Increasing the ROI for Utility Self Service Portals Through - Outcome Based Pricing

Narendra Gogula | Apr 13, 2011

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Abstract:

Customer self service portals, present a great opportunity of cost savings for the utilities because of their lower transaction rates. However; this is critically influenced by adoption rates of such portals and appropriately so, utilities are investing in ensuring an enhanced customer experience and increased adoption rate of their customer serving sites. This paper proposes an outcome based pricing model which the utilities can use to incentivize the vendor and in turn can increase adoption rates of their self service portals resulting in greater savings for them.

Introduction:

With today's consumers getting accustomed to transact electronically, web based self service portals are emerging as an important customer connect channel for utilities. The average transaction cost for such self service portal is much less than a transaction through traditional channels like call center, payment agencies, e-mails etc. However most of the utilities today are not able to reap the expected benefits because of low adoption rates of the self service portals. Although utilities have invested in building appealing consumer portals, still they are struggling to bring in the required customer experience to ensure that the portals become the preferred channel of communication for customers. Complex issues like usability, performance still stand between the utilities and the desired cost savings.

This paper proposes an outcome based pricing model -- where both the utility and the vendor who is developing the self service portal, have a stake in the end results like adoption rates. This way, both the utility and the vendor will share the gain and the pain. Instead of utility paying a fixed price to the vendor for the portal development, they will pay a share of the savings, from each transaction that happens successfully through the portal. The model incentivizes the vendor and utility to take care of aspects like usability, performance, correct functioning of end-to-end flow etc, which will lead to greater adoption rates and more earnings. The model ensures the commitment of the vendor in making the initiative a success and strengthens the partnership between the utility and the vendor.

Utility Self Service Portals -- A Cost Effective Customer Connect Channel

Traditionally utilities have been regulated monopolies within their service territories. However with deregulation, consolidation and restructuring -- utilities are facing great economic and competitive challenges. This has created a dynamic environment in which market share, customer retention, cost of operations, and range of solutions have become critical for success. Hence utilities are focusing on increasing customer satisfaction to improve market share/customer retention and trying to optimize operations to reduce cost.

Customer connect channels are an important source of utilities spend -- with call centers consuming as much as 40% of the utility's cost-to-serve. Hence these deserve attention from utilities to reduce cost and improve customer service operations. And appropriately so, utilities have responded to this by adopting multiple customer service channels like interactive voice response units , speech recognition techniques and web self service portals.

Of the above, web self service portals have emerged as the most cost effective customer connect channel. According to Forrester Research, the cost of the average Web self-service session is just $1USD, compared to $10USD for an e-mail response and $33USD for a telephone call. Web self service portals also have some unique advantages to offer compared to its counterparts:

  1. Availability of services at customer convenience (24 x 7)

  2. Intuitive presentation of information by using graphics and other tools

  3. Environment friendly (Electronic bills)

Hence web self service portals can bring in the much desired customer satisfaction and cost savings to make utilities stay competitive in the dynamic landscape of energy business. However utilities today are not able to reap the expected benefits because of the lower adoption rates of the self service portals. While the average adoption rate is 30% across the industry, it should be close to 80% to maximize business benefits. Hence it is imperative for utilities to build effective self service portals which results in improved customer experience resulting in increased adoption rates.

Research on customer usage pattern on web, has revealed many factors critical for building an effective self service portal. Few of those are:

  1. Pertinent Functionality

  2. Usability

  3. Effective content management

  4. Secure transactions

  5. Performance

Outcome Based Financial Model Which Ensures an Effective Self Service Portal Deployment

For the utility to maximize its savings through the self service portals, it is important to make sure that the above factors are built into the portal. Typically, the specifications which are stated for a self service portal to be built are mostly functional. And ironically, a lot of factors which ensure an improved customer experience are non functional in nature and it is difficult to the state the requirements in precision. The current financial models which are in use are strongly linked to the stated requirements of the utility rather than results. Hence, it becomes difficult to ensure that the above critical success factors are built into the portal.

Utilities traditionally use a "Fixed Price" or an "Effort based" financial model for getting the self service portal developed / enhanced by the vendor.

Effort based

In this model, it is utility who manages the work. Focus is on delivering specific tasks or granular tasks. The critical success factors mostly being non functional demand niche expertise, a greater onus of which lies with the utility in this model. It becomes difficult for the utility to manage the same.

Fixed Price

Utility specifies their desired requirements of the self service portal and the agreement between the utility and the vendor is to deliver the specific set of requirements for a fixed price. However the critical success factors which ensures an improved customer satisfaction are difficult to be defined precisely and tested as well. Although, the vendor matches utility's specifications, it may not be sufficient for the developed website to appeal to the customer, thus denying the desired adoption rates and ensuing return on investment for the utility.

Outcome (Incentive) based model based on the savings from an increased adoption rate

We propose an outcome based pricing model based on the savings from an increased adoption rate of the self service portals. An increased adoption rate will result in deflecting calls from the call center to the self service portal. The difference in costs of servicing a call through call center vs the self service portal will yield the savings. A part of the savings will go to the vendor who has developed the portal instead of a fixed cost or an effort based cost.

A sample calculation shows the order of savings for the utility and earnings for the vendor respectively.

Assumptions:



Detailed Calculation:



With greater increase in adoption rate and ensuing reduction in calls, the savings for utilities will increase multi fold. Hence to incentivize the same, utilities can go for slab based pricing structure which pays greater savings per call at higher adoption rates. A sample slab structure is given below.

Sample Slab Structure:



The pricing model brings the following advantages to the vendor and the utility.



Both the parties can agree on variations of the above proposed model based on the specific situation like:

  1. Base price (Guaranteed revenue) + outcome base revenue

  2. Revenue completely from business outcome (Fixed rate of return)

  3. Revenue completely from business outcome (Slab based rate of return)

Few key factors needs to be taken into consideration for the success of the model:

  • Agreement on metrics and measurements for calculating the outcome

  • Risk assessment and mitigation

  • Vendor should have a strong understanding of the utility's business

Conclusions

In the present competitive and dynamic business environment, every dollar that is spent owes an answer to the investors/stakeholders. The pricing model described above ensures return on investment for the utility and also provides an opportunity for the vendor to earn more revenue. It is simple, easy to understand and promotes collaboration among the partners towards achieving the common goal.

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