For Retail Energy Providers (REPs) Retail Energy Providers Demand Planning Forecasting In the domain of energy, there is a need to respond to shifting production constraints and changing demands on a regular basis. In order to determine how best to buy electricity in the market, any REP must accurately predict and forecast future demands, so that they can plan supply accordingly. Energy trading & hedging is one of the most crucial activities for ensuring reliable electricity supply and achieving economy. Forecasting is a pre-requisite for hedging. Forecasts models are built by taking into account historical power consumption patterns, production costs, operational constraints and regulations, peak selling times, value of carbon credits, weather forecasts (forecasts of temperature, wind, rain & humidity), grid transmission capacity amongst other factors. These models use the data to project demand in the near future for different geographical locations. Development Validation Forecast E n e r g y
L e a d s Predictive Model Deciles; Each decile has 10 % of Leads Cold Leads Response models to target the right prospects and optimize acquisition budgets Prospect Targeting Earlier, REPs used to function in a regulated, non-competitive environment where marketing consisted primarily of brand awareness and public relations efforts. However, these days, deregulation allows customers to choose their suppliers. Also, pricing pressure, thin margins, energy efficiency, load management, renewable energy, frequent M&A activity, etc add to the complexity and competition, and hence acquiring new customers has become a challenge. Prospect acquisition is specifically concerned with issues like acquiring the right prospect at an optimal cost, acquiring as many prospects as possible, optimizing across channels, etc. The main objectives are ensuring high profitability of new customers and acquiring them at a low cost. By analyzing prospect demographics, predictive modeling techniques are employed to identify their propensity to respond. Profitability models are then built for different segments. It helps in answering business questions like: How do we proactively acquire new customers? Who will be the most profitable customers? And in which channels do we target them? Can the varied data sources be leveraged to expand prospect universe and implement efficient direct marketing campaigns? How can direct marketing spends be lowered while maintaining results? Loyalty Analytics Tenure<12mo All Customers 1,889 1,637 MM USD 87k USD/Customer New Customers 4,568 (24%) 433 MM USD (27%) 95k USD/Customer Existing Customers 11,573 (76%) 1,203 MM USD (73%) 84k USD/Customer Savers 2,944 (16%) 39 MM USD (2%) 13k USD/Customer Heavy Users 7,316 (38%) 812 MM USD (50%) 111k USD/Customer Switchers 871 (5%) 60 MM USD (4%) 69k USD/Customer Seasonal 3,190 (17%) 292 MM USD (18%) 92k USD/Customer Customer Segmentation Energy providers are transition from supply to demand, from production to marketing. To manage the shift from being cost centers to revenue opportunities, it is important to understanding the customer base better. Segmentation is the practice of identifying homogenous groups of customers based on their needs, attitudes, usage & consumption behavior. It enables identifying profitable customer segments and customizing product and service offerings and marketing campaigns to target them effectively. It is typically done using a combination of transaction data, demographic data, psychographic information, location and premise attributes. Besides increasing conversion rates, targeted strategy helps drive energy efficiency and peak load reduction to optimize the economic return on smart grid & smart meter investment programs. It aids in answering critical business questions like: How can energy providers cut costs & focus resources & investments on secondary products? How can they connect the right offers to the right customer segments and respond to the needs in electricity generation & transmission value chain? How do they comply with regulatory guidelines for energy efficiency based on different customer segments energy consumption patterns during peak or off-peak hours? Which customer groups are most likely to enroll for different tariff programs like energy-efficiency and what are their characteristics? How should contact channels be aligned to communicate with them? Segmenting customers based on their revenue contribution Loyalty Analytics 0 0.5 1 1.5 2 2.5 <15 15-25 25-40 40-60 >60 100% 80% 60% 40% 20% 0% Revenue Break-up by Age-Group Revenue Break-up by Cities 3,327(19%) $12000/Customer $40MM(12%) 7,750(44%) $5,000/Customer $39MM(11%) 4,421(25%) $25000/Customer $111MM(33%) 2,118(12%) $70000/Customer $148MM(44%) I n c r e a s i n g
C L V Customer Life Time Value Wherever markets have been deregulated, utilities are under pressure to maximize their revenues as well as control operating expenses. Higher costs, unforeseen service disruptions and increased customer expectations have made it essential for utility companies to give importance to high value customers. Customer lifetime value(CLV) represents how much a customer is worth in monetary terms and is based on customers expected retention and spending rate. It can be defined as the present value of the total profit expected from the customers during the entire period they do business with the company. CLV analysis uses customers past transaction data and employs predictive modelling techniques to forecast how much each customer would contribute to the companys revenues and profits till they remain with the company and do not attrite. CLV analysis takes into account estimated annual profits from customers, duration of business relation of the customer, and the discount rate to assess the net present value of the customers. It helps in: Forecasting the expected revenue from new customers and weighing it against the acquisition and retention cost for them Deciding how much to spend on marketing programs for different customers Identifying the high value customer segments that can contribute the maximum to companys revenue and have special offers for them Identify the prospects who can become profitable for the company 0 100 200 300 400 500 Customers : 1,050 DNP : 8.2% Customers :2,127 DNP : 2.6% Customers : 685 DNP : 10.4% Customers : 565 DNP : 4.5% Customers : 616 DNP : 9.1% Customers : 1,511 DNP : 1.3% Customers : 546 DNP : 11.0% Customers : 139 DNP : 2.6% Customers : 393 DNP : 11.5% Customers : 223 DNP : 1.6% Credit Range 550-679 <549, >680, No credit score, Pre-approved Dwelling type TDSP ONC AEPC,AEPN,CNP,TNMP APARTMENT HOUSE, MOBILE Contract term Agent, Internal Sales, Telesales 6,9,12 months 18,24 months Sales channel Online Total Customers : 2,177 DNP : 3.5% Rules to identify customers having a higher likelihood of disconnecting for non-payment (DNP) Churn Management Due to de-regulation and increasing competition in the energy utilities market, customer attrition is on the rise for lower bills, better tariff plans or better customer service. To retain them, it is very essential to keep tracking customers activity regularly their frequency of consumption, evolution of their usage patterns, how often do they consume and so on. Customers attrite on a definite path to inactivity which can be identified and therefore managed. Also, acquiring new customers has become expensive and hence retention has become a major priority. By employing attrition analysis, customers whose engagement levels have lowered and who are likely to attrite can be identified and usage patterns can be monitored separately. Churn analysis helps answer key business questions like: Which are the customer segments, with a high likelihood of attrition, with a bad debt How do we identify the factors which are most likely to drive customers to stay Which are the most effective retention programs - constant tracking & monitoring of retention offers helps gauge the efficacy of program Loyalty Analytics Campaign Management -1000 -500 0 500 1000 1500 2000 $
P r o f i t s / C a m p a i g n $ 2,000 $1,500 $1,000 $500 $0 -$500 -$1000 Profitability Segment High Low Customer Segments unprofitable and removed from telemarketing Campaign Effectiveness Campaigns include a variety of short term programs directed at consumers to stimulate product awareness, trial or purchase. The most commonly implemented programs include special pricing, promotional contests, telemarketing campaigns, reward programs and so on. For utilities, campaigns can be directed at residential or small commercial customers or institutions. Competitive retail electricity firms often use direct sales (including telephone, door-to-door canvassing, mails, online) to acquire customers. Predictive modeling techniques on past promotion data can help refine the promotion strategy by understanding lift of various campaigns, their ROI and targeting only the customers with the propensity to buy. This information is then used by marketers to: Identify the impact of different campaigns and find out the most effective one Optimally allocate budget among different campaigns while increasing sales & maximizing ROI Measure the campaign effectiveness for continuous improvement Targeting only those customers who have a higher propensity to convert Product Design Product Design Retail energy marketers use value-added services to improve customer service and generate incremental revenue. Due to de-regulation and increasing competition, bundling of products & services has become a point of differentiation for retail energy providers. Some REPs offer air conditioning maintenance, smart home technologies like smart thermostats, solar panels, home security systems or customized information on their energy consumption as part of service bundling. However, it is important to gauge consumer perception regarding different services. It is essential fora) Creating the right product plans based on usage patterns b)Identifying the right value added services Conjoint analysis techniques are employed on survey data to evaluate how much consumers weigh each component of the tariff plan and the add on service component in their purchase decision process. It helps in segmenting consumers as per their preferences. This then helps the energy provider in designing the right plans and value added services and selling it to the right set of customers. 0% 5% 10% 15% Superlock 12 Fixed 24 Rate Protect 12 Safe Rate 12 Certified Fixed 12 Simplicity Online 12 Standard Month to Month Earth Saver Online 12 Winter 11 Special Guaranteed Fixed 12 Power As You Go Plus Renew Clean and Green 12 True Green Savings 24 Revenue Contribution by Product Plans Driving Profitability 0% 2% 9% 12% 6% 4% 11% 18% 22% 13% 13% 13% 7% 14% 9% 15% 14% 4% 11% 13% 13% 22% 8% 2% 0% 5% 10% 15% 20% 25% 0 - 2 9 9 4 0 0 - 4 9 9 5 3 0 - 5 4 9 5 8 0 - 5 9 9 6 1 0 - 6 1 9 6 3 0 - 6 3 9 6 5 0 - 6 5 9 6 8 0 - 6 9 9 7 2 0 - 7 3 9 7 6 0 - 7 7 9 8 0 0 - 8 4 9 9 0 0 - 9 4 9 Bad Debt DNP Profile 0% 2% 9% 12% 6% 4% 11% 18% 22% 13% 13% 13% 7% 14% 9% 15% 14% 4% 11% 13% 13% 22% 8% 2% 0% 5% 10% 15% 20% 25% 0 - 2 9 9 4 0 0 - 4 9 9 5 3 0 - 5 4 9 5 8 0 - 5 9 9 6 1 0 - 6 1 9 6 3 0 - 6 3 9 6 5 0 - 6 5 9 6 8 0 - 6 9 9 7 2 0 - 7 3 9 7 6 0 - 7 7 9 8 0 0 - 8 4 9 9 0 0 - 9 4 9 % of Disconneted Credit score range 600-649 for Apartment owners accounts for a high disconnect rate & bad debt Optimizing Deposit Rules For availing of electricity supply and consumption, residential and institutional consumers are usually required to make deposits with the Retail Energy Providers. It serves as a security in case the customer enters into arrears and turns to be a bad debt for the company. However, these deposits might differ for different customers based on their credit history and demographic profile. Defining deposit rules by customer profile is very essential to curb bad debt and losses for energy providers. Deposit rules for different customers are defined as a function of many elements like credit score, dwelling type, product plan, tariff plan, demographic attributes (age, income, etc.). Customer profiles are evaluated by analyzing historic disconnect rates, bad debt as a % of revenue/margin, revenue contribution, credit score, service plan, dwelling type and so on. Customer profiles where the disconnect rate and bad debt are high are segregated from the others. This serves as the basis for defining the deposit rules of the energy provider for different customers. Optimization algorithms are then built for identifying the right deposit for each of these rules. Driving Profitability Pre-paid customer yielded a negative margin for current year Decline in revenue compounded by high cost of energy and high bad debt result in this decline Margin Analysis Profit margins are expressed as a ratio, specifically earnings as a percentage of sales. Margin analysis helps companies manage their costs and expenses better and generate higher profits. This involves regular tracking of P&L statements for different customer groups to evaluate profitability movements by analyzing historic disconnect rates, bad debt as a % of margin, costs and revenue contribution by tariff plans & demographic profiles (like credit score, age etc.). It helps in generating a detailed demographic profile of high margin customers vs. low margin customers and answering business questions like: Do customers with a lower credit score generate greater margin than the bad debt they create? Do customers with extended split deposit option generate more margin than the bad debt they create as compared to the full deposit customers? Do customers on different tariff plans behave differently vs. other customers in terms of margin? Business can then accordingly impose the right business rules to reduce risk exposure from these customers. Driving Profitability 1,560 $439K Low(<50$) Medium-Low(50-300$) Medium-High(300-500$) High(>500$) 8% 0% 40% 21% 37% 30% 15% 49% 0% 25% 50% 75% 100% Bad Debt Consumers Bad Dedt $ 49% of the bad debt comes from 15% of the customers Bad Debt management Companies in energy domain typically write-off millions each year due to bad debts and there are mainly two challenges they facea) Collection efforts start only after a customer enters into arrears b) Mostly a standard approach is employed for all customers regardless of their demographics. By using predictive analytics in their customer strategy, utility companies can get the right message to the right customer at the right time. Loyal customers who have consistently paid on time, will be treated different from chronic late payers. Predictive analytics can aid the 2 most commonly used approaches. Pro-active: It helps identify the triggers and events that take place before a customer starts missing payments. Once these triggers are identified, proactive measures are taken to communicate with customers, including payment reminders and customized messages. Re-active: It helps to determine who to invest effort in and to prioritize collections activities. Utility companies can then rank the customers who will most likely pay their debt. This ensures organizations spend time and resources only on the cases that are most likely to have successful outcomes. All of this aids companies in better bad debt management by: Formulating an optimally strategic plan that manages bad debt while maximizing revenues & profitability Segregating regular customers vs. bad debt customers and evaluating: If there is a typical demographic profile of customers that generate most bad debt If there are any seasonal patterns or any changes in transaction before disconnecting Vendor Management 2,487 sales 1.34 MM$ 109$/mo./customer 1235 sales 0.93 MM$ 112$/mo./customer 1099 sales 0.49 MM$ 98$/mo./customer 911 sales 0.32 MM$ 103$/mo./customer - 23.5 MM kWhr - 1,012 kWhr/mo./cust - 11% clawback - 5% sales drop - 11% DNP - 69% post-paid - 33% pre-paid - 15% early termination* - 5% renewal* - 10% pre-approved - Tenure: 148 days - 7% bad debt - 12% deposit - --- - Avg. credit score: 627 - 4.6 MM kWhr - 1,106 kWhr/mo./cust - 6% clawback - 3% sales drop - 3% DNP - 94% post-paid - 6% pre-paid - 6% early termination* - 1% renewal* - 7% pre-approved - Tenure: 105 days - 6% bad debt - 7% deposit - --- - Avg. credit score: 787 - 8.7 MM kWhr - 1,079 kWhr/mo./cust - 14% clawback - 7% sales drop - 4% DNP - 100% post-paid - 0% pre-paid - 29% early termination* - 10% renewal* - 56% pre-approved - Tenure: 209 days - 6% bad debt - 2% deposit - $196K commission - Avg. credit score: 748 - 2.6 MM kWhr - 911 kWhr/mo./cust - 9% clawback - 4% sales drop - 13% DNP - 97% post-paid - 3% pre-paid - 33% early termination* - 3% renewal* - 0.4% pre-approved - Tenure: 120 days - 30% bad debt - 7% deposit - $98K commission - Avg. credit score: 624 ARDC Telesales Marketing Online Amalgam Door-to-Door Telephone Relations Telesales Top 4 Vendors account for 71% of the sales, 75% of the revenue Risk & Reward analysis The number of vendors and suppliers involved in the generation and transmission of power is large. So is the range of services they provide: relatively low risk transportation to high risk line work, production and transmission of power, deploying smart metering services, collecting utility payments and managing the credit collection. Effectively managing vendor and supplier compliance with corporate, legislative and regulatory requirements is critical for the efficient and smooth functioning of any utility company. Constant monitoring and detailed performance evaluation of all vendors is essential to control costs and to suitably draft the risk & reward policy for each vendor. It includes vendor identification, recruitment, monitoring and quantifying the performance of vendors by evaluating on KPIs (like Pricing, Quality Specifications and delivery support). MANAGEMENT TEAM GLOBAL EXPERIENCE. PROVEN RESULTS. Roy K. Cherian CEO Roy has over 20 years of rich experience in marketing, advertising and media in organizations like Nestle India, United Breweries, FCB and Feedback Ventures. He holds an MBA from IIM Ahmedabad. Anunay Gupta, PhD COO &Head of Analytics Anunay has over 15 years of experience, with a significant portion focused on Analytics in Consumer Finance. In his last assignment at Citigroup, he was responsible for all Decision Management functions for the US Cards portfolio of Citigroup, covering approx $150B in assets. Anunay holds an MBA in Finance from NYU Stern School of Business. Greg Ferdinand EVP, Business Development Greg has over 20 years of experience in global marketing, strategic planning, business development and analytics at Dell, Capital One and AT&T. He has successfully developed and embedded analytic-driven programs into a variety of go-to-market, customer and operational functions. Greg holds an MBA from NYU Stern School of Business Kakul Paul Business Head, CPG & Retail Kakul has over 8 years of experience within the CPG industry. She was previously part of the Analytics practice as WNS, leading analytic initiatives for top Fortune 50 clients globally. She has extensive experience in what drives Consumer purchase behavior, market mix modeling, pricing & promotion analytics, etc. Kakul has an MBA from IIM Ahmedabad. 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