There is a real buzz around collective switching at the moment. Which? has claimed victory for its Big Switch initiative after Co-operative Energy pitched what turned out to be a market-leading deal and won in all three categories of the UK’s first nationwide collective switching exercise. Which? updated us at the start of this month that nearly 37,000 people had started the process of transferring supplier, saving an average of £223 annually on their energy bills.
Mass bargaining is also emerging in specific sectors. Theatres, cinemas and other arts venues have banded together as the Arts Basket to get better deals, for example. Local authorities also look set to try their hand : South Lakeland District Council is to trial a scheme with iChoosr, the company that has driven collective switching in Europe.
So is mass switching the next big thing in the energy market? Not according to Utility Week’s Senior Executive Panel – top brass from the sector who we poll every other month on a hot topic (see box to join). Seventy per cent said collective switching would not become extensive.
Interestingly this was not because the panel felt big switching was a negative development. Only 30 per cent said it would have a negative impact overall, with most expressing positive views such as: “It should improve incentives on energy companies and reduce opportunities for co-ordinating elements of pricing that should be company specific.”
Nor was it because the panel thought suppliers wouldn’t play ball. Indeed, 60 per cent felt that even suppliers expressing reluctance to get involved with the Big Switch could be persuaded to participate over time. The remaining 40 per cent was unsure rather than adamant such suppliers would dig in their heels. One respondent explains: “There will be a commercial imperative for them to participate – if they don’t, they will cut themselves out of revenue opportunities.” Another said: “The general movement of the market will make this happen.”
Moreover, two-thirds of respondents believed suppliers would not only participate, but would actually bid in decent energy packages. One elaborates: “Offering a good package is always key to acquiring and maintaining customers.” Another agreed, saying: “It’s a competitive market and this will provide good messaging for successful suppliers.”
So why the seemingly conflicting results? Rob Sheldon, managing director of Accent, which co-sponsors the research programme, summarises: “The point which really stands out is the high number of executives who believe collective switching will be good for the energy industry, but the low number who can see it becoming extensive within the energy market.” In short, the panel feels collective switching will only engage specific, active consumer segments and so will shortly run its course.
One executive explains that it will be difficult to recruit customers on a continuing basis: “Activities such as the Which? Big Switch do not reach customers who are not already served by switching sites.” Another elaborates, explaining that already-switching customers are the target of such exercises and “if they all get the best deal, then who will be left to switch at the next attempt”? Yet another respondent feels it will all prove organisationally too much trouble. He says: “It requires an organisational structure on the part of customers that is unlikely to be justified solely on the basis of energy purchase.”
This perception of a customer base split between active and inactive customers is reflected in the panel’s views on whether consumers will benefit from collective switching. Most felt the customer would benefit on the whole. One respondent comments: “There will be more choice and better savings from switching.” Moreover, 60 per cent thought consumers would get better deals switching collectively than as individuals. In terms of the type of benefit to be had, 80 per cent thought lower prices would be key, completely overshadowing service improvements.
However, many also said there would be consumer losers as well as winners. According to one executive: “Collective switching will benefit some at the expense of others.” Some 70 per cent of respondents feared non-switching customers would end up paying for the bill discounts won by collective switchers by having to subsidise their deals.
So, while a significant development in the short term, Utility Week’s panel did not overall think collective switching would really shake-up the energy market. One simply comments: “It won’t!” Over two-thirds said the dominance of the big six would neither be enhanced nor eroded by mass customer transfers and instead would stay about the same.
However, panellists did see short-term wins for keen customers. An executive from a global utility player believes the collective movement will “increase the frequency of customer switching by offering stronger incentives to the customer”. Another says it “increases consumer power and involves strong negotiators on the consumer side”.
While collective switching has limited life in it, our panel sees opportunities for a range of organisations. Respondents gave a variety of answers when asked what sort of body they thought was best placed to provide collective switching services. Answers included: community groups, web services providers, and businesses with the IT capability to manage complex billing systems and with first class customer service.
This article first appeared in Utility Week’s print edition of 22 June 2012.
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