Energy suppliers: why consumers love to hate them

UK consumer body Which? has named the worst energy companies of 2016. So why aren't more customers switching? Digital content editor Rose Bundock investigates.

This week consumer media group Which? published a ranking of 25 UK energy suppliers indicating which offers the highest level of customer satisfaction and which gives the lowest.

The results are based on a survey conducted in October 2015, where the consumer watchdog asked 8,902 people to rate their energy company based on its customer service, value for money, clarity and accuracy of bills and how it helps them save energy and deal with complaints.

Survey participants also rated their satisfaction levels and if they’d recommend their energy company to a friend.

The results read like a David and Goliath success story.

The underdogs – small independent energy retailers – came out top while the behemoth Big Six energy suppliers lagged behind.

Commenting on the findings, Richard Lloyd, executive director at Which?, said: “Again the smaller energy suppliers are leading the way when it comes to customer satisfaction, leaving the Big Six providers in their wake.

“Large energy companies need to take note and start stepping up their game to provide the service their customers deserve.”

UK energy suppliers – the best and the worst

Bristol-based Ovo Energy topped the list with an 82% customer satisfaction rate, scoring particularly highly for complaint handling and billing issues.

The six-year old company has a customer base of 500,000 and includes social responsibility as one of its brand pillars. Ovo works with communities and the Ovo Foundation supports youth programmes.

By contrast, Npower, one of the largest energy suppliers in the UK, was ranked for the lowest customer satisfaction, at 41%.

Npower is a more traditional utility business offering gas, electricity and related services to residential and business customers and operating coal, gas and oil-fired power stations. Its customer base is close to 5 million.

Which? estimates that by sticking with a larger supplier (about 87% of the people surveyed), customers are missing out on savings of GBP297 on average.

So the evidence is clear, consumers can save money and feel more satisfied if they switch supplier, so why did only 10% of the nearly 9,000 people surveyed do so?

European deregulated markets

The UK isn’t alone in its apathy to the economic benefits of electricity market liberalisation.

Although, each European Union state differs in its deregulation – with some insular states having a 100% electricity production by a single producer and others having monopoly suppliers – in most countries few consumers are changing their energy supplier.

Research points to three types of consumer behavior observed: some are still unaware that it is possible to choose their electricity supplier, some are concerned about the impact of changing supplier and some consumers aren’t sure which seller they should switch to.

Changing energy suppliers and socio-economics

The UK’s Competition and Markets Authority suggests that your social and familial situation has a major impact on whether you seek a better deal.

The agency found that customers who did not switch were more likely to be on low incomes; over 65; living in social housing and without qualifications.

Customers on standard variable tariffs were also more likely to be disabled; a single parent and struggling financially.

It also found that 40% of British Gas domestic gas customers have been with the company for more than 10 years – even though it has long been one of the most expensive providers.

Energy suppliers and human nature

Human psychology also appears to play a role in the great switching debate.

Behavioural economists suggest that customers are turned off by too much choice and form attachments to their status quo.

This ‘status quo bias’ means the value someone attaches to the time it takes to switch supplier may not be worth it even if they’re paying GBP50 too much on their gas, Professor James Devlin, deputy dean of Nottingham University Business School, told the BBC.

Increasing competition + consumer apathy

VaasaETT, a European think-tank that monitors the activity of 42 liberalised energy markets, agrees that consumers are ‘indifferent’ to the idea of saving money through switching energy supplier.

The research body said: “Though there are successful new entrants [to the energy market], the most successful still tends to be the incumbents. The reason for this is the standard mindset of the average retail customer, which can best be described as indifferent.

“Most customers don’t switch. This lessens the pressure on the incumbent and thus lowers the prospects of market liberalisation in terms of competition.”

VaasaETT concludes: “The way to change this is to change the mindset of the customer – if they cared enough to switch they could achieve price drops and save money. However, as it stands now the price drop doesn’t occur, instead what is then the observed effect is a bigger range of prices in the market.

It adds: “We can explain this also the other way around. Only if the level of the margins in the retail market is sufficient, will it attract new entrants to enter the market thus to increase competition and most of all develop new services for the customers.”