In August 2014 Ofgem appointed BMG to conduct research on ‘Micro and Small Business Engagement in Energy Markets’.
Its conclusions have now been published
Although the sample was relatively small at 1,502 and was not randomised but focussed on those who “were most likely to be affected by reforms resulting from Ofgem’s Retail Market Review”, the insight provided is still valuable in understanding the psyche, trust and understanding of businesses engaging in the energy market.
In this first review of the survey’s findings we focus on Switching
Business Juice comment:
Whilst the Ofgem/BMG research focuses on ‘switching’ it requires clarification that changing supplier is not the sole route to a more competitive energy deal. It is a shame that Ofgem/BMG did not focus on contract negotiation with existing suppliers as a route to better energy deals. Instead Ofgem/BMG have relied on physical switching to demonstrate a competitive energy market. This is sadly an incomplete picture of the market and a missed opportunity. The key to better experience in the business energy market is engagement, not simply switching.
Who switches?
- 60% of businesses switched supplier in the last 5 years;
- 13% of businesses have switched at least three times over that period
Why businesses switch
- 78% of businesses switched to pursuing cost savings
- 47% of businesses were prompted to switch having received a renewal notice from their
- 42% of businesses switched to avoid a price increase from their current supplier
- 37% of businesses were prompted to switch having seen their contract end date on their invoice
- 34% of businesses have switched for better service from a new supplier
- 31% of businesses switch based on recommendation from their broker
Why businesses don’t switch
- 19% of businesses have never considered switching supplier.
- 60% of businesses who did not switch in the last 12 months did so because of satisfaction with their current supplier
- 41% of businesses do not switch due to being tied into an existing contract
- 19% of businesses who do not switch claim scepticism of the potential savings as the reason
Business Juice comment: The average saving achieved for our clients in 2014 was £1,865 or 17%.
- 19% of businesses who do not switch claim scepticism of the perceived complexity and time consuming nature of finding a new supplier or tariff
Business Juice comment: We manage the entire pricing, contracting and supplier management process for our clients including life time contract management
- 8% of businesses were prevented from switching by their existing supplier
- 7% of businesses could not switch because they did not start looking in time
- 6% of businesses did not switch as their contract and termination dates and the switching procedure was unclear
- 5% of businesses claimed they could not switch as they did not receive a renewal notification from their existing supplier
Business Juice comment: All of our clients have access to their key facts statement which provides all relevant contractual dates to ensure timely market engagement
Switching expectations
- 39% of businesses believe that the time between choosing a new tariff and supplier and switching is too long
- 38% of businesses however believe the opposite, that the time between choosing a new tariff and supplier and switching is not too long
Business Juice comment: This strikes us as odd. Contracts run contiguously to their predecessor, a contract can be sold, in normal circumstances up to 6 months ahead of start date; this time period is dictated by the fixed contract periods that define the business energy market. The ‘delay’ therefore is simply the pre-existing contract running its course. A customers taking advantage of better pricing and agreeing a contract earlier in this window will necessarily ‘wait’ longer for that contract to go live. This in itself is not a bad thing. It is simply early market engagement ahead of time in order to secure the strongest deal possible.
- 37% of businesses believe that the expected savings do not always materialise from switching
- 36% of businesses believe that the expected savings do materialise from switching
Business Juice comment: The average saving achieved for our clients in 2014 was £1,865 or 17%.
- 48% of businesses believe that comparing prices is easy in the energy market
- 38% of businesses disagree
- 58% of businesses believe that switching suppliers is easy in the energy market
- 28% of businesses disagree
Conclusion
Whilst it is concerning that Ofgem/BMG chose to focus on ‘switching’ as the barometer of engagement in the business energy market and did not include contract negotiation the findings gleaned are interesting. With cost unsurprisingly the key driver of switching it is also positive to see belated Ofgem rules for suppliers to place contract end dates on invoices as a trigger to engagement. More worryingly however is the continuing confusion illustrated by lack of clarity over dates causing business to miss their market opportunity.
One area of real concern is the belief amongst a significant minority of businesses that perceived that the potential savings available from engaging in the energy market would not come to fruition. With an average customer saving delivered in 2014 of 17% this clearly does not reflect reality. More clearly needs to be done to highlight the cost of businesses failing to engage in the energy market.