Consumer switching in the energy market is going through a slow patch with numbers taking a record dip in July 2021, according to figures from Electralink. But this overall decline isn’t stopping suppliers getting hot under the collar about one type of switch in particular – the auto switch.
At a recent industry roundtable organised by Utility Week and customer journey orchestration expert Thunderhead, customer service and policy leaders from a range of energy suppliers came together to discuss the threats posed to their businesses by increasing use of auto switching services by consumers – not as a result of government interventions, but due to the undeniable appeal of such services in a complex and, to many, boring market. They also shared views on the key steps that must be taken to respond to these threats – from regulatory and service strategy perspectives.
While auto switching services have been available since around 2016, their use by consumers has, until recently, appeared fairly marginal, according to the limited data available. The first to take an interest seem, stereotypically, to have been the tech savvy and customers already prone to serial switching.
But a more widespread consumer willingness to put faith in technology and delegate responsibility for energy choices seems to be catching on. A survey conducted by Which? in 2019 showed just 2 per cent of domestic energy switches were supported by auto switching service providers. But in Q4 2020 Ofgem and Citizens Advice took a measure that suggested more than double the number (5 per cent) of switchers were using automation and algorithms to decide which supplier and tariff they should opt for.
Utility Week, in association with Thunderhead, recently published a report exploring industry views on the threats posed by auto switching to energy retailers and how these might be mitigated through advances in customer engagement/leverage of technology. Download Is engagement the antidote to auto switching? today to find out more.
Suppliers certainly say they are feeling the increase. At our event, two suppliers openly admitted they had seen significant increases in churn in recent months which, on investigation, turned out to be driven by customer subscriptions to auto switching services. Meanwhile, another participant shared the considerable headaches the organisation experienced when it emerged that a large number of the customers it had acquired through a SOLR (supplier of last resort) process were signed up with auto switchers.
Our industry representatives were worried by these auto switching issues for a number of reasons which can be broadly grouped into four key areas.
1. Customer loss and admin costs
In a hotly competitive market where volume still counts for a great deal, suppliers are clearly very concerned about the rise of forces which drive up customer churn and, in parallel, reduce service efficiency.
Furthermore, there was a common view that auto switching services are creating an administrative cost burden on suppliers, which they are in no position to shoulder given tight margins.
For example, one customer service leader complained that poor engagement between auto switching providers and the customers signed up to them means that records are rarely updated when an individual moves house. This means a new resident can end up being wrongly switched. But the cost and responsibility for sorting this out – including picking up erroneous switch penalties from the regulator – falls to the supplier, not the third party.
2. Price-driven competition and customer welfare
A key frustration with auto switching services among suppliers is their propensity for encouraging consumers to focus on rudimentary price comparisons rather than any other service or “value-add” benefits different retailers have to offer.
Not only does this focus perpetuate a “race to the bottom” mode of competition in the market, said our participants, it can also risk considerable consumer detriment.
For example, one supplier which offers above average levels of emergency credit to its vulnerable customers as well as a range of other financial support mechanisms, said they were worried customers who had been switched away on the promise of a relatively marginal cost saving on their annual bill, could find themselves in very difficult and distressing circumstances if they could not keep up with their new payment schedule.
3. Level playing field
Our event participants were forthright in expressing the view that auto switching services that rely on a retailer subscription model to form their panels are distorting the competitive playing field and encouraging consumers to switch to low cost suppliers who may not be reputable or sustainable.
4. Net zero
All our attendees were very concerned that, should auto switching take hold as a mainstream means for supporting consumer switching, progress towards meeting the UK’s 2050 net zero carbon emissions target will be undermined. It is widely acknowledged that the next phase of the UK’s decarbonisation journey will require significant changes to the way consumers engage with the energy system and that this can be supported through the provision of new products and services which incentivise energy efficiency and time-sensitive demand modulation.
Consumer understanding of these opportunities is currently low and needs to be built through strong engagement and through innovation. Auto switching, said our participants, runs counter to both these things, encouraging consumers to disengage from their energy use and stifling innovation by focusing only on price as a differentiator.
To mitigate these negative impacts from increasing use of auto switching services our attendees unanimously called for new regulations to be introduced to govern how auto switchers engage with consumers and introduce greater accountability for them to create good market outcomes.
But however strongly our attendees felt about the need for better regulation of auto switchers, they also admitted that they cannot solely rely on this as a response strategy. They acknowledged that, however much they might like to think about the opportunities associated with value-add energy services, some customers are necessarily driven by price in their decision making.
Furthermore, many people feel overwhelmed by the prospect of picking an energy tariff that will work well for them. There is, therefore, a place for auto switching in the energy market, and suppliers must adapt their service and marketing strategies to compete more proactively with what it has to offer.
A critical step towards this is for suppliers to gain a clearer and real-time picture of customer consumption habits, and their touchpoints with the company. While the former can be achieved through the smart meter rollout, the latter will require many suppliers to become significantly more mature in the way they track customer activity on all available channels for interaction – from social media and self-service web tools, through to telephone contact centres.
For example, one roundtable participant shared the example of a German energy supplier that is able to link web activity to call prioritisation in the contact centre or prompts for outbound support – that is, they have a system that recognises when a customer has not been able to achieve their goal through a self-serve channel, and ensures that immediate support is provided to that customer so they feel valued and frustration is not allowed to blossom into a desire to disengage.
Another area where our participants agreed UK suppliers could generally do better is in adapting the tone and content of service or marketing communications to take greater account of what is known about customer preferences and priorities. This will be particularly important, they agreed, as the race for net zero ramps up and the need to articulate a varied set of value propositions to a varied set of human individuals gains urgency.
One supplier representative said big wins could be made by suppliers in combatting the appeal of auto switching simply by making communication on billing and tariff structure clearer and more accessible. There are still far too many people out there, they said, who don’t understand how their energy is priced or how they can influence what they pay, either through changing their behaviour or their tariff type.
In short, our participants agreed that while regulatory intervention on auto switching is needed to protect consumer interests, there is also a good deal that companies can do combat and compete with the appeal of such services by delivering better experiences to customers in key moments of interaction. By using data more intelligently, to personalise and demystify products, communications and service, they can significantly dilute the appeal for customers of delegating choice.
Quotes from attendees:
“We are seeing an uptick in objections from customers who have been switching by auto switching services. Many of them don’t realise that they will be moved multiple times. They don’t know what they are buying into.”
“The focus on price only in auto switching is damaging. If this takes off, it will cause customers to switch off just when we really need them to engage in the decarbonisation agenda.”
“As retailers, we need to engage with these services, think about what they offer to our customers and recognise that they do potentially pose an answer to a fundamental issue in our market.”
“Since we’ve started to understand our customers better and offer them more bespoke products around their life, whether that be financial issues or the way they use their meters, we have seen our churn numbers coming down.”
“Because there is no regulation of auto switchers, you get people moving out of properties, someone new moving in and getting switched without their consent. We have to bear the burden of completing an erroneous transfer in that scenario.”
“From a couple of hundred customers who had been auto switched, we heard very real stress and anger – not at being switched, but at everything that they had lost in terms of service from us and at the inconvenience and stress that caused.”
“Since we’ve started to understand our customers better and offer them more bespoke products around their life, whether that be financial issues or the way they use their meters, we have certainly seen our churn numbers coming down.”
“As an industry, I think we can do better on considering the tenor of our communications. We need to communicate in a tone and with a commitment to clarity which can build confidence and show that the company cares about the individual.”