Why customer engagement is more effective than stricter regulation

Something of a milestone has been reached in a campaign that we have put our weight behind. The campaign is designed to make it easier for small and micro-business energy consumers to switch, and several suppliers have improved their customer communications because of it. CNG and Eon, for example, are among the names that have promised to put contract end dates on their bills, and CNG is also about to join Scottish Power in sending its renewal letters by recorded delivery.

This, arguably, is a much bigger deal for businesses than the political football of “banning rollover contracts” that some – the Labour Party in particular – are so keen to talk about. Why? Because it is customer engagement, not more protection, that is going to properly address the problems associated with business energy procurement.

Business energy contracts involve a fixed price for a contracted period of time, with the gas or electricity component hedged by the supplier. Effectively, they buy the customer’s energy in advance on inception of the contract. This hedging provides energy suppliers – particularly the smaller independent suppliers – with a degree of certainty and delivers a better overall energy price. If rollovers were banned, all unengaged customers at the end of their fixed term contract would be forced on to floating out-of-contract tariffs that include the costs related to hedging an uncertain portfolio of customers. The net effect, then, of wrapping businesses in the same cotton wool as domestic customers will be higher overall energy costs for proactive business customers, and marginally lower costs for inactive customers.

Customer engagement, on the other hand, can succeed where this ill-conceived and unnecessary consumer protection would fail. The energy regulator has a stated aim to promote and stimulate business energy customer engagement but, as far as we are aware, they are not measuring non-domestic switching levels (or least not publishing them). We believe that only 20 per cent of business energy customers are “engaged” in the market. The others are mainly inert because they are unable to find out their current contract end date and renewal offers. Those communications are either disguised as junk mail, overlooked or not understood. Those businesses that attempt to engage find these points unreasonable. We estimate that if the other 80 per cent were to engage in the market, the small and medium-sized enterprise community would derive cost savings of £2 billion a year.

Giving greater visibility to the renewal window, as well as underlining its significance, will lead to greater customer engagement. This can ease the frustration caused by unexpected rollovers in a way that doesn’t restrict choice or prevent businesses from taking part in the annual round of negotiation that is commonplace with other types of overhead. Furthermore, engaged business energy customers will not only achieve savings but will also be in a better position to use their energy more efficiently and reduce their carbon footprints – unengaged customers won’t. We see a direct correlation between those that seek to reduce their unit price and those that seek to reduce their consumption. And that’s before we’ve even sown that particular seed in their mind.

So, to reiterate the goals of the campaign: make it easier for customers to engage by asking suppliers to print contract end dates on every bill, along with notice periods required to terminate; renewal letters should be sent by recorded delivery and they should show the difference between the current rates charged and the proposed renewal rates in pounds and as a percentage.

It’s fantastic that the suppliers have listened and some are willing to make changes. This could be just the tipping point needed for others to fall in line – without the need for regulation – and means a decent solution is delivered far sooner than many would have expected.

http://epetitions.direct.gov.uk/petitions/29821

Jonathan Elliott, managing director, Make It Cheaper

This article first appeared in Utility Week’s print edition of 31 August 2012.

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