A view from the floor
In the latest of our series of articles written by our Business Advisors, James Rippin explores the cost of apathy when it comes to business energy:
Energy is essential to modern life. As such, there is an element of dependence which places leverage in the hands of the seller (the suppliers) rather than the buyer.
Its significance spans to the geo-economic and geo-political scale, the power and wealth of many countries ebbing and flowing as energy is traded and the markets shift.
At the end of it all lies one party, the consumer. Whether domestic or commercial, the need to purchase gas and/or electricity is something we all have in common.
In my experience there are two types of energy customers – the engaged and the apathetic.
One thing that must be remembered is that energy is a market! There are dozens of reputable suppliers trying to build a customer base, thus competition is created. This puts the leverage back with the customer, after all the ability to switch suppliers for a cheaper price is a critical bargaining chip available to any customer trying to get the best deal on their energy contracts.
In the UK the supposed “rip off” energy suppliers are always cause for debate – many customers are paying more than they currently should be and public anger and distrust have reached such a level that the government felt it necessary to task the CMA with analysing the markets with the view of building on the successes and failures of Ofgem as a regulator.
However, regulation aside, gas and electricity are free markets, this is no more apparent than with commercial energy.
Speaking with business energy customers on a daily basis, I have come to notice two very different customer journeys:
The Apathetic customer.
- The renewal letter drops, more often than not this contains a renewal offer which sits considerably higher than the best in the market.
- The Apathetic customer sees no merit in shopping around for a better deal so accepts this offer sent to them by their supplier, or even worse, fails to act and lets their contract roll onto a premium rate “rollover” contract.
- Customer apathy is big money for suppliers, who at the end of the day, are naturally trying to achieve the highest profit margins possible allowing them to thrive for their shareholders. Can they really be blamed for charging 30% above the market if an apathetic customer is willing to pay it?
- The Apathetic customer pays well over the odds, their profits are hit, cash flows (unnecessarily) out of the hands of the SME into the hands of big business.
- Yet despite this it is often the Apathetic customer who shouts loudest about the disdain with which they view the energy market
The Engaged customer.
- The Engaged customer sees the renewal letter as no more than a call to action.
- The Engaged customer calls around every supplier or uses a reputable, transparent broker with direct relationships with all suppliers to obtain a wide variety of prices and contract options.
- Once the best contract prices are obtained for all available contract lengths, the Engaged customer seeks market advice. What has happened up to now and what will happen in the future? What makes up the cost of energy? What changes to legislation are likely to occur etc?
- The Engaged customer uses the information to select the best contract option to suit their business needs, gets the best price and saves against the market.
My Advice?
As mentioned, energy suppliers are businesses and businesses and their shareholders like profits! You wouldn’t buy a car or a house without shopping around to get a better understanding of what you should be paying before committing to a purchase, so why should your energy be any different?
Profit chasing drives prices up, competition drives prices down. With energy, as with everything, apathy is greeted with high prices, engagement is rewarded with competitive prices.
There is certainly merit in choosing a supplier you have had a positive experience with (if the price is right) but there is no reward for blind loyalty in this game. Even if you are not switching supplier, engagement and negotiation is key, and a trusted partner is highly beneficial.
However, there are dishonest companies out there lacking in transparency and morality. As a result admittedly engagement comes at a cost:
You must ensure that you are not only getting the best price, but that the price offered is the price honoured. You should research all the companies you deal with as best you can and with as much scrutiny as possible to ensure there are no nasty surprises down the line.
But the cost of engagement is far lower than of apathy.
The power to save money is in your hands.