Utility Week

UTILITY WEEK | 18TH - 24TH MAY 2018 | 25 Customers Analysis F or better or worse, switching figures remain a key barometer of the effec- tiveness of competition in the domestic energy retail market. With every release of fresh switch- ing data, a new bout of claim and counter claim between industry critics and company spokespeople ensues. The former group insists a persistent inability to prompt action from the one-third of consumers who have never switched energy supplier shows retail- ers are happy to allow these customers to languish on expensive tariffs. Meanwhile, the latter group seizes on consistent increases in switching numbers – as recorded by Ofgem and Energy UK – as proof that market engagement is on the up. For some market commentators, these ongoing exchanges are a frustrating distrac- tion from better measures of competitiveness and customer satisfaction with the value for money they receive. But look beyond the headline numbers, move away from the poli- tics, and energy market switching data can offer up some enlightening insights into con- sumer behaviours and their implications for supplier strategies. It was with a view to understanding these more nuanced insights that Utility Week part- nered with market research company Harris Interactive in 2017 to establish a biannual barometer of consumer switching habits. The results of the third iteration of this research are now available in a premium report – freely accessible online to Utility Week members – and offer some significant intelligence for energy company leaders. Some of the results confirm the persis- tence of recognised industry challenges. For example, the survey of around 1,000 UK adults found that while engaged consum- ers are increasingly participating in "serial switching", disengaged consumers remain unmoved by messages from suppliers, con- sumer advocates or politicians that they could save money and potentially receive better service by shopping around. This trend explains why figures meas- uring the overall number of switches com- pleted each year can continue on an upward trajectory while the disengaged base of "sticky" customers remains at around one third of the market. If creating engagement among this dis- engaged customer base is still considered important in light of the forthcoming default tariff cap – which itself is anticipated to have a negative impact on switching rates – the persistence of this trend suggests a new approach to motivating first-time switches is needed. Ofgem is currently exploring a range of options for dealing with the "sticky" cus- tomer problem, including sending out mar- ket information letters from the regulator. An interesting contributing consideration emerging from Utility Week's research, how- ever, is that first-time switchers are far more reluctant that their more experienced switch- ing peers to use price comparison sites to complete a change of supplier. For those embarking on their first sup- plier switch, a phone call and a personal conversation was generally felt to be neces- sary to achieve the required levels of confi- dence to complete the transaction. Even more interesting for energy sup- pliers, perhaps, is that customers who have switched once or more tend to stick with what they know in terms of supplier size. Almost 70 per cent of customers who have switched said their last move was from one large supplier to another large supplier. Meanwhile, over half of those who switched away from a mid-sized supplier switched to another mid-sized supplier. While there's no doubt that the market share of incumbents is gradually eroding in line with the arrival of more competitors, this finding flies in the face of a conventional belief that savvy, engaged consumers are fleeing the big six to seek a better life with new market entrants. It might also suggest the appeal of smaller companies, simply as an alternative from the status quo, may have been overplayed – especially in light of recent bad press for small providers regard- ing poor service levels and unsustainable business models. While price remains the key motivating Switch-happy? What does consumer switching data really tell us about the competitiveness of the energy retail market? New research from Utility Week explores the issue. FREQUENCY OF SWITCHING For many customers, their last switch was more than two years ago, particularly those with dual fuel. However, the survey also found there is a good proportion of gas and elec- tricity switches within the past 12 months – both findings are in line with what we found in the July 2017 survey. n less than 1 month ago n 2-6 months ago n 7-12 months ago n 1-2 years ago n more than 2 years ago n cannot remember 8% 18% 23% 18% 27% 5% Gas 10% 19% 21% 17% 31% 3% Electricity 5% 18% 20% 19% 35% 4% Dual fuel Brought to you in association with factor for consumer switching, this high level of like-for-like supplier switching should come as good news to larger players who increasingly complain that an unlevel play- ing field is preventing them from competing effectively with smaller rivals who are able to significantly undercut their prices. For new entrants, it highlights the fact that scale and an established brand still count for a lot in the eyes of most consumers. More insights into consumer switching behaviours and experiences of switching are available to Utility Week members in a new, online premium report.

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