Last year, British Gas reported that it would be increasing its energy prices by 12.5 per cent, a decision that would affect over 3 million customers. This was followed by a mass exodus of British Gas customers – 6 per cent of its customer accounts – and the share price plummeted, resulting in the biggest price fall ever reported in a single day.
Since then, British Gas has struggled to backtrack on this damaging announcement, and they have made some moves to soften the blow for customers. In the last week it has announced that it will be scrapping its more expensive tariff for new customers, in a bid to win back some of the accounts lost.
Despite all of this, the company remains the market leader, but surely it has to be questioning its pricing strategies. The reaction to the announcement showed a disparity between the decision makers at British Gas and its customers. With customers now able to change their energy providers so easily, British Gas need to pay attention and build brand loyalty within its customer base to continue to thrive.
Digital transformation
Historically, customers remained loyal to particular energy providers and it was perceived to be complicated and time-consuming to switch. The big six providers – British Gas, EDF Energy, Npower, Eon UK, Scottish Power and SSE – held the majority of the UK’s market share. However, the introduction of comparison sites has opened up the sector and has made the switching process much easier. As a result, customers can see how much they would save by switching.
Lets face it, it’s hard to ignore a website that tells you that you can save £300+ per year. But, some customers are still reluctant to switch, and Ofcom recently reported that 8 million people in the UK have remained with one of the big six energy suppliers’ on a standard variable tariff, rather than switching.
The new companies popping up have been set up to address some of customers’ biggest frustrations with energy suppliers. They pride themselves on superior customer service as well as the ability to offer a competitive price. As a result of the glowing reputation of some of the lesser-known suppliers there have been a record number of switches in 2017. But, customers are becoming more confident with switching supplier yearly to get the best deal, so the traditional energy suppliers need to make some big changes to build long-term customer loyalty and compete in a crowded market.
Turning tradition on its head
Traditional energy brands have thrived on the historic lack of competition in the market, and how difficult it was for customers to switch. This is very similar to other sectors such as banking.
The banking sector was turned on its head when the government introduced the seven day switch service, which allowed customers to easily switch banks with very little effort. As a result, a number of new competitors appeared, offering different benefits to their customers. High street banks like Metro offered customers both a superior customer service experience and traditional brick-and-mortar locations, while online banks including Atom, Monzo, Starling and Tandem have offered a fully web-based service that is easy for customers to use.
The energy sector has seen a very similar type of disruption, and customers now have more power to make decisions on their supplier. The big six need to make sure that they can offer customers certain benefits to be able to compete. British Gas announced that they would be removing the standard variable tariff for all new customers, which may well help to attract new customers, but it offers no value to their existing ones.
New competitors such as Powershop have entered the market, which offer a completely different way to purchase your energy. Rather than signing up to a yearly contract, customers can purchase energy in small amounts based on the best offers that are available on the day. This is a big move for customers that are used to paying a monthly direct debit. However, it may change the way that digital savvy customers engage with their energy suppliers.
Rebuilding trust
The biggest challenge for energy companies is going to be building customer loyalty long term. British Gas’ recent announcements have clearly damaged its brand reputation and it is going to be difficult to rebuild the trust that has been lost. It would do well to look at what the newer competitors are offering to keep customers happy longer term.
There is nothing more infuriating than seeing an offer that is only available to new customers, and this is one reason that customers move suppliers to get a better introductory offer. Instead, energy companies need to be looking at offers to not only capture new customers, but also to keep the existing ones.
One example of this is SSE’s recent release of a competitive offer for both new and existing customers. They are opening the offer to the first 30,000 applications and could save customers up to £246 annually. This is being done through Compare the Market, meaning that SSE is reaching both potential new customers that are looking to switch, plus its existing customers that may have been looking to leave. By embracing the technology that customers are regularly using SSE are minimising the number of customers that are looking to leave them, by offering something competitive.
What is next for British Gas?
After the price hike announcement, customers felt that they had been betrayed, which is what resulted in the mass exodus. British Gas need to find a way to rebuild the trust with their customers, which is not going to be easy. By offering a fair price and consistent service for both new and existing customers, they may be able to minimise the damage caused.
British Gas needs to be aware that despite it being the market leader, customers now have a choice when it comes to energy, and they can quickly move to another supplier.
We expect to see more energy companies embracing the digital transformation of their sector, ensuring that they are able to compete with smaller players. A strong digital presence either through the price comparison sites, or being able to offer an alternative product like Powershop will give them the edge that they need to compete and retain customers.