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With a 25 % increase in the customer base, a new phase of further growth begins
In an increasingly liberalised market, Hera has a clear plan to make the most of expansion opportunities in the Energy areas, as proven by the entry in its portfolio of one million new customers with the Gradual Protection Service
As of 1 July 2024, Hera started serving one million new customers in the electricity sector: these are High Protection customers who had not yet chosen an operator on the liberalised energy market and switched to a Gradual Protection Service – a temporary service that will last till 31 March 2027 to accompany users toward full market liberalisation. At the beginning of the year, Hera won the highest number of achievable lots in the Protection Service tender, becoming the player that has mostly increased its customer base through the process.
The acquisition of those new customers represents a milestone in the development path of the Energy area envisaged in the Business Plan to 2027, since Hera could expand its customer base by 25% in one shot and leverage this new user base to open new business opportunities in the next future.
In the following interview with Isabella Malagoli, CEO of Hera Comm, we explore Hera’s strategies in managing this new type of customer, with the aim of further developing the Group’s Energy activities.
Isabella Malagoli
Was it in your expectations to win such a large number of new customers?
The whole process met our expectations, in terms of number and profile of customers won. While Enel aimed to win lots in territories where it was not the incumbent operator, at Hera we followed a different policy: our intention was to win lots in areas where we were already present and to extend our presence in the Northwest of the country, targeting customers with a low rate of unpaid bills. The seven lots we were awarded cover customers in 37 different provinces, some of which are very densely populated and completely new to us. These 37 provinces are spread over 12 Italian regions: Abruzzo, Campania, Emilia-Romagna, Friuli-Venezia Giulia, Lazio, Liguria, Lombardy, Marche, Piedmont, Tuscany, Umbria, and Veneto.
What activities have you structured to welcome the new customers, given a presence in so many different provinces?
The extensive experience we have gained over time in effectively managing tender processes has helped us obtain the territories we aspired to. Then, the equally extensive expertise gained in onboarding processes will certainly help us to make the most of this new core of one million customers, around which we can further develop our Energy area activities. As a first step, we sent everyone a welcome letter in which we told them what services the Hera Group offers. Moreover, we enriched the MyHera app with a section dedicated to welcoming new Gradual Protection customers and provided for a dedicated hotline. So, welcoming the customer is done first by contextualising and explaining clearly the features of the service they receive today and, if they wish, what other services they can have from Hera already now or even choose to have in the future. On the portal, they will find not only the new formulation of services for the electric world, but also the features of our offer for gas and Value-Added Services. We have also increased our presence in new territories with the opening of new branches. These openings are an opportunity to do a real roadshow, which takes us to meet with territorial stakeholders – such as the municipalities, the local press, and the PROs, i.e., the Public Relations Offices. On such occasions, we can take the chance of introducing ourselves, handing out briefing material on Hera Comm.
Therefore, Hera has the attractive opportunity to propose to the new customers a switch to the liberalised energy market, on top of cross selling its other services. How are you approaching customers with these opportunities?
I would say that we are approaching new customers first with great politeness. We want to establish a lasting bond with them. This is the prerequisite for the development of a truly fruitful relationship. In this sense, I think we will see the great value of this leap in the customer base in the medium term. From the first contacts, on average we found customers very aware of what was happening to their supply contract: we must acknowledge the effectiveness of the intensive communications on the electricity market liberalisation process promoted by ARERA and implemented by the media. In the first contacts with new customers, there was neither disorientation nor distrust, as had sometimes happened downstream of other tenders we had won in the past.
This fact puts the new customers,
who are more informed and aware,
in a position to be more receptive as well
What kind of proposal have you structured for clients who are interested to opt for the free market offer?
We designed a dedicated offer, called “Hera Ti Tutela”. The first advantage is that the price is fixed: blocked for one year and discounted by 20%. Secondly, in the package we have included health and veterinary care services. Finally, we added a bill-saving protection, for example in case the policyholder loses his job or suffers an accident. What was our thinking? Customers in the Protection Market had the idea of being ‘protected’ to some extent. Over the years, it became clear that the Greater Protection Market was a definite offer, but one that did not necessarily protect the customer – not least, because of its variable price formula. That is why today, instead, we meant to create a proposal model that would protect customers when spending on their own sphere of interest – on their personal health and that of their pets.
Especially since we were targeting customers
with a low rate of unpaid bills, having a solid financial profile,
we sought to formulate an offer enriched with
those advanced features of protection that are highly appreciated
Hence, our “Hera Ti Tutela” contract is very consistent to the original idea of protection, but in a revisited version, more suitable to the current context.
The tenders for High Protection customers have seen discounts, with negative margins on average. How does Hera plan to create value with the entry of these new customers?
I think the great value of this tender
is the quantum leap that our Group
has made in the Energy world.
Growing by 25% in one step
means changing the league we play in
From all points of view, we have set ourselves up to deal with this new dimension, also in terms of margins. Of course, to win a customer, we always have costs to bear, whether we want to take it from the Free Market or win it by participating in a tender. And in an M&A transaction such a large package would be valued at much higher levels than the investment we have planned. In this way, according to our forecasts, we will be able to largely recover the margins we gave up in the tender. Bear in mind that the Gradual Protection Service will end on 31 March 2027; from that point, the discounts offered in the bidding process will expire and contracts will be aligned to the average market level. In the meantime, Hera will strive to increase its share of wallet, offering additional services – from gas supply to Value Added Services – that can contribute to achieve, overall, a positive margin on the single customer.
The assignment includes a commitment to serve customers for a period of 33 months, starting on 1 July 2024, under the conditions offered in the tender. At the end of the period, what will happen to these customers?
The customer allotment is permanent. Therefore, these customers will remain in our portfolio by automatically switching to a free market offer. Our goal, as I said, is to establish a medium-term relationship with the customer. Of course, we aim to land the customer on Free Market solutions, but, within a logic of gradual protection, we first want to have strengthened the bond of both service and product, possibly expanding the number of services within each relationship.
What forecasts do you have in terms of churn rate for this type of customer?
Overall, on these customers we expect a churn rate that is somewhere between that of Protection Market customers and Free Market customers. Anyhow, those who did not want to stay had already switched to other contracts at an earlier stage, when the launch of the tender had been announced: a behaviour that around 20% of customers followed.
Who stayed, entering the Gradual Protection service,
is typically a customer who is less inclined to change.
What are the first feedback from contacts with the new customers?
The willingness of customers to listen to us and evaluate new proposals is very good. The process has only just begun, but we can already say that, at this stage, the most frequently used contact channel, the call centre, is providing very good levels of satisfaction for the service, around 98%.
The onboarding operational machine,
in terms of customer operation systems and structures,
is working perfectly.
And this is an essential prerequisite
to develop the market in a second stage
On top of that, of course we are strengthening the physical presence in the new territories. If we open a new branch, that becomes a new point of contact for everyone, also for other citizens who, even through word of mouth, can come to us for information and become new customers. The logic is always to expand the customer base.
This tender, which brought us
a 25% leap in the customer base, was a unique opportunity,
which we intend to leverage to grow further
What do you expect will change in the market, once also this tender phase has ended?
I believe we will see a stabilisation. Now that the lots of Greater Protection customers are awarded and the prices cooled, we generally see more physiologic behaviours: operators are less in need to make a very strong competition while the number of telephone calls to our centers from customers worried by high energy costs in the bills decreased. That said, in the future we will keep stealing each other customers, because that is what happens in a competitive market and this is the reason why, at Hera Comm, every day we are committed to giving our best, but I expect we will do so in more favourable conditions.