Here’s your exercise for today. You are the marketing director of a former monopoly with relatively high prices and high costs that’s now open to intense competition and endless regulatory scrutiny. Your margins and market share have only one way to go – down. What do you do, apart from resign?
Well, you could reinvent your market, and your company with it.
Fast-forward five or six years from now to an imaginary future. The Government has introduced legislation forcing homeowners to produce complex MOT-style bills of health for their properties, as a condition of putting them on the market. And increasing proportions of the population now regard their home not only as their castle, but their pension too. A massive new market is emerging for services that help homeowners achieve a double whammy: “Help me run and maintain my home to maximise the value I get from it today, and tomorrow, with the least possible hassle.”
If British Gas plays its cards right, it could create – and become the undisputed leader of – this multi-billion pound market.
To get there, however, it would have transformed virtually every aspect of its business. At present, the public trusts it to handle a potentially dangerous but immensely useful substance – gas – safely. But home management services require a much higher level and much more intimate form of trust: something summed up by marketing and strategy director Nick Smith’s advertising slogan “Do the right thing”.
British Gas would also have to become a credible provider of a much broader range of services: not only selling energy and fixing things such as boilers, but extending these services to the house’s entire infrastructure and onwards, to things such as home security, home improvement and moving services. Look at its website House.co.uk and you’ll find they’re all there in rudimentary form, either from British Gas itself, or via an emerging web of partnerships. Intriguingly, the brand name for this online manifestation of the company – the natural hub for such an integrated service – is “House”, not “Gas”.
But range without service is not enough. To win its role as “my trusted home manager”, the company would need to transform its levels of service across the board. This is a gargantuan challenge on many fronts, including staff training and expertise, culture, attitudes and motivations, not to mention the infrastructure needed to make service a convenience, rather than a burden.
There’s evidence that British Gas is tackling all three. It’s investing vast sums in training, doubling the number of trained engineers from 5,000 to 10,000, for instance. It’s reworking staff incentives to shift the emphasis towards customer service. It is one of the first companies in the world to introduce bonuses driven by individual staff “balanced score cards” that measure not only efficiency, but customer satisfaction too. Likewise, to build customer trust – and to send the right message internally – engineering staff who are empowered to “condemn” boilers and other equipment as unsafe (thereby forcing the customer to make a new purchase) are being incentivised on customer service. They get no financial incentive for achieving knock-on sales. How else can their advice be objective?
Meanwhile, the company is overhauling its entire information infrastructure. Its customer relationship management project Jupiter will cost &£450m over four years, and that’s not counting sister project Hestia on the operations front. If everything goes to plan, customers will soon notice the difference. Instead of sending customers from pillar to post, call centre staff will be able to answer two different queries say, about a bill and a service visit, at the same time. And they will be proactive: “While you’re on the phone would you like to say when you would like your annual central heating check up visit?”
Ultimately, the aim is to let customers arrange service visits at their convenience (for example, Thursday at 8pm) rather than the company’s (some time between 8am and 6pm on Monday): a massive operational and staff contract overhaul.
Somehow, the company has got to do all this while increasing profits, cutting costs and keeping the City happy. The logic goes something like this: noticeably better service will increase customer retention. And via things such as a “single customer view”, the new information infrastructure will also accelerate cross-selling while driving down its cost to serve, by cross-serving multi-product customers instead of serving them via separate silos, for example.
Can British Gas pull it off? The obstacles are daunting. Training, motivating and incentivising staff to “do the right thing” is a massive task, and won’t be achieved overnight, if ever. Homeowners have to buy into the idea of home management services. It won’t fit all customers, so what about the rest?
And at every step of the way, the company has to deliver demonstrable results to the City. It’s pledging, for example, that during the next two to three years the average number of products held by individual customers will rise by 20 per cent, customer acquisition costs will fall by 30 per cent, that its “cost to serve” customers (such as direct debit and paperless billing) will fall by 35 per cent, and churn will fall by 30 per cent. Overall, this should drop &£50m a year straight through to its bottom line.
So far, the board genuinely does seem to have embraced the need for real transformation. And its strategy does appear to be “joined up” – aligned across all the key aspects of marketing, human resource, operations, infrastructure and investor relations. But roll-out of British Gas’s cross-selling engine has already been delayed. So what happens if the numbers don’t materialise soon enough? Will its “do the right thing” commitment suddenly disappear out the window? Will its service vision get lost in a frantic chase for more cross selling and lower costs?
An awful lot has been written about the shift from transaction-focused “push” marketing towards relationship marketing. The theory is that ultimately, volume and margin are a by-product of relationship and reputation, not the other way round. With British Gas, a gargantuan, live test of that theory is unfolding before our eyes.