In an Expert Focus article for Waterbriefing, Mark Hodgens, managing director at Talis UK, asks whether increased pressure on water companies to improve their reputation and customer relationships as a result of market reforms will lead to a more efficient network.

Mark Hodgens: Under the new water market reforms, set to come into effect in 2017, 1.2 million business customers will be able to choose their water and wastewater supplier. In 2020, this is expected to be extended to include household customers too.

Expanding the retail water market will subsequently increase competition between water companies, which in turn, will force companies to up their game in order to attract customers.

The water industry is set to see its biggest wave of changes, since the sector was privatised nearly two decades ago. Alongside Ofwat’s Totex regime, challenging water companies to base expenditure not just on price but also factoring in the long-term benefits for the network, the upcoming water reforms are about to give non-household customers more say over who provides their water and wastewater services. And by 2020, similar market reforms will see the same choice granted to household customers.

With such radical changes imminent, it’s vital that water companies start preparing for high levels of competition that will ensue.

What do the changes hope to achieve?

The changes being brought about aim to deliver improved levels of service for customers and ease pressures resulting from issues such as our growing population and the impact of climate change. This will require radical new approaches and ways of working within the sector, not least removing the non-household threshold and allowing new players to hold water supply licenses – currently there are only eight suppliers regulated by Ofwat.

In order to effectively increase the market and ensure that customers can make meaningful decisions over their choice of supplier, barriers within existing legislation will be removed to allow new entrants to become licensees. For example, new entrants will no longer have to set up a ring-fenced limited company to qualify for a license, and will not have to negotiate the terms of their entry separately with each of the other regulated water companies.

How will this force companies to up their game?

With customers choosing their supplier, water companies will be competing in order to win trust and loyalty. Once the reforms take effect, each one will be tasked with the challenge of making themselves stand out from the competition by offering customers something unique.

The most effective way to achieve this will be through innovative solutions and improvements to the current network, aimed at improving the system’s overall efficiency and delivering true quality and value for money. Although the water industry is currently enjoying a good relationship with its customers (certainly compared to that of other utilities), the forthcoming reform could alter this relationship and the sector’s future reputation will be determined by how well it manages the changes.

What can they do to improve reputation?

A lot can be learned from the mistakes made by the energy sector in terms of building relationships with customers. Rising costs and a lack of transparency over billing have eroded the public’s trust and perceptions of energy providers. In fact, in Talis UK’s Reputation and Water Report gas and electricity companies achieved a poor 15% approval rating, compared to 25% for water companies.

If water companies are to maintain their position above other utility sectors in terms of reputation, they must focus on improving customer relationships, adhering to customer expectations and offering a consistent and excellent service. Those companies developing a more customer-focused approach to the supply of water and wastewater services will be the key players within the sector and are more likely to earn the public’s trust.

This comes with being able to act quickly and effectively to the changing needs of the customer, supporting people who are struggling to pay bills, and also investing in the future of the entire network to provide a sustainable service.

Making greater efforts to improve the system’s infrastructure is actually one of the main actions that customers want to see. Talis UK’s Reputation and Water Report found that 82% of the public felt that greater efforts to tackle leaks would improve their perceptions of their water provider. However, at present, the Consumer Council for Water reports that 70% do not think water companies are doing enough to prevent leakages. Raising awareness of the work being done to minimise leakages will be a major challenge for companies, but will be crucial to helping the sector highlight how it will provide a better and more responsive service to its customers.

How can this improve the overall network?

Any attempts to reduce leakages and prolong the life-cycle of the system will be useful to improving the overall performance of the network and ensuring it can keep up with rising demand. Not only will this reduce the amount spent on repairing and maintaining the network, it will also reduce losses in revenue from water that is processed but never actually reaches its point of consumption (the World Bank estimates $14 billion is lost each year in non-revenue water).

Ultimately, improving the efficiency of the water network will make for a more sustainable water supply and lower bills for the paying customer. And with competitive price being one of the top incentives for customers considering switching supplier, water companies need to be striving to bring bill prices down.

The element of competition is likely to be a central characteristic of the sector once the reforms are introduced. Water companies need to be upping their game now and thinking about what they can offer their customers that their competitors can’t. With new entrants able to enter the market, bringing innovative new ideas and approaches, those that can quickly adapt and address the network’s changing demands will be successful.

Overall, this increased competition should help to ease pressure on our vital resource and protect its long-term future.