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 sixth and final review of the survey’s findings we focus on market engagement and contract choices
Contract choice
- 92% of businesses opt for a fixed term contract for their energy.
- 96% of businesses with between 5 and 9 employees opt for fixed term contracts
- 36% of businesses with 10-49 employees opt for a fixed term contract of two years
- 24% of businesses with 10-49 employees opt for a fixed term contract of three years
- 1% of businesses opt for a four year fixed term contract
- 3% of business opt for a five year fixed term contract
Business Juice comment: This is encouraging, the era of short term, 12 month contracts, requiring repeated market interactions and exposure to volatile markets are seemingly a thing of the past. Businesses are beginning to recognise the value of treating energy as a long term investment and that price security offers real benefits to business of all hues and all shapes and sizes. The report’s figures mirror those of our own with the majority of our customers opting for a multi year deal at 65% (Ofgem/BMG: 64%), however in our experience, significantly more customers are opting for three and four year fixed deals at 37% (25%) suggesting our more contextual and educative approach is enabling more customers to reach better commercial decisions in the energy market.
Engagement
- 23% of businesses have switched supplier in the last 12 months
- 60% of businesses have switched energy supplier
- 54% of businesses without employees have switched energy supplier
- 59% of businesses with 1-4 employees have switched energy supplier
- 66% of businesses with 5-9 employees have switched energy supplier
- 68% of businesses with 10-49 employees have switched energy supplier
- 77% of businesses on a fixed term contract review their gas/electricity supply arrangements when their contract comes up for renewal.
- 73% of businesses review their gas/electricity supply arrangements when their contract comes up for renewal.
- 27% of businesses had negotiated a new contract with their existing supplier.
- 53% of businesses in the transport, food and accommodation sectors negotiated a new contract
- 46% of businesses with a fixed term contract negotiated a new contract
- 30% of businesses without a fixed term contract negotiated a new contract
- 59% of businesses who used a broker negotiated a new contract
- 56% of businesses who used a telephone or website price comparison service negotiated a new contract
- 46% of businesses have looked into other supplier or tariff options for their energy arrangements in the last 12 months.
- 37% of businesses with 10-49 employees rely on a broker when making their final decision.
- 44% of businesses without employees rely on their current supplier when making their final decision.
Business Juice comment: This is a worrying statistic again suggesting that very small businesses are limiting their engagement in the energy market and in doing so failing to take advantage of its competitive nature.
- 20% of business consulted other suppliers as their main information source for switching
- 46% of businesses have looked into other supplier or tariff options in the last 12 months.
- 52% of businesses with 10-49 employees have looked into other supplier or tariff options in the last 12 months.
- 36% of businesses with no employees have looked into other supplier or tariff options in the last 12 months.
Business Juice comment: This further underlines the worrying lack of engagement at the lower end of the business energy market.
Failure to engage
- 39% of businesses have never switched
- 19% of businesses have never considered switching.
- 26% of businesses without employees have never considered switching
- 26% of businesses in the construction sector have never considered switching
- 44% of businesses without employees have never switched energy supplier
- 39% of businesses with 1-4 employees have never switched energy supplier
- 28% of businesses with 5-9 employees have never switched energy supplier
- 24% of businesses with 10-49 employees have never switched energy supplier
Business Juice comment: This is another concerning indication that businesses are still failing to take advantage of the competitive energy market to their own detriment. With a significant minority of UK businesses having failed to switch there is a natural tendency for those businesses to over pay for their energy.
- 18% of businesses didn’t switch because the contract document was deemed too complex/difficult to understand
- 15% of businesses didn’t switch because of unreasonable/unfavourable credit or payment terms
- 14% of businesses didn’t switch because the supplier renewed their contract without our knowledge
- 14% of businesses didn’t switch because of a perception of poor customer service
- 10% of businesses didn’t switch because the notice period required to exit at contract end was too long
- 9% of businesses didn’t switch because correspondence about the renewal was too complex/difficult to understand
- 9% of businesses didn’t switch because the renewal process involved too much work
- 7% of businesses didn’t switch because the renewal process took too long
- 7% of businesses didn’t switch because of Poor communication
- 6% of businesses didn’t switch because the time given to renew was too short 6%
- 6% of businesses didn’t switch because they made errors/mistakes 6%
Business Juice comment: These statistics underline the critical role that brokers play in the energy market by providing timely guidance to customers to ensure they are not trapped into uncompetitive contracts due to a lack of information and/or time.
Quality of engagement
- Business that used a broker contacted on average more than four suppliers when they last considered switching (mean = 4.2)
- Businesses with 10-49 employees contacted four suppliers when they last considered switching.
- Business that used a telephone or website price comparison service contacted on average more than three suppliers when they last considered switching (mean = 3.88)
- Businesses that switched in the last 5 years contacted more than three suppliers when they last considered switching (mean = 3.35). This includes contact made through a broker on behalf of the business.
Business Juice comment: This, of all statistics, shows the value and quality of engagement in the energy a market when a business uses a broker. With more suppliers’ pricing offers provided the customer receives a wider market comparison. It is interesting to note that the quick convenience of price comparison websites actually results in statistically less offers being provided. Business Juice work with 30 suppliers in the business energy market and as a result our supplier pricing ratio is significantly in excess of the market mean.
- 10% of businesses took action to consider switching in the last 12 months by looking at other suppliers
- 2% of businesses took action to consider switching in the last 12 months by looking at other tariffs with their supplier
- 35% of businesses took action to consider switching in the last 12 months by looking at other tariffs and suppliers
- 16% of businesses said they review their energy supply arrangements at a set point each year,
- 10% of businesses said they review their energy supply arrangements when prompted to do so by a broker
- 8% of businesses said they review their energy supply arrangements when they receive a bill
- 6% of businesses said they review their energy supply arrangements frequently throughout the year
Business Juice comment: The sporadic and adhoc nature that many businesses follow in engaging in the energy market underlines the need for greater structure and focus, such as that provided by brokers, in ensuring the business is entering and engaging with the energy market at the right time and not just at the point at which they have time available.
Business Juice comment: Overall the results of the engagement survey suggest the strong value that brokers bring to businesses interaction in the energy market with not only the provision of a greater panel of supplier offerings but also a more structured approach to engagement.