Consumer Focus, the statutory consumer champion in the United Kingdom, has released some illuminating research on consumer switching behaviour in the energy market. The findings show significant changes in consumer behaviour as a result of poor businesses practices – and may make for alarming reading for Australian energy retailers.
The UK traditionally has one of the highest energy switching rates in the European Union. Energy industry switching rates are far higher than in the other major UK consumer markets, such as banking and telecommunications.
Recent surveys for the UK’s Department of Energy and Climate Change (DECC) and energy regulator, Ofgem, however, show that switching rates are down by a quarter from four years ago. In 2008, 20 per cent of consumers reported switching energy firm, compared to 15 per cent in 2011/12.
The research found that door-to-door sales were the source 33 per cent of switches in 2009 but are down to 19 per cent in 2012, due to many retailers volunteering to cease this form of marketing. Direct supplier contact through phone, at home or in public places still accounts for 36 per cent of switches. Around half of those in the poorest, most vulnerable social groups switched after a direct contact, compared to around one in 5 of the wealthiest.
In March last year, Consumer Action wrote to Australian energy retailers asking that they stop door to door selling in light of our research which showed only three per cent of consumers liked door to door selling – a call that was roundly ignored by retailers.
The research also showed that consumer disengagement with the energy market in general, and with switching in particular, was found to have a number of sources:
- customer confusion due to the complexity of the market;
- distrust of pricing; and
- a view that switching won’t make much difference as suppliers act as a pack.
Problems associated with the switching process itself was another cause of reduced switching rates, with one in six switches exceeding allowed time requirements. Of the 26 per cent of consumers who said they wouldn’t consider switching their gas or electricity provider again in the future, the disappointment of their switching experience was evident, with more than one in five blaming the process for being too difficult or off-putting, almost one in five saying they’d ended up paying more, and one in ten saying the customer service was not as good as their former supplier.
The findings also challenge the commonly held assumption that consumers who have switched in order to make savings will do so again in the future. Separately, Ofgem is proposing changes to give consumers access to clearer, comparable information, and Consumer Focus concludes that action is also need to address problems with switching and longer term consumer engagement with the process.
We agree that consumer engagement and trust is critical for the development of an effective market, and it’s great to see attention being focussed on the actual consumer experience, rather than simply the number of switches frequently quoted by energy industry lobbyists in Australia.
While competition and active consumer decision making are an important indicator of a successful market, this research shows how consumer choices based on incorrect or incomplete information, and made in a high pressure environment, can result in a huge dive in both consumer confidence and satisfaction – and indeed the viability of an entire sales channel.
Earlier in January, power companies were found to be the least trusted to act in the public interest in Australia by a huge margin. The UK experience shows the consequences of poor business practices on consumer behaviour.
The question now is whether Australian energy retailers choose to act—so we don’t end up with disengaged Australian consumers who no longer see the value in acting to maximise their own welfare in choosing their energy provider.