Utility Week

UTILITY WEEK | 19TH - 25TH JANUARY 2018 | 27 Customers Market view L ast year, British Gas reported that it would be increasing its energy prices by 12.5 per cent, a decision that would affect more than three million customers. This was followed by a mass exodus of Brit- ish Gas customers – 6 per cent of its customer accounts – and its share price plummeted. Since then, the company has struggled to backtrack on this damaging announce- ment, and it has made some moves to soen the blow for customers. In the past week, it has announced it will be scrapping its more expensive tariff for new customers, in a bid to win back some of the accounts lost. Despite all this, British Gas remains the market leader, but surely it has to be ques- tioning its pricing strategies. The reaction to the announcement showed a disparity between the decision-makers at British Gas and its customers. With customers now able to change energy provider so easily, British Gas needs to pay attention and build brand loyalty within its customer base. Digital Transformation Historically, customers remained loyal to particular energy providers and it was per- ceived to be complicated and time-consum- ing to switch. The big six providers – British Gas, EDF Energy, Npower, Eon UK, Scottish Power and SSE – hold the majority of the UK's market share. However, the introduc- tion of comparison sites has opened up the sector and made the switching process much easier. As a result, customers can see how much they would save by switching. Let's face it, it is hard to ignore a website that tells you that you can save £300-plus per year. But some customers are still reluc- tant to switch, and Ofcom recently reported that eight million people in the UK have remained with one of the big six suppliers on a standard variable tariff, rather than switching. The new companies popping up have been set up to address some of customers' biggest frustrations with energy suppliers. They pride themselves on superior customer service as well as the ability to offer a com- petitive price. As a result of the glowing reputation of some of the lesser-known sup- pliers, there was a record number of switches in 2017. And customers are becoming more confident with switching yearly to get the best deal, so the traditional energy suppli- ers need to make some big changes to build long- term customer loyalty and compete in a crowded market. Turning tradition on its head Traditional energy brands have thrived on the historic lack of competition in the mar- ket, and how difficult it was for customers to switch. This is similar to other sectors, such as banking. The banking sector was turned on its head when the government introduced the seven-day switch service, which allowed customers to switch banks with little effort. As a result, a number of new competitors appeared, offering different benefits to their customers. High street banks like Metro offered customers both a superior customer service experience and traditional bricks- and-mortar locations, while online banks including Atom, Monzo, Starling and Tan- dem have offered a fully web-based service that is easy for customers to use. The energy sector has seen a similar type of disruption, and customers now have more power to make decisions on their sup- plier. The big six need to make sure they can offer customers certain benefits to be able to compete. British Gas announced it would be removing the standard variable tariff for all new customers, which may well help to attract new customers, but it offers no value to existing ones. New competitors such as Powershop have entered the market, which offer a completely different way to purchase energy. Rather than signing up to a yearly contract, custom- ers can purchase energy in small amounts based on the best offers that are available on the day. This is a big move for customers that are used to paying a monthly direct debit. However, it may change the way digital- savvy customers engage. The biggest challenge for energy suppli- ers is going to be building customer loyalty long term. British Gas's recent announce- ments have clearly damaged its brand repu- tation and it is going to be difficult to rebuild the trust that has been lost. It would do well to look at what the newer competitors are offering to keep customers happy longer term. There is nothing more infuriating than seeing an offer that is only available to new customers, and this is one reason that cus- tomers move supplier to get a better offer. Energy companies need to be looking at offers to not only capture new customers but keep the existing ones. One example of this is SSE's recent release of a competitive offer for both new and exist- ing customers. It is opening the offer to the first 30,000 applications and could save cus- tomers up to £246 annually. This is being done through comparethemarket.com, mean- ing that SSE is reaching both potential new customers looking to switch, plus existing customers that may be looking to leave. By embracing the technology customers are reg- ularly using, SSE is minimising the number of customers looking to leave. What is next for British Gas Aer the price hike announcement, custom- ers felt they had been betrayed, which is what resulted in the mass exodus. British Gas needs to find a way to rebuild trust with its customers, which is not going to be easy. By offering a fair price and consistent service for both new and existing customers, it may be able to minimise the damage. British Gas needs to be aware that despite its position as the market leader, customers have a choice when it comes to energy, and they can quickly move to another supplier. We expect to see more energy companies embracing the digital transformation of their sector, ensuring they are able to compete with smaller players. A strong digital pres- ence, either through price comparison sites or being able to offer an alternative product like Powershop, will give them the edge they need to compete. Peter Veash, chief executive, The Bio Agency What's next for British Gas? When British Gas announced a price hike last year, customers fled and its share price plummeted. Peter Veash says this should serve as a reality check for the way the big six treat their customers.

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