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Connecting
to a
Better Deal
Attitudes towards Switching Energy Suppliers
Derbyshire Districts
Citizens Advice Bureau
April...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
2
Contents
Executive Summary 3
Who Switches thei...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
3
Executive Summary
The idea of shopping around ...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
4
1. Many of our clients are prevented from swit...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
5
Part One: Who Switches their Energy Supplier a...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
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None of our clients had used a collective swit...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
7
Part Two: Who Doesn’t Switch and Why?
We wante...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
8
Clearly when a customer receives this kind of ...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
9
In the above case the client may possibly be o...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
10
Part Three: Collective Switching
In the third...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
11
Our clients identified two advantages. The fi...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
12
Recommendations: How Can Customers Get
Cheape...
Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers
13
be persuaded to switch, it needs to be demons...
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Connecting to a Better Deal

  1. 1. Connecting to a Better Deal Attitudes towards Switching Energy Suppliers Derbyshire Districts Citizens Advice Bureau April 2013
  2. 2. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 2 Contents Executive Summary 3 Who Switches their Energy Supplier and Why? 5 Who Doesn't Switch and Why? 7 Collective Switching 10 Recommendations: How Can Customers Get Cheaper Energy? 12
  3. 3. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 3 Executive Summary The idea of shopping around to get a bargain is not a new one. Whether it’s comparing the prices in the supermarket or searching out the special offers in the local paper, it’s something we all do. The energy market is no exception. With a plentiful choice of available tariffs, energy plans and payment methods, the potential is there for most of us to switch to a better deal. And customers who have never switched before could save as much as £300 on their annual bill(1) . Yet most studies suggest that few energy customers switch their supplier – between 15% and 17% percent of the market, according to a Mori poll(2) . In fact, there are indications that this is a decrease on previous years. This is set against a background of increasing energy costs, greater awareness of the benefits of switching, and an increase in resources and information about switching. There is also an extremely healthy online price comparison industry, but whilst these services are heavily utilised for products such as insurance, there appears to be some reticence in comparing energy prices. More recently a number of collective switching schemes have been launched, and while it is too early to say what impact these will have on the energy market, there is clearly potential for such schemes both to deliver significant savings based on the power of collective buying, and for them to reach out to customers who have not previously considered switching their supplier. Such potential, however, will not be realised until we can better understand customers’ attitudes towards switching and until we can comprehend and overcome the barriers that prevent them. Understanding Energy Customers In March 2013, Derbyshire Dales, Amber Valley and Erewash Citizens Advice Bureau undertook an exercise to obtain a snapshot of its clients’ attitudes towards switching energy suppliers. For the purposes of this study our clients can be characterised in three ways: 1. Clients with specific energy-related issues – these include clients querying billing discrepancies, technical and maintenance issues, those with energy arrears and those experiencing inadequate levels of customer service. 2. Clients with other debts or experiencing budgeting difficulties. In such cases advice on securing cheaper energy supplies forms part of our efforts to stabilise our clients’ finances. 3. Clients who did not present with any of the issues above, but whose opinions on switching we sought nonetheless. We identified that a significant proportion of our clients were not taking advantage of the savings they could make through switching their energy supplier. The main reasons were as follows:
  4. 4. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 4 1. Many of our clients are prevented from switching because they have outstanding arrears. Due to the nature of our client base it was to be expected that a good many of the people we see would fall into this category. 2. There is either a lack of information about switching suppliers, or more likely the information that is available is not reaching the right people. This gives rise to misconceptions about the complexity of the process. 3. There are a confusing number of tariffs and energy plans on the market, with many different features and eligibility criteria. This makes it very difficult for clients to compare tariffs in a like-for-like way in order to find a tariff which best fits their circumstances. 4. Inadequate information and poor customer service often make it difficult for customers to get basic information about their accounts and resolve disputes. Whilst poor service can be instrumental in a customer’s decision to leave a supplier, it is, at the same time, a barrier to switching. The information in this report is drawn primarily from a survey of visitors to our bureau carried out over several days in March. This is further expanded upon by more detailed case studies collected during the course of our advice and social policy work, the intention being to gain a greater insight into customers’ reasons for switching, the barriers to switching and their understanding of collective switching schemes.
  5. 5. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 5 Part One: Who Switches their Energy Supplier and Why? Question: Have you ever switched your supplier? We began our survey by dividing our sample into two groups, those who had switched their supplier, and those who hadn’t. Surprisingly more than half of our sample had switched their energy supplier, significantly more than indicated by a number of national surveys. The majority gave ‘price’ as the reason for the switch. Question: How did you switch? We then asked how our clients had found their new supplier.  Only 10% had used a price comparison website  30% did the work themselves, personally phoning or visiting the websites of energy providers.  The majority of our sample, 60%, switched as a result of marketing activity.
  6. 6. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 6 None of our clients had used a collective switching scheme. Marketing and information clearly play a big part in the decision to switch. The majority of these clients said that they changed after receiving a phone call or a visit by a doorstep salesperson.
  7. 7. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 7 Part Two: Who Doesn’t Switch and Why? We wanted to know whether clients who had not switched were averse to the idea of switching in general, or whether this behaviour was confined to energy providers. We therefore asked which other products they had switched. Clearly there is a big difference between those who switch insurance and those who switch their bank accounts. Understanding the differing attitudes to these two products might give us some insight into why some people are reticent to switch their energy provider. One reason might be that there is a greater spread of insurance products, and therefore a greater potential to make savings. Alternatively, it could be that it’s simply easier to switch your insurer. It’s a product which sits in the background until someone needs to make a claim. Changing your bank, however, entails setting up new payments, informing employers, creditors and so on of the change. Our next two questions explored possible motives for switching, and the perceived barriers. We first asked our clients what were their most important considerations when choosing an energy supplier. Unsurprisingly all our respondents answered price. More tellingly, 80% also listed customer service as equally important. We might perhaps infer from this that many of our clients have been on the receiving end of shoddy service, and this is something that we often find in our face-to-face work, as this example demonstrates.
  8. 8. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 8 Clearly when a customer receives this kind of treatment, customer service will inevitably become a factor in their future choice of supplier. It’s also worth noting that difficulties in communicating with your supplier, difficulties getting information about tariffs and usage, and the inability to promptly resolve any issues or disputes, all restrict customers’ abilities to make an informed choice about suppliers, and to follow through with a decision to switch. Case Study 2 The client is single, retired and is concerned about the high costs of her energy bill. She complains regularly to her supplier about the costs, and on one occasion was given a rebate of £40. However, she is no closer to understanding why her bills are so unusually high. Her home is heated by storage heaters, although she claims she does not use them. After investigation we discovered that the client had been transferred to a different energy plan, although she had not initiated this change herself – in fact, until our involvement the client knew nothing about this. The client has written to her MP who has promised to look into the matter. In the meantime we have suggested to the client that she look around for a cheaper energy supplier. She previously tried to change to British Gas, but was told that she has a meter which they don’t deal with. This complication, plus difficulty understanding the many different available tariffs and fees, have made it difficult for the client to make any progress with switching her supplier. Case Study 1 The client is 71 years old and lives alone in a rented property. He is disabled and in receipt of Pension Credit Guarantee, and relies on electricity as his only source of energy. By the time the client visited Citizens Advice he had already been having problems with his supplier for six months. In that time his monthly direct debit had increased from £19 to £24, but then immediately prior to his appointment he was informed that it had risen again – although this time it had doubled. The client wasn’t able to say exactly how much it would be as he actually received two separate notifications, bearing the same date, one telling him that the amount had increased to £45, the other quoting £59. The client had already spoken to his supplier on numerous occasions, but could not get any clarification on the actual amount, nor any explanation for such a meteoric increase. In fact, the supplier’s only concern was in taking a payment from him, which the client made despite this leaving him without money for food. We attempted to telephone the supplier but could not get through after being kept on hold for over 20 minutes. With no other option we skipped to stage 3 of the complaints procedure (steps 1 and 2 of their procedure being reliant on the supplier being able to answer the telephone in a timely fashion).
  9. 9. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 9 In the above case the client may possibly be on the cheapest plan available to her. However, because she doesn’t have sufficient information about her current supply, she will have difficulty making a comparison with other suppliers. Both these cases demonstrate that communicating with energy companies is not always as straightforward as it ought to be. Because of examples like these we often get the impression that clients avoid switching because they don’t want the hassle of dealing with their energy supplier. But when we asked our non-switching clients what they thought were the major barriers to switching, we found that other factors scored higher. Relatively few people thought that the hassle of changing suppliers would deter them from switching. And indeed when we asked those of our clients who had switched about their experiences, 80% said that they encountered no difficulty. Clearly a number of our sample are prevented from switching as they have outstanding arrears. Several also said that there was simply too much choice, finding that the vast number of different tariffs was bewildering. A significant selection of our clients reported that they were suspicious of companies’ offers, suspecting hidden charges or imminent price rises which would wipe out any savings they might make. However most of our sample simply believed that they had nothing to gain by switching supplier, convinced that it would make no difference.
  10. 10. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 10 Part Three: Collective Switching In the third part of our survey we wanted to assess our clients’ attitudes to collective switching. Collective switching is a relatively new innovation in the UK, although it has proven successful elsewhere – notably in The Netherlands where the organisation Met de Stroom Mee managed to secure average savings of 20% on household energy bills (3) . Fundamentally the idea is to use the power of collective buying to negotiate cheaper energy supplies. Notable collective switching schemes were launched in 2012 by Which? and www.thepeoplespower.co.uk and in 2013 many local authorities have initiated similar schemes. We first wanted to find out what information our clients had about collective switching schemes. Question: Are you familiar with collective switching schemes? Of the small number who were aware of the existence of collective switching, none could name a specific scheme. We explained to our clients how collective switching schemes work, and asked them what they felt would be the advantages of such a scheme.
  11. 11. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 11 Our clients identified two advantages. The first, that the power of collective buying has the potential to secure cheaper tariffs than could be obtained by an individual shopping around on their own. The second advantage was that in a marketplace that is swamped with such a confusing number of tariffs, such a scheme would do much of the work for you. However, the majority of our respondents did not immediately recognise the advantages of collective switching. Finally we asked our clients what would deter them from using a collective switching scheme. It’s interesting to note that a greater percentage of people felt that joining a collective switching scheme would be more hassle than actually switching supplier. However, it should be noted that most of our clients were not familiar with collective switching, and that these opinions are therefore their initial impressions. With more information, and having had time to consider the pros and cons, the picture might be very different.
  12. 12. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 12 Recommendations: How Can Customers Get Cheaper Energy? There is a clear consensus that customers who regularly switch suppliers can obtain cheaper supplies. And whilst there may not be similar agreement about whether collective switching schemes have been, or will be, able to deliver significantly better results than individual switching, it seems obvious that the more subscribers they have, the greater their bargaining power and therefore the greater chance they will have of success. For these reasons it is proper that clients should be encouraged to consider switching, either individually or collectively, when and where it is appropriate. Our report suggests that organisations should consider the following points when promoting the benefits of switching energy suppliers.  Clients respond to the actions of energy companies. We have seen how marketing activity persuades people to change supplier. If switching is to become a greater part of the UK energy market, then it has to be promoted in a similarly high-profile way.  Price predominates as the biggest reason for switching. However customer experiences, both positive and negative, have an influence on the choice of supplier. Organisations offering advice on switching must take into account that price is not the only factor, and in some individual cases may not be a factor at all.  Switching energy supplier is no more complicated than switching insurance, which many of our sample were far more inclined to do. Those respondents who had switched found it a painless experience. This hints at a misconception about how difficult it is to switch energy supplier; a misconception that needs to be addressed if more people are to be encouraged to switch.  There needs to be more information to help clients understand their energy bills, so that they are then able to make informed choices. Partly this is down to the confusion of different tariffs, payment plans, discount schemes and so on. But there is also evidence of cases where energy companies have not been able to provide their customers with accurate and up to date information about their energy bills.  ‘Non-switchers’ find it difficult to believe that switching suppliers will make any difference to their energy bills. Although marketing was a major influence for our switchers, many non-switchers said they were suspicious of claims made in marketing materials. The majority of our non-switchers expressed cynicism, believing that ultimately switching would make no difference. If more people are to
  13. 13. Connecting to a Better Deal: Attitudes Towards Switching Energy Suppliers 13 be persuaded to switch, it needs to be demonstrated that there is a significant, long- term financial advantage.  Clients are largely unaware of collective switching schemes, and such schemes will need to generate much more publicity to get a foothold in the market. There are two perceived advantages to collective switching, and these are the elements that need to be highlighted. Firstly, switching is perceived as a complex process. Whilst this may not be the case, certainly the work involved in finding and comparing tariffs can be time-intensive. A collective switching scheme can shoulder the burden of much of this work, stripping away unsuitable offers and presenting the customer with a simplified choice. Secondly, the power of collective buying has the potential to deliver significantly cheaper energy. A collective switching scheme therefore needs to demonstrate that it can deliver greater savings than individual switching. In conclusion we found that a significant number of our clients felt that they were better off after switching their supplier. We would like to see more energy customers benefit in this way. And whilst we congratulate the gentleman who joyfully scrawled on our survey, in an exuberant hand, that his employer paid all his energy bills for him, sadly most of the people we see are not in this fortunate position. We therefore believe that any action clients can take to relieve the demands on their already over-stretched finances is something that should be encouraged. References: 1. More than 10% of the estimated quotations raised by users of the Simply Switch Website to switch their gas and electricity suppliers in Nov 2012 and Feb 2013 produced a predicted annual saving of £300 or more. 2. Customer Engagement with the Energy Market - Tracking Survey 2012 3. Going Dutch: Local Government and Fuel Poverty, www.nlgn.org.uk

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