Consumer Vulnerability and the Impact of Rising Costs

The start of 2022 has not heralded good news for consumers. On top of an increase in National Insurance (due in April) and general cost of living, the estimated increase in household energy bills has risen to 50% as costs filter down from the energy companies into every UK consumer household. That means an average household is now looking at a yearly utility bill of around £1,138.  And this current energy price cap will be reviewed again in April, and the likelihood of it rising again is not off the table.

For many consumers, this is simply terrifying and will create an environment where a lot of households will be forced to choose between eating and heating.  For many it could end up worse than that with unpaid bills leading to bad credit ratings and long term implications.

It’s Not Just the Consumers This Impacts

Unpaid bills don’t just effect consumers and their personal situation, it also impacts the organisations left holding the debt.  No-one can deny that there is a likely continuing bad debt issue round the corner.  That not only creates more work for utility companies in chasing down the debts, deciding how to structure payments and which debts to write-off, it also will result in bad debt ratios for companies.

Utility companies generally have high debt ratios due to large infrastructure investments so while this can be managed, an increasing debt ratio at a time of low consumer confidence can have an impact on stability and financial reputation, even for the biggest suppliers.  As such, managing the debt, helping consumers to pay their bills, and identifying those at risk of defaulting is vital.

Helping Consumers Impacted by Rising Costs

Utility brands need to be smart with their data moving forward because it can help them identify vulnerable households using their services. In turn, they can use this knowledge to encourage a relationship of innovation, support, and loyalty between brand and customer. Ensuring that data is clean and up to date is the first step to take. Using products such as Cleanse can make this a straightforward process and a compliant one in line with GDPR regulations.

The next step is identifying vulnerable consumers, but this isn’t as straightforward as solely identifying low-income households or elderly consumers. When considering a consumer’s vulnerability, brands need to understand their impact through customer communication, household visits for repairs or meter readings, and how those consumers are billed, whether that’s via direct mail, direct debit, or email.

Recognising Likely Vulnerabilities

Our latest Vulnerable Consumer Score Model allows brands to better understand their consumers’ needs and communication preferences.  Every household is scored and the score has been created using a combination of factors, including: age, income, housing and education; market forces acting on the consumer; transient states of the consumer, such as health and Covid impact; and levels of susceptibility to these market forces.

Once the score has been applied, brands can tailor their marketing strategies, billing communications and policies and procedures to fit the needs of that particular consumer, creating a greater level of trust and transparency.  In addition, by identifying likely vulnerable consumers at key contact points can ensure that the conversations help are based on an understanding of risk, and the potential for a customer to be under financial strain.

This, in turn, drives significant improvements in customer service, creating trusting, loyal customer relationships and improving brand reputation.

Taking Care of Customers in 2022

2022 is likely to be a challenging year: while we may no longer have COVID to contend with in the same way that we did in 2020 or even in 2021, there are still plenty of challenges ahead. As cost of living increases across the board, more and more families and individuals will be impacted. It is the responsibility of every brand – irrespective of sector, but essential for the energy sector, which is so crucial to our health and wellbeing at home – to ensure their customers are not going to be left out in the cold. By identifying vulnerable customers as early as possible, utilities providers can help them before major issues occur – and that’s got to be a good thing all round.