated their service offerings by repositioning themselves as customer service providers, and expanding into areas such as insurance.

AGL’s newly-established innovation hub, AGL Next, aims to develop and test new technology and business models to support the future expansion of the company’s products.

One of these initiatives is a $3 million investment in the start-up company Honey Insurance, through AGL Next’s Future Business Strategy.

The move means that AGL is able to streamline customer essential services, and can add smart insurance products to its range of broadband, mobile and energy services.

Honey uses smart home technology such as sensors, which can detect and prevent incidents such as fire, water damage or theft. Bundling smart home devices and using sensors and meters to reduce premiums is rapidly becoming the new standard.

“In addition to diversifying revenue sources, energy companies can develop a deeper understanding of customers, and use that insight to develop new offerings and quickly respond to rapidly changing demand,” Mr Hudson said.

“The customer experience can also be enhanced through having a single point of interface across a broader range of services.”

EnergyAustralia’s new Stack On product launch also highlights this push towards bundled services. The initiative allows customers to access utility, data and insurance services in one centralised service. Stack-On provides options for electricity, NBN internet, mobile plans, home and car insurance.

These services are backed by Optus and Open Insurance, and the program is on trial through EnergyAustralia’s On by EnergyAustralia platform, which uses customer data to develop new services.

While the most consistently offered products for energy retailers are electricity, gas and broadband, common areas for increased service include a variety of smart home devices, solar panel and batteries, electric vehicle charging equipment and subscription services.

“Financing or leasing of solar, batteries and electric vehicles are financial vehicles that will also reduce barriers for customers and create a longer-lasting relationship with the retailer,” Mr Hudson said.

“For large electricity consumers, there is strong demand for ‘green’ products such as electricity from renewable sources and green certificates to enable their corporate ESG targets to be met.”

The future of energy retail

For energy retailers looking to reposition and expand products and services, the core needs of their customer base should first be understood.

“There are a number of things retailers can do to identify whether they should consider new service offerings, and if so, what those services should be,” Mr Hudson said.

“The steps are highly dependent on the starting position of each retailer and their objectives, but could include doing a scan of the market using Political, Economic, Social, Technological, Environmental, and Legal (PESTEL) type analysis, identifying the retailer’s own strategic advantages, understanding customer’s appetite for new products/services and determining the delivery model options which could include strategic partnerships.”

Data collection and analysis can drive innovation in this area. Retailers might also use market research to monitor emerging technologies and consider their potential implementation in services.

For example, a retailer might monitor the development of smart home sensors to discover their application in new or existing services. Looking to adjacent sectors for new strategies or ideas to implement can also be relevant to monitor.

Mr Hudson said, “Increased ecosystem partnerships with start-ups, device and appliance manufacturers and financial services organisations will drive significant innovation in offerings and the way they are delivered.”

While a focus on innovation presents many opportunities, energy retailers must be able to expand offerings while keeping existing high-quality systems in balance.

“The challenge will be reducing cost-to-serve while expanding the diversity of products and services and keeping pace with high expectations for customer service experiences online, over the phone and face to face at the point of installation or service delivery,” Mr Hudson said.

“A seamless and well-coordinated customer experience where they may be dependent on commercial partners or third-party service providers is a challenge, and will rely on digital enablement to orchestrate all parties.

“Maintaining a distinct brand and customer value proposition that differentiates them from the new market entrants will be critical, and then fulfilling the brand promise with quality service will be key to retaining and growing their position in the retail energy market.”