Suppliers should act now on the CMA’s report
The CMA has provided a list of market solutions for Ofgem to mull over, but suppliers should take them on board now and act before they are forced to, says Tim Routledge.
The Competition and Markets Authority [CMA] presented its Energy Market Investigation Report to Ofgem in June last year. Its view is that Ofgem should initiate a programme that will better inform customers about their options and encourage them to act, but also advises involving suppliers and third party intermediaries in strengthening domestic customer engagement.
In addition, the CMA is calling for an ongoing programme of identifying, testing and implementing measures to promote engagement in the domestic retail energy markets, along with the introduction of a licence condition requiring suppliers to participate in the programme. Only 15 per cent of households regularly switch energy suppliers and, while switching reached a record high in 2016, this still represents just a fraction of households that could be enjoying more favourable tariffs.
Clearly Ofgem wants to see a far more competitive market and we wait to see to what extent it takes up the CMA’s recommendations. We do know, however, that the regulator plans to implement the database remedy, which should go live in 2018. A group of customers from two suppliers are currently participating in an Ofgem trial in which marketing offers from other suppliers are being sent to one group, while personalised energy deals are being sent directly from Ofgem to the other group on behalf of other suppliers. The test will identify how many customers opt out and how many switch. There will apparently be more detailed research to understand the customer experience of taking part in the trial.
It is essential that such trials are properly controlled and managed. Science shows us that when our expectations and reality do not match we experience stress. Crucially, this response can be triggered by any unexpected experience – even if it is a good one. So, if a customer receives a letter (unsolicited, so the assumption is that it is junk mail and therefore could already be an irritant) offering them a great deal on their energy, it is quite possible they will experience a tripping point and as a result, a negative response to the offer. We know people do not always behave in rational ways. Even though they know they can save money they will often walk away from a great offer. Indeed, our own recent research into why customers don’t switch their energy suppliers more often bears this out. Furthermore, research shows people do not say what they truly think and in many cases are not actually aware of how their unconscious brain is influencing their behaviour. This means any additional research based on simply asking questions may also be misleading – a survey question will produce a rationally-filtered response that may have little or no bearing on the actual cause.
If and when the database remedy rolls out, it will have major implications for suppliers, especially the larger ones which are traditionally slower to adapt. Providers should not wait until change is imposed on them by Ofgem. Rather they should be looking now at ways to differentiate themselves, to provide not just the best price, but the best service. It is understandable that providers would want to capitalise on their customers’ resistance to shopping around and steer well clear of drawing attention to how much customers are paying.
In future, energy suppliers will have to provide a better customer experience or be drawn into a price war. Ofgem might well require them to provide annual reviews, for example, as in the insurance market, giving customers the option to do nothing and auto-renew, or provide the motivation to look for a better deal with all the relevant information at their fingertips, a service that customers would no doubt appreciate.
So providers should start engaging with customers now, offering services free of tripping points, which nurtures and creates a loyal base of customers who choose to stay with their provider because of the experience it provides and who genuinely believe they are getting the right deals and service – not necessarily based solely on being the cheapest. This will be essential in providing some defence against competitors who will have open access to their most profitable customers – those on standard variable tariffs and currently the least likely to switch.
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