Collective switching: waking up the ‘sleepers’

By Phil Ivers, head of customer optimisation at Gazprom Energy.

By Freddie Rand

Despite recent statistics from Energy UK finding that the number of customers switching energy suppliers has gone up by 14%, industry experts say that a large proportion of customers are also sticking with the same supplier. This puts many people, some of whom may be elderly or on low incomes, at risk of being on standard variable tariffs that are likely to be more expensive than other better value tariffs available on the market. Recent news on upcoming regulation allowing Ofgem to limit how much companies can charge customers for their standard variable tariffs also indicates that some customers have suffered excessive prices for too long.

Ofgem recently announced plans to launch a collective switching trial with the aim to encourage disengaged customers, less prone to switching suppliers, to get a better deal on their energy contracts. The trial will see 50,000 customers of the ‘Big Six’ energy suppliers, who have been on a standard variable tariff for at least three years (termed ‘sleeping’ customers), being offered the chance to switch to a supplier that Ofgem has selected.

Ofgem will use a commercial partner to support customers in the negotiation of terms and support the switching process; this partner has not yet been named, but it is known to be one of the Big Six. The idea is that if a large number of customers switch then the supplier will be able to negotiate lower prices through economies of scale. Customers are predicted to benefit from annual savings of up to £300.

Aiming to encourage these ‘sleepers’ to make savvier energy buying decisions, Ofgem wants to highlight the ease of switching and how they can make significant savings and receive better service. Service levels have been brought into question recently with Ofgem’s investigation of energy provider Iresa for its poor customer treatment, including its call-handling and complaints process, proving that customers shouldn’t accept service that is below par. While often price can be the deciding factor when selecting a new energy provider, customer service is becoming a more important consideration for anyone looking to switch – energy providers need to take heed of this.

While Ofgem’s collective switching trial enables customers to save money, it adds little in terms of market competitiveness as its delivery partner is one of the Big Six. Many new and independent suppliers have entered the energy market in recent years, such as Avid Energy and Bristol Energy, and may offer customers better deals than they are currently on – and improved service too. In fact, the market share of the Big Six hit a record low last year as customers increasingly turned to smaller suppliers.

Given British Gas’ announcement that it is laying off 4,000 staff partly due to the energy price cap, the big six could soon face turbulent times that would put their customers in an uncertain position, highlighting the benefits of challenger brands for both business and domestic requirements when it comes to choosing an energy provider.

While the move might make ‘sleeping’ customers savvier about shopping around, it’s unlikely to show them what the whole market has to offer.

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