Ofwat Residential Customer Segmentation Project - Phase 1

Objectives To successfully deliver an impactful and relevant customer segmentation model for Ofwat, we believe that the chosen model not only needs to enhance our evidence base, support our regulatory work and enable our organisation to gain a better understanding of water customers in general, but will need to be a meaningful tool across our programmes, enabling specific programmes to deliver better outcomes for customers.

In order to achieve these goals, we identified several objectives that have to be met when delivering this project.

The proposed segmentation model will enable Ofwat to:

1. Gain a better understanding of the wants and needs of water customers and be able to better protect the interest of customers - with specific regards to customers in situations of vulnerability (as highlighted in our statutory duties). 2. Provide a common language across Ofwat relating to customer segments, to be used when designing policies. 3. Better challenge the sector in making sure customers who are eligible are receiving financial and non- financial help. 4. Better challenge the sector in reducing bad debt, whilst staying in line with Ofwat's guidance on debt collection. 5. Better scrutinise companies' PR19 business plans' affordability, vulnerability, customer service and engagement content. 6. Better challenge companies' charging schemes rules in cases where companies' approaches are not sufficiently evidenced and would fail to consider specific customer segments and needs.

Scope When studying the potential benefits of segmenting residential customers, we concluded that most of these benefits would be realised if we would have a better understanding of customers and different customer segments in vulnerable situations. Our initial assumption therefore is that our segmentation model should be principally focussed on customer data and consumer information that would enable us to better understand the different dimensions of vulnerability and affordability. We understand that some of the data and consumer information we need to develop our segmentation will be available internally, or might be provided by an external organisation in the future.

The scope of the required work includes: • Carrying out a desktop research of existing customer segmentation models delivered by various regulators across different sectors focussing on data that enables a better understanding of financial and non-financial aspects of vulnerability. • Studying internally available Ofwat data and data that Ofwat could potentially get access to via other organisations, to enable us to better understand how we could overlay datasets and better scope our own work. • Submitting a final proposal, including at least three options for the approach Ofwat should adopt for its customer segmentation.