Utility Week

36 | AUGUST 2021 | UTILITY WEEK Analysis Customer engagement vs auto switching What threats are posed to energy retailers by the steady rise of "set and forget" auto switching services and can these be dispelled via excellence in customer engagement? Utility Week grapples with the issues in a new report. C ustomer switching in the energy retail market is on the rise. Notwithstanding a blip caused by the pandemic, which saw gures dip slightly in 2020 from their 2019 peak, the past ve years have seen a steady upward trend in the number of cus- tomers deciding to change energy supplier. This has been hailed as a good news story by policy and regulatory leaders who point to it as evidence that consumers are becom- ing increasingly motivated to shop around for better deals. It's proof, they say, that energy retail competition is working and pro- viding value to customers. But this view is myopic, according to broad swathes of the energy retail sector itself. For many retail business leaders, it fails to take account of a parallel trend for consumers to delegate responsibility for their energy supply choices to intermediary services, including price comparison sites and, more recently, auto switching services. In a new Utility Week report, created in association with customer journey orches- tration expert Thunderhead, we explore the Being put at a distance Why do energy retailers fear the rise of intermediary services, and especially auto switchers? Figures from Citizens Advice show that in 2020, almost 70 per cent of consumer switches were completed via a price comparison site. The worry for energy retailers is that these intermediaries encourage a homogenous view of energy services and blot out the nuances of brand, experience and values which di• erent providers can bring into play. These concerns are exacerbated in relation to auto switching ser- vices, which supported around 5 per cent of consumer switches in the latter part of 2020, according to data from Citizens Advice and Ofgem. Retail business leaders commonly see auto switching as adding even more distance between customers and proactive or informed decision-making about their energy supply than PCWs. As So Energy CEO Simon Oscro† observes in Utility Week's report, this distancing encourages a "race to the bottom on price" in the market which will only perpetuate unsustainable below-cost pricing from new entrants into the sector. Indeed, it has been commonly observed in Utility Week's sector coverage over the past ‹ ve years that short-term plays by new entrants to grow customer books by touting very cheap tari• s has been a major contributing factor to the subsequent failure of multiple suppliers – in 2020-21 alone GnErgy, Tonik Energy, Yorkshire Energy and Simplicity Energy, and more went to the wall. Clearly supplier failures like these lead to poor consumer experi- ences and a mutualised cost burden for remaining market participants who are required to absorb unresolved credit balances and unpaid regulatory charges. But excessively price-driven competition and consumer disengage- ment from their energy choices, which retailers say auto switching encourages, are causes of concern for other reasons too. As highlighted in the report, there is a real and growing worry among energy suppliers that intermediary switching services – and especially auto switching services – could undermine strategies for long-term business model transformation and pro‹ tability. For instance, suppliers who hope to diversify their products and o• er a new range of services that support consumer participation in a smart, decarbonised energy system in the future are worried. They feel that for an emerging, net zero-focused energy market to blossom, direct and deepened engagement between suppliers and customers is necessary. This is so they can deliver the nuanced marketing strategies and educa- tion campaigns needed to ensure consumers understand the value – for themselves and the environment – in options like time-of-use tari• s, demand-side response, home energy e– ciency measures, alternative heating solutions and more. In short, contributors to Utility Week and Thunderhead's report feel that auto switching is leading to bad customer outcomes in today's market and jeopardising hopes for a future market that can create greater value for service providers, customers and the environment alike. The question le† hanging in the air is what can suppliers do to combat the distancing and dis- engagement of customers which auto switching drives towards?

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