Although switching volumes are healthy, underlying information about who is switching shows longstanding industry challenges around engaging customers in the market remain. Because while serial switching has increased, the proportion of customers who have never switched is stagnant. In light of this, the fact that first-time switching rates have also declined over the last year could be seen as cause for concern.
And despite the surge of smaller suppliers entering the market, it is worth noting that the long-held assumption that there’s some manner of customer exodus away from the big six is not grounded in reality.
Introduction
2016 switching levels increased to their highest level in six years according to the latest official switching data released by Ofgem. It showed 7.7m switching events recorded across the 12 months, 47 per cent of which were to small- or medium-sized suppliers.
Add to that Energy UK figures that show more than 660,000 customers switched electricity supplier in February – an increase of 60 per cent compared to February 2017. The trade body said this represents around 24,000 customers switching each day and the “highest ever” number of switches in a single month. In this year alone more than one million customers have already switched supplier.
This matters because competitive markets are driven by active consumers, and a competitive market is what the government wants. This is because consumers get a good deal when suppliers must compete for their business, an idea has long been the foundation of UK government policy in the energy sector.
And some quarters would argue it’s working. In 2006, there were 10 suppliers of electricity and gas in the UK. Today there are more than 60 and the market continues to see the emergence of challenger brands in the energy sector, promising to offer consumers a compelling mix of low prices and excellent customer service. Ongoing widespread coverage in the media has also led to better levels of consumer awareness regarding switching.
All this would suggest higher levels of engagement, but there are those who argue switching is not a helpful indicator of either engagement or fair play when taken in isolation. One of those is Ryan Thomson, partner, Baringa. He says, “the regulator must acknowledge that a reduction in switching, if done for the right reasons, is actually a positive sign of a successful, sustainable and competitive market, not a sign of failure.”
So, the issues surrounding switching continue to be multi-faceted and worthy of scrutiny and investigation. In April 2017, in response to what at the time was an emerging switching trend, Utility Week launched a biannual survey in partnership with market research firm Harris Interactive. The survey gathers responses from over 1,000 UK adults across all regions and age ranges, and the findings from the third survey in the series are summarised in this report.
The results and expert commentary on what they provide an informed overview of the current state of play and how the market might be best placed to respond.
Executive summary
Although switching volumes are healthy, underlying information about who is switching shows longstanding industry challenges around engaging customers in the market remain. Because while serial switching has increased, the proportion of customers who have never switched is stagnant. In light of this, the fact that first-time switching rates have also declined over the last year could be seen as cause for concern.
And despite the surge of smaller suppliers entering the market, it is worth noting that the long-held assumption that there’s some manner of customer exodus away from the big six is not grounded in reality. It would seem consumers like to stick to what they know – those surveyed who switched away from a larger supplier tended to move to another large supplier as opposed to a mid-size or smaller supplier. And in the same vein, those moving away from a mid-sized supplier by-and-large did so towards a supplier of a similar size.
Though it’s not all happy endings for the dominant players. While 69 per cent are moving between larger suppliers, 31 per cent are not, which would suggest the big six’s market share is steadily eroding in favour of mid- and small-sized suppliers. But not an exodus as much as an exudation.
The greatest motivator for switching remains cost and perceived value for money, although interestingly the research did also suggest an increasing number of consumers are choosing to switch in order to get a smart meter (albeit at moderate levels). 11 per cent cited this as their motivation for switching, which is approximately the same as those who wanted to access better customer service and access ‘greener’ energy (13 per cent and 14 per cent respectively).
This might suggest smart meters will have a growing influence on future competition. If this were to be the case, it would play into the hands of larger suppliers, who are better placed to have access to more mature rollouts and have more established relationships with MAP finance and equipment.
In positive news, the clear majority of switchers surveyed found the process relatively straightforward, which would suggest market mechanisms for transferring customers between suppliers are generally working well. But this positive feedback isn’t anything new, so arguably there is still more the regulator and consumer advocates can do to promote this broadly positive experience of switching to those who remain unsure or disengaged.
Or, to look at it a different way, as there is already an established pattern of positive switching experiences, do Ofgem and the wider industry need to continue to focus their time, money and efforts on ease of switching mechanisms?
The overall outlook of the piece though remains largely unchanged, in the sense that most are undecided about whether to switch or not, leading to mass inactivity, and an increasing proportion of those who have never switched do not intend to switch in the future. This is not necessarily a negative outcome though, as the main reason cited was that they’re happy with their current provider, in fact much more so than those who have switched. This might perhaps suggest that switching activity is at its peak…
Responding to the findings, Victoria MacGregor, director of energy at Citizens Advice, said: “It’s disappointing to see that the number of people who have never switched remains unchanged. Citizens Advice research shows that older people and those with mental health conditions are least likely to change supplier.
“People can save money on their energy bills if they’re prepared to shop around. Our energy star rating tool helps make the job easier by allowing people to compare prices and customer service scores of different suppliers at a glance.
But energy companies also need to play their part, and should continue encouraging their standard variable tariff (SVT) customers to move to better value tariffs.”
Key findings
- There are still approaching 3 in 10 consumers who have never switched their energy supply
- Gas customers are more likely than electricity or dual fuel customers to be on a standard variable tariff (SVT)
- First time switching levels have dropped since last July (12 per cent down from 25 per cent)
- In line with our findings in the previous two surveys, those who have switched overwhelmingly (91 per cent) found the process fairly easy and straightforward
- Saving money remains the main incentive for switching, with 72 per cent citing it as a reason (compared to 76 per cent in both July and April 2017)
- But getting a smart meter was the second most cited reason for switching
- Price comparison websites are more commonly used by serial switchers – first-time switchers tend to phone the supplier or switch face-to-face (ie. on the doorstep)
Survey results in detail
Switching behaviours
- 71 per cent of all respondents had switched before
- 44 per cent of all respondents were multiple switchers
- First time switching levels have dropped since last July (12 per cent down from 25 per cent)
Among those who have switched, the last change of supplier was more than two years ago, but the survey also found there is a good proportion of gas and electricity switches within the last 12 months – both of these findings are in line with what we found in the July 2017 survey.
As to the reasons for these trends, Peter Earl, head of energy at comparethemarket.com, says: “Although it is encouraging to see a greater level of engagement from households in 2017, the proportion of households switching overall remains low.
“If customers are rolled onto uncompetitive standard tariffs when their fixed one comes to an end, they are likely to see a significant increase in costs – which is why there has been such support for the scrapping of standard tariffs, which were often the poorest value, over the course of 2017.”
He adds the company’s customers had saved an average of £304 when switching dual fuel suppliers in 2017.
Claire Osborne, energy expert at uSwitch.com says: “2017 saw great strides being made in terms of energy switching, with huge year-on-year increases for each quarter. As more and more households understand the benefits of switching and saving, it’s no surprise that we are now hitting these peaks.
“But we shouldn’t be complacent – 60 per cent of energy customers in this country are still languishing on expensive standard variable tariffs, missing out on savings of up to £490 for just a few minutes work.
“It’s great to see the message getting through that customers can vote with their feet in order to get a better deal, but there is still more to be done to engage and educate those consumers who are paying more than they need to for the same gas and electricity.”
But there are those who see no problem with a lack of – or slowing down of – switching. As Ryan Thomson, partner, Baringa, says: “The regulator must acknowledge that a reduction in switching, if done for the right reasons, is actually a positive sign of a successful, sustainable and competitive market, not a sign of failure.”
He argues that “a secure, successful energy market requires more than lots of customers switching between lots of suppliers. In fact, if the only way customers feel they can get a good deal is to change supplier every year then perhaps we should conclude the market is not working.”
While some of the verbatim comments gleaned from those surveyed who had not and say they will not be switching in the near future supported this, others certainly didn’t:
I am happy with my current supplier
There’s no point switching, all suppliers are the same
I don’t think I’ll be any better off by switching
I am comfortable with the company I am with and have always been with them
It’s just too much hassle
Direction
- 19 per cent of electricity customers who switched away from a large supplier, did so to another large supplier (compared to 8 per cent last July)
- 39 per cent of those who switched away from a mid-sized supplier, did so to another mid-sized supplier (compared to 54 per cent last July)
- 50 per cent of mid-sized supplier switchers moved to a larger suppler, as opposed to 31 per cent last July
The vast majority of those surveyed who switched away from a large supplier, have done so to another large supplier. Similarly, the majority who switched from a mid-sized supplier have moved to another mid-sized supplier, apart from electricity customers who favoured switching to a larger supplier.
Our survey found electricity customers change their switching habits most (compared to gas and dual fuel customers).
But all this flies against the ongoing media onslaught that often portrays the big six are money-grabbing fat cats to be avoided at all costs. Consumers are not in fact abandoning the big six in their droves.
Ease of switching
The good news story of the piece is that, in line with the previous two surveys, the vast majority of those who have switched found the process easy and straightforward.
Ofgem recently announced it has decided to press ahead with plans to bring in changes to switching arrangements to let customers swap supplier by the end of the next working day. But do these results suggest this action is in fact unnecessary?
The regulator will introduce a package of reforms known as RP2a which will require the Digital Communications Company (DCC) to procure a new centralised switching service (CSS) to enable fast and reliable switching.
The announcement follows the conclusion of a consultation launched in September. Explaining the regulator’s thinking in a decision document, Ofgem chief executive Dermot Nolan said: “The current switching arrangements were largely designed for a more analogue age. The advent of smart meters, half-hourly settlement, price caps, and more fundamental changes to the energy system itself, means the time is right to reform switching arrangements too.”
But while Ofgem (and indeed the wider industry) continue to devote time, money and focus to delivering better and faster switching, the positive responses here suggest there might come a time at some point in the near future when this will cease to be a worthwhile use of resources.
Motivation
- Saving money remains the main incentive for switching, with 72 per cent citing it as a reason (compared to 76 per cent in both July and April 2017)
- But interestingly, getting a smart meter was the second most cited reason for switching
- 95 per cent of those not intending to switch are likely to be happy with their current supplier
- 45 per cent of first time switchers did so through a price comparison website
- 32 per cent remain uncertain about whether they will switch energy supplier in the future
Those who have never switched before are less likely to in the future (47 per cent), whereas serial switchers are most likely to switch within the next year (36 per cent)
As to future incentives to switch, 72 per cent of those surveyed cite saving money, 4 per cent say they would be driven by gaining access to greener energy, 5 per cent say access to better customer service would encourage them, and 8 per cent say getting a smart meter could incentivise the switch.
Consumer perceptions
Of all the survey participants who have switched, 91 per cent found the process fairly easy and straightforward.
The following verbatim comments supplied by respondents reflect some of the reasons behind this sentiment:
Very simple. Supplied my meter readings and then the switch just happened
It was a fast and easy process
It was easy to understand the prices so I could compare them and find the most relevant to me
It happened very quickly and communication from the company was good
But of the 8 per cent surveyed who found the process fairly or very complicated or difficult, comments included:
There has been a problem getting the final money owed from my previous supplier, and nearly two months after switching I am still waiting
There has been a lot of confusion with our bills, and with the keys and cards not working
Conclusion
Commenting on the findings as a whole, Mark Brenton, head of energy research at Harris Interactive says: “The latest wave of research appears to indicate that there still remains a decent proportion of people who, despite best efforts of the government and regulators, have never switched. Coupled with this, the proportion of first time switchers has fallen which suggests that the size of the non-switching group will remain fairly static.
“The results also show that those switching to get a smart meter, although still at relatively low levels, has increased, so maybe this might be a more important driver going forward, particularly as new SMETS2 meters get introduced. Having said that, an increasing proportion of consumers say that they do not intend to switch in the future and the main reason is that they are happy with their current supplier, so it could well be that switching activity is reaching a peak? Only time will tell on this.”
The research shows consumers are slowly moving away from the big six, which has been widely shouted about in the national press – but in reality there has been no monumental shift, no drama, no exodus – just a slow trickle at the moment.
And the fact that smart metering emerged as the second-most cited reason to switch providers could yet tip the scales back in favour of those same larger suppliers. This is because they have better access to the latest technologies compared to their smaller counterparts, greater capacity to roll out the meters quickly, and thanks to economies of scale, they can do so at a more affordable price.
The looming price cap will undoubtedly have an effect on switching behaviours, that much we can say for certain. But will it mean an initial flurry of switching and then an even bigger decline in first-time switching numbers, as consumers rest easy, believing that themselves to be on the best deal? Or will it dent consumer trust in utilities even further, when it becomes apparent that the cap does not in fact mean lower bills for all by any stretch of the imagination?
Or will it bring about increased engagement and a colossal increase in switching figures as consumers will be able to compare tariffs on a like-for-like basis? The latter is arguably the most far-fetched of the three, but anything really is possible as we approach this brave new dawn.