Indisputable Proof: Customer Satisfaction Pays

June 30, 2022 | Blog

Apogee Interactive researched the relationship between utility customer satisfaction and operating margin for several years.  In 2019, we analyzed the customer satisfaction scores of multiple utilities and discovered a strong correlation between higher customer satisfaction and higher operating margin.  J.D. Power has concluded that utilities with higher customer satisfaction tend to have higher returns on equity, as documented in the 2015 report “How Customer Satisfaction Drives Return On Equity for Regulated Utilities.”  A recent study confirms and quantifies the actual operating expense reduction that can be attributed to improvements in utility residential customer satisfaction.

Doctors Morgan and Rego of the Kelley School of Business, Indiana University, and Doctor Bhattachary of the University of Groningen, Netherlands, collected and analyzed 478 firm-year of data for 38 utilities from 2001 through 2017.  This data included customer satisfaction indices, financial performance, and customer demographic profiles.  The primary source of economic data was the Energy Information Administration (EIA), the U.S. government agency responsible for collecting, analyzing, and disseminating energy information.

A summary of the finding was published in a blog by George Vlahakis entitled: Good customer service can lead to higher profits, even for utilities without competition. 

The findings include:

• Evidence that customer satisfaction leads to profits only by reducing utility operating costs.
• Utility managers need to track their customers’ satisfaction.
• Utilities in the sample experienced savings in the areas of:
  • customer service,
  • distribution,
  • and selling and general administrative costs.
• Efficiency gains from improved customer satisfaction, trust and goodwill could lead to greater acceptance of costly, new technology initiatives that utilities want to introduce.
• “If greater customer satisfaction enhances both consumer willingness to allow utilities to introduce such technologies and subsequent consumer use of these innovations, then utility satisfaction improvement programs should be managed and aligned with their technology initiatives as well as their efficiency programs,”

Therefore, if a utility is seeking more efficient operating costs, they should focus on increasing customer satisfaction.