‘Leaky bucket marketing’: the importance of balancing acquisition with retention

Themes: Innovation Market development

By Annie Hall, Marketing Specialist

Over the past year, I have been working alongside WSUP’s country teams to support utilities in extending their reach to more people, in the most deprived areas of a city.

Projects usually feature an infrastructure-led programme to extend the network, supported by some form of community sensitisation campaign to drive demand for household connections. In most cases these interventions are successful in raising awareness about what customers can expect from their utility and stimulating customer interest in products and services.

But, there’s a problem. I’ve seen that activities that create demand can actually damage customer demand over the long-term. This is because utilities neglect a vital second phase: sustaining demand, through great customer service.

In this article I argue in favour of placing less emphasis on demand-creation activities, and more emphasis on retaining customers. This matters a great deal. The quicker that utilities can achieve reliable, recurring revenue from customer bases in under-served communities, the quicker progress can be made towards the goal of universal coverage.

Why prioritising demand creation can be problematic

  1. Demand outstrips supply – WSUP has seen examples where, due to successful customer acquisition campaigns, order-fulfilment and connection processes are unable to keep up with applications from customers. This creates backlogs, connection delays and negative customer experience. Peaks in customer demand, due to demand creation campaigns, also increase pressure on weak internal communications and information management systems. This results in stressed, overworked and ultimately disengaged utility staff and often cash flow visibility issues, as customer deposits get lost or misallocated over time.
  2. Customer communication breaks down – Pressured by new connection targets, community engagement strategies rarely extend beyond initial sensitisation and sales conversion. Once a deposit is paid, customers go through an onboarding process, which refers to every interaction from the initial application and confirming when the connection will take place, through to being issued an account number, the first meter reading and receiving the first bill.This process is where first impressions are formed, but it has the potential to disappoint, confuse and frustrate. A smooth customer experience requires well planned communication, between both the customer and service provider, and between different departments within the utility. Often this communication breaks down. Over time confusion over billing and unanswered complaints regarding water quality or supply outages leads to dissatisfaction and brand reputation issues.
  3. Churn rate rises – Negative customer experience, caused by unmanageable demand, and poor communication means customers start defaulting on bills, return to illegal connections, or become stuck in a cycle of disconnection and reconnection processes. This results in an inaccurate perception of growth and a skewed view of the return on investment delivered by network extension projects. A high rate of customer churn delays the breakeven point at which utilities start to generate return from increased coverage. Without a strong customer retention strategy, utilities continuously seek revenue growth through signing up new customers, as opposed to reducing revenue lost through unpaid bills and lapsed household accounts.

Credit: Ernanio Mandlate

‘Leaky bucket’ marketing

Solely focusing on demand creation activity is like trying to fill a leaky bucket by pouring in more water. The bucket can only be filled once the hole is located and repaired. In fact, pouring more water in, might make the issue worse as new cracks emerge under the pressure. It would be more efficient to keep the incoming water steady while the source of the leak is addressed.

So, what can be done to reduce loss of customers?

It would be an oversimplification to suggest that this scenario can be solved by one or two actions. Utilities are complex organisations, operating within a complex wider system. However, adoption of a more customer-centric mindset, and a few important rules of thumb can go a long way.

  1. Listen to customers – Understanding the reasons for dissatisfaction and churn is crucial. Customer satisfaction surveys are useful but should be crafted around a clear and pre-agreed set of objectives, stating exactly what information is being sought about how customers think, feel and behave. Executing effective customer satisfaction surveys requires dedicated staff, who will analyse the results and make clear recommendations for improvement. Using complaints data and seeking richer information via formal and informal customer consultation is also worthwhile. Front-line staff like meter readers for example, can offer valuable insight and perspective.
  2. Map key journeys – Understanding the customer experience is the first step towards improving it. The goal of customer journey mapping is being able to identify opportunities to add value and maximise customer satisfaction, whilst also identifying where to mitigate risk of confusion, frustration, or unnecessary effort on behalf of the customer. I recommend prioritising the experiences most likely to shape the customer’s opinion of the organisation, such as onboarding and issue resolution.First impressions count, so the onboarding experience is critical in ensuring customers don’t experience post-purchase regret. This is especially important if connection delays are likely. Issue resolution such as bill queries or discoloured water complaints are a prime opportunity to build positive customer experiences, or at least mitigate against the negative experiences that may have led the customer to complain in the first place.
  3. Make data-driven decisions – It can be difficult for any organisation to justify resource for activity that is not intended to grow the customer base. Measuring the cost of churn and unpaid bills means that utilities can put a value on the cost of a poor customer retention strategy and show why focusing too much on customer acquisition will ultimately hurt the utility financially. This helps to provide a business case for investing in activity, such as customer loyalty campaigns and process improvements that enhance customer experience.

Credit: Brian Otieno

WSUP’s approach

In an attempt to maximise beneficiary numbers, the international development sector risks exacerbating the problem, by focusing too much on coverage growth, extending networks and reaching new customers. At WSUP, we’re working hard to protect a balance. Our utility strengthening framework encourages a more customer-centric approach to all aspects of utility operations, focusing on optimising service delivery whilst maximising customer lifetime value.

Learn more about WSUP's approach