Energy Retail Pricing: Time to change the record

Is it just me who is fed up with the drama that comes with every Big 6 price rise? The reaction yesterday to BG’s price rise announcement was just another opportunity for media bluster, political posturing and mischievous stone throwing. We’ve been round the loop before and it just feels a tad boring.

So how do we get out of the cycle? In my mind there are five key mindshift changes that should do it, all of which ultimately come down to changing the way we communicate about energy and engage with consumers:

1. Create a common understanding of market fundamentals based on fact:

Whilst the media and politicians may glibly present ‘broken market’ as a fact, very few who actually understand the market believe it is not functioning. The evidence?

- A two year enquiry lead by the Competition & Markets Authority who found areas to tweak, but did not conclude that the market was fundamentally broken and specifically argued against a price cap.

- A competitive market of over 50 suppliers who are offering a range of products and prices, easily accessed via price comparison websites and multiple other channels. It is now not difficult to switch supplier and save money.

- A UK positioning in the international market, which shows that whilst our prices are not the cheapest we are certainly in the most competitive quartile of pricing when compared to other countries.

I’ve long believed there is a TV series or communication campaign waiting to get out which explains how the market works. Misinformation, misunderstanding and lazy reporting cause a lot of the common incorrect perceptions of the market- and the truth is really surprisingly interesting!

2. A move to Caveat Emptor:

Electricity and gas are perceived, rightly, as life essentials. The ability to heat and light homes, watch TV and charge phones are all a given in the modern world. However, the same can be said for bread, milk, fruit and vegetables and to buy those we are required to make choices. We decide what we are prepared to pay for these essentials and go to the most suitable supplier, or product range to enact those choices.

What seems to be at the root of the price cap debate is the belief that consumers do not have the ability to make choices when buying energy. They do- but in the case of a large majority they just can’t be bothered to switch, because the hassle factor is perceived to be greater than the benefit of so doing- that is their choice.

The best interview I heard on the radio after the BG announcement was from the personal finance writer for the FT- she, very eloquently, pointed out that for all those ‘poor’ BG customers who are looking in the eye of a 12.5% price increase, they should use their feet and move and save themselves money. At what point are we, as consumers, responsible for our own finances and actions?

3. Protect the vulnerable:

Without a doubt, those who for whatever reason, do not have the capacity to switch supplier should be given more support to ensure that they are not overpaying for their energy. This support, as ably pointed out by the Citizen’s Advice interviewee on the same radio programme, can come from organisations such as theirs, Age Concern or direct from suppliers and potentially social landlords. There is a stronger argument to create ‘capped’ tariffs for the vulnerable to ensure that they don’t end up on penal tariffs, and this is the route that OFGEM is pursuing, when not being put under political pressure from the government. Whilst more effort and communication is needed in protecting and supporting the vulnerable, they are not the majority of the 17 million people who have not chosen to switch supplier. We should protect this sector of society, but not use them as an excuse for fundamental market reform.

4. Encouraging switching in a different way:

Surely it would be better to drive media campaigns on encouraging customer engagement in the market, then constantly wasting air time and column inches beating up the big 6? What if some of the money being spent on ‘faster switching’ was diverted to national media campaigns showing people how to switch supplier. If consumers are still not aware that they can save money by switching supplier, then why doesn’t OFGEM or BEIS tell them? Consumers, may reasonably be sceptical of advertising campaigns from individual suppliers, so perhaps a national campaign may be more effective?

Almost all of us of a certain age will remember the power of the original Government backed ‘tell Sid’ media campaign to sell BG’s shares to the public. Ultimately, customer engagement is the issue, not a broken market. If we can improve customer engagement with the market, perhaps we can move on. And, dare I say it, if this doesn’t work, perhaps we just need to accept that consumers really can’t be bothered to switch and are happy paying the extra ‘£200’ a year that they could save.

5. Change the media record:

Beating up the Big 6 is an ongoing sport, and provides an easy whipping boy for the media and government. Small and medium sized suppliers leap on the band wagon because they conveniently have almost all of their customer base on fixed tariffs and are not exposed to the market risks associated with standard variable tariffs. If enough people think that the Big 6 are profiteering unnecessarily, their actions in switching supplier, will result in a balancing of the market and competitive players will ultimately win. Just shouting louder and repeating the same message has just got boring.

The transformational power sits with a different model of consumer engagement- one which provides clear opportunity and answers through effective communication rather than negative recycling of the same old story..