Ofgem has begun trials for the implementation of the unpopular sticky customers database remedy put forward by the Competition and Markets Authority (CMA).
Ofgem’s approach will test the effectiveness of two different database solutions.
One will exactly reflect the CMA’s recommendation, while the other will test an alternative methodology which seeks to take advantage of Ofgem’s “trusted voice” and support easy comparison of energy deals.
The introduction of an Ofgem-administered database of disengaged customer details was recommended by the CMA after a two-year investigation into energy market failings in the UK.
The CMA’s intention is that the database will hold the details of all customers in the UK who have been on standard variable tariffs for a prolonged amount of time.
The authority suggested that suppliers should then be allowed to access these details in order to send letters to customers, urging them to realise savings by switching supplier or tariff.
This idea met with widespread criticism when the CMA’s findings were released in June 2016. Many energy industry representatives labelled the remedy a “spammers’ charter”. They fear it will lead to customers being harassed with unwanted marketing. There are also concerns around data protection.
“Best offers” letter
Ofgem’s alternative database trials seek to address some of these concerns by limiting the number of letters suppliers are allowed to send to customers and by trying a tweaked marketing methodology.
This will test the effectiveness of an Ofgem-branded “best offers” letter instead of communications from individual suppliers.
The Ofgem letter will set out three personalised energy deals selected by the regulator which it believes offer better value for money.
An Ofgem spokesperson explained to Utility Week: “We have taken this approach following our user needs research which indicated that Ofgem was a trusted voice, as the energy regulator, and that customers wanted to be able to compare deals easily.”
The spokesperson also explained that customer who receive direct mail from suppliers during the trials will be protected from excessive marketing.
They said: “We are aware of concerns about “bombarding” customers with marketing in the CMA model, so we’ve set tight limits on the amount of marketing that can be sent in the trial; they can only send two letters to each consumer.”
Ofgem is conducting its trials with help from two large suppliers – Npower and EDF Energy – as well as a range of unidentified smaller suppliers.
Around 1,400 customers from Npower and EDF Energy are involved. They have been selected for inclusion using a randomised process.
The trials will split participating customers into three groups, each of around 800 individuals. One group will receive supplier marketing, one will receive the “best offers” letter and one will act as a control group which received no marketing.
Concerns remain
Not all suppliers are convinced that the trials will resolve what they see as inherent flaws in the database remedy.
Phil Levermore, managing director of independent energy supplier Ebico has been among the most vocal in expressing his opposition to the database. In response to Ofgem’s testing methodology, Levermore told Utility Week: “My view remains very much as it was in July last year when the CMA announced the customer database remedy.
“The concept of dropping even more bumf through the letterbox of the poor householder who has suffered-long with unsolicited direct mail and door-drop marketing materials carpeting her hallway, seems to me to be public-funded pointlessness – bordering on absurdity.”
He added: “Whilst Ofgem is clearly expecting to see a higher response-rate from the group to which it sends its ‘official’ communication, I think it is in for a nasty surprise.”
Levermore urged Ofgem to find “more radical” solutions to customer disengagement.
“If we want to disrupt the big six business model of using margins from sticky customers to fund tasty deals to attract the 20 per cent of the population who are ‘switchers’, then why not force them to auction off portions of their residential energy supply portfolio?,” he said.
The results of Ofgem’s database trials are due to be released in the spring.