Switching: love and hate
10th March 2017
Too often, “amount of switching” is seen as the measure of success in energy. This is crazy! Elsewhere, “loyalty” is the measure of success, and rightly so.
The problem in energy is not “too little switching” but too many people being screwed. They’re being screwed by being loyal to suppliers whose business model is “overcharge existing customers”.
66% of the UK are still on Big Six Standard Variable Tariffs (SVTs), overpaying by £100s and suffering poor service (just take a look at their reviews). So encouraging people to move to companies like us is a big part of our efforts to improve the lives and finances of energy customers in the UK.
But this isn’t about giving you a short term solution. It’s not about cheap fixed deals that only benefit the switchers, while those who don’t want the yearly bargain hunt are hit with extortionate SVTs.
Switching carries big cost, which suppliers ultimately pass on to consumers. For example, price comparison sites can charge suppliers over £70 in commission, and their business model is best served by switching that customer again a year later. This “£70 tax” impacts everyone.
Surely it’d be better if we could create a market that delivers good value for the long term, not just a fixed term.
Ofgem reports that customers switched 7.7 million times last year. That’s the largest customer migration in 6 years. While this is great for those overpaying or suffering poor service, the question then becomes: should I switch every year?
The prevailing advice from regulators, government, and consumer watchdogs is “yes”. But the fact that so many are still overpaying, and have been for years, suggests this call to switch doesn’t work. It just adds cost, hassle, and complexity for customers.
And more importantly, shouldn’t loyalty be a good thing?
There’s a reason companies like John Lewis and British Airways succeed despite not being the cheapest: they give customers great experiences. Customers return time and time again because they get brilliant service. This can be as simple as saving a customer time, giving them flexibility to change or cancel, or the peace of mind should things go wrong.
There will always be price differences between energy suppliers. Although we all sell the same stuff, we do things differently. At Octopus, for example, we operate a very lean, digital business model that allows us to pass on efficiency savings to customers. Not all suppliers choose to have this advantage, normally because they’re too unwieldy to make the change.
Creating a market that rewards loyalty, that makes regular switching a thing of the past, is about removing the exploitative pricing that exists today, giving customers long term value, and letting suppliers compete on what truly makes them different.
Only then will the UK's energy market work for everyone, and not just the regular switchers.
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