It’s the question that’s been plaguing electricity retailers for many years now — “How do we reduce customer churn?” For Ed McManus, CEO of Meridian Energy and Powershop Australia, it comes down to something as simple, and complex, as being “a better power company”. We sat down with Mr McManus to discuss the challenges of retail in a difficult energy market, and the changes he’s putting in place to regain the trust of consumers.
Ed McManus hasn’t travelled the typical path to becoming an energy company CEO. Originally trained as a medical scientist, and with a PhD in biochemistry, Mr McManus went on to stints in the pharmaceutical industry and digital marketing before making the move to Meridian Energy and Powershop.
At first glance they’re quite disparate fields; but upon closer inspection it’s not hard to see how the skills Mr McManus previously acquired are being used in his current role.
There’s the knowledge of mathematics and statistics — vitally important in the electricity industry, which Mr McManus maintains is a fundamentally financial market; and the insights into consumer behaviour and purchasing decisions, which are more important than ever in today’s retail market.
For Mr McManus, the appeal in making the move to energy generation and retailing lay in the evolving nature of the industry.
“Getting involved in a sector that was and is experiencing a lot of change, and will experience much more change for the next 20 years, was very appealing,” he notes.
“As was the fact that the industry is important to the economy, and important to how we manage things in terms of where the planet is going — that interested me too.”
A new retail model
Also central to the appeal of Powershop was the fact that the company is a little different to most of its competitors.
“I saw Powershop as a very, very different offering, which was quite exciting,” says Mr McManus.
Powershop was the first retailer to introduce an app which allows customers to log in and monitor their electricity usage; and it was also the first retailer to allow customers to pay for their past, present or future usage.
With these innovations, and with youth-oriented marketing behind the brand, it’s not unreasonable to expect that the company’s customers largely come from a younger, tech-savvy demographic. According to Mr McManus however, this is not necessarily the case.
“On an age perspective, it’s actually skewed nothing like you’d think,” says Mr McManus. “In terms of outlook on life it probably is, but age not so much.
“It’s interesting, we were doing some testing the other day, talking to consumers, and it was actually the 75 year old who knew exactly what we were talking about and who knew his way around the app.”
So while the offering and the way it’s pitched is to a youthful audience, it’s been important for the company to continue to check back in with the customer base, particularly as the brand has matured.
“In fact, as we’ve attracted more customers, we’re finding that it’s the retirees, who are very focused on costs, who are most interested in our app and the ability to monitor usage.”
Ultimately, Mr McManus says it is a real mix of customers who have chosen Powershop as their retailer. A key focus for the business moving forward will be thinking about how they evolve, and how they provide different products that appeal to different segments.
“Not everybody wants to log in to an app and look at their usage and costs, some people just aren’t interested,” notes Mr McManus. “So we’re evolving our offering for those people as well.”
Knowing your competitors
There’s been a lot of talk over the last 12 months about the “uberisation” of the energy industry and the potential for tech players such as Google and Apple to enter the retail market. Commentators warn that these businesses have an agility that utilities and energy retailers traditionally don’t have; and that they’re prepared to move into new industries, with the capital behind them to try and make things work.
For Mr McManus, rising to the challenge tech businesses might bring to the retail space comes back to the simple principle of putting the needs of customers, and potential customers, at the forefront of everything Powershop does.
“It’s a very competitive market already, there are upwards of 30 retailers,” says Mr McManus. “Could those other organisations enter the market? Absolutely.
“But when you’re thinking about any competitor, the most important thing is to focus on consumers and their needs. If you do that, then you’ll be right — just try to give people what they need.”
Again, it’s a sentiment that’s particularly important for Powershop as it continues to grow — it’s no longer a small start up with a team of seven, the company is now servicing more than 100,000 customers.
“You need to stay close to your customers,” says Mr McManus. “The senior management team all manage social media on the weekend, and that’s really important. Sometimes as businesses grow it’s very easy to consider yourself a bit in the clouds and above it all, so it’s important to make sure you have your feet on the ground. And if you do that, you’re in the best position to deal with any competitor, regardless of who they are and where they come from.”
Mr McManus also believes that if tech players were to make the move into energy, if they want to do it at scale they would also need to invest in generation as well.
“And how does that really fit with their business model, to own and operate generation assets as well? That’s a question mark for me,” he notes.
A better energy company
Having placed the customer at the centre of every move Powershop makes, the business has an exciting 12 months coming up.
“We’re always rooting for consumers, (so to that end) we’re investing in generation, with two power purchase agreements signed and three hydro power stations acquired, on top of the two wind farms we already have.
“This more than doubles our generation footprint, and we’re doing that to bring down costs for our consumers. That’s a sensible financial decision for us as well, but it does have the impact of bringing prices down.”
Given all this newly acquired generation, the company will now look to significantly grow its customer base. One of the key steps it is taking towards doing this is by launching retail gas in Victoria. In Victoria, around 80 per cent of electricity retail customers have gas as well, and most of them prefer to purchase both fuels from the one retailer — so adding retail gas makes Powershop an appealing option for that section of the market.
“The other big thing that Powershop has always looked to do is be ‘a better energy company’,” says Mr McManus.
One of the key ways the company acts on this philosophy is in the way it signs and retains customers. Powershop has never door knocked to sign up residential customers; and they also never use special one-off rates to sign customers up — common practice in the industry.
The result of using sign up deals, according to Mr McManus, is that the most loyal customer gets the worst deal.
“Which if you think about it, that’s just crazy,” he adds. “What you actually need to do is reward your loyal customers. So we have a policy that all residential customers have access to the same offer, depending on when they signed up and where they live.”
Further driving this philosophy home, the company also refuses to match deals existing customers may have sourced from other retailers in the market.
“If you’re a Powershop customer who wants us to match an offer you’ve had from another retailer, our response is ‘Sorry, we can’t, because that would be rewarding the customers who make noise, while the really loyal customers will be penalised’,” says Mr McManus.
“That’s a hard financial decision. Like, really hard. But we just don’t believe in doing that.”
Mr McManus says that by taking this bold stance, and other steps they take, such as transparency in usage through the app, Powershop is trying to improve how consumers view their company — and indeed the whole industry.
“We treat our customers like we’re sitting in their kitchen talking to them,” says Mr McManus.
At a time where customer trust in the industry and retailers is particularly low, it seems the sensible — perhaps only — way to move forward and regain that trust. Watch this space.