Cost Optimization - European multi-client retail mass market benchmark

E n E r g y, U t i l i t i E s and ChEmiCals European multi-client retail mass market benchmark Key findings from 2010 edition Contents Introduction 1 Market context of benchmark’s participants 3 Cost to Serve is key to ensure profitability 4 Cost to Acquire and Marketing Costs are the key metrics of sales and marketing efficiency 6 ©2010 Capgemini. Reproduction in part or in whole is strictly prohibited. 2 E n E r g y, U t i l i t i E s and ChEmiCals Introduction This document provides some general to the best performers in their peer results of the 2nd edition of the group and identify possible levers European multi-client mass market to improve efficiency benchmark and highlights the value ■ determine achievable goals delivered to participants. according to the market and regulatory context and the retailer’s First, we would like to thank all the specific situation. participants of this benchmark who made it a success through their active For confidentiality reasons, none of involvement. Fifteen participants out these specific conclusions is included of 17 candidates provided enough in this document, even anonymously. data to analyze their complete Service, Acquisition and Marketing In this document, after a short Costs for electricity and gas retail in presentation of participants’ market the household B2C segment for 2009. context, we highlight the main findings about: Many companies in our sample offer ■ CtS which represents the main dual fuel: seven participants have more than 20% of dual fuel contracts component of operation costs (70% (up to 77%), six have less than 5% of on average) dual fuel contracts and two have only ■ CtA and Marketing costs which are gas contracts. Customer portfolio size key indicators of sales effectiveness. is another criterion of differentiation in our sample. We have created Figure 1: Main components of cost breakdown model two peer groups based on size: eight retailers are below 1 million Net margin* customers and seven above 1 million customers. Cost of Retailer’s Business Operations Our benchmark focuses on Cost ~70% to retailers’ operating expenses Serve The benchmark analyzes the total Distribution cost cost of retailers’ operations split in Revenues three parts: Cost to Serve (CtS), Cost to Acquire (CtA) and Marketing Costs (see Figure 1 and Cost box on benchmark methodology for to ~20% Acquire further details). Energy cost** Marketing ~10% We deliver specific detailed Costs conclusions to each participant * EBIT (Earnings Before Interest and Taxes) highlighting their own position and * EBIT (Earnings Before Interest and Taxes) ** ** Includes imbalance and pass-through costs Includes imbalance and pass-through costs analyzing their specific levers for Source: Capgemini improvement. In each benchmark report to participants we: ■ give visibility on their current situation and provide precise explanations to the profitability and customer switching issues that have been observed ■ assess the performance potential of the retail organizations compared European multi-client retail mass market benchmark 1 Benchmark methodology The analysis includes three steps: 1. Identify and calculate the Costs of Retailers’ Business Operations using profit and loss (P&L): • operational cost (Full Time Equivalent (FTE) and outsourcing costs) • bad debts (only for CtS) • IT costs • other costs (overheads and other costs) 2. Allocate by activities (marketing, acquisition and service) and analyze these costs by processes as shown in Figure 2. Figure 2: Process view MARKETING ACQUISITION SERVICE Campaign Customer Customer Communication Planning/ Billing contact service management Marketing Contract planning & Payments activation strategy Operational Collection marketing DNO relationship management Source: Capgemini Consulting benchmark 2010 3. Allocate and analyze these costs by channels: • call centers • Web, direct mails • retail outlets, retail partnerships • reselling partners, sales representatives or contractors. The main keys to allocate costs by activities, processes and channels are: number of employees (FTEs), number of contracts, number of calls or contacts and number of documents. Besides, the study used the PPP index (Purchasing Power Parity) in order to balance the price levels between different countries. This index is used for most international comparisons like Gross Domestic Product, labor cost, health care costs, and R&D expenditures. 2 E n E r g y, U t i l i t i E s and ChEmiCals Market context of benchmark’s participants Competition is increasing The persistence of regulated prices enough information to calculate Competition within the electricity prevents competition to effectively margins. and gas retail markets is increasing grow. Electricity prices for residents Generally speaking, 2009 has stayed flat overall in 2009. Only a Electricity and gas retailers have no shown a greater activity in customer few countries (such as Belgium and control of distribution costs (that switching in Europe with some Italy) have forced electricity price are regulated) and have already countries becoming active markets. reductions to preserve customers’ engaged strategies to optimize For example, Ireland, which was power purchasing in the context their energy costs. If they want to barely a dormant market, became first of the economic crisis. Gas prices increase or at least keep their margin in terms of customer switching, ahead decreased by 12% in H2 2009 at their current level, they have to of Great Britain that was constantly compared to H2 2008. And in H1 better control their costs of business at the top of the previous ranking. 2010, electricity prices increased operations. Denmark has also demonstrated a slightly (+2% compared to H1 2009) and gas prices remained stable.