Chief executive’s view: seven months in to the open water market

The business water retail market has now been open for seven months, and there is plenty to be optimistic about, but there are still challenges to overcome, according to Business Stream chief executive Jo Dow.

Seven months since market opening, the early signs are encouraging with over 61,000 customers already opting to switch. If you look a little closer at the data however it is clear that most switching has been driven by customers looking to consolidate, either from multiple suppliers to a single retailer, or customers choosing to consolidate their water and waste services with a single supplier.

Now it may be that customers are getting a better deal from their existing supplier, in which case great, but I suspect that most customers aren’t yet accessing the benefits that they should and if that is the case, then we need to work harder to ensure the market works for all customers, not just the big ones.

For those customers looking to switch we need to ensure the switching process is as seamless as possible and that their initial experiences with the new market are positive. Our early experiences are certainly highlighting some issues that are having a direct impact on customers that we as an industry need to iron out. We’ve been fortunate to secure a number of national contracts with large multi-site organisations that have sites across every wholesaler region, but these wins have highlighted the level of complexity that exists within the market.

The lack of standardisation in wholesale charges, for example, means that retailers have to create hundreds of tariff combinations to match the variations across different wholesale regions. To illustrate this, in order to on-board 6 national customers, we had to create 2,000 different tariff combinations. The sheer number of tariffs is making the on-boarding process and day-to-day maintenance of customer accounts, very time intensive and costly for retailers and confusing for customers. Rationalisation of wholesale tariffs and more standardisation around wholesaler policies in general, would simplify market processes and significantly improve the experience for customers.

Data quality was a significant issue in Scotland when the market first opened, and it won’t be a surprise to anyone that there are similar challenges in the new market. What we have been surprised at is the scale of the issues that need to be addressed. Our early experience of tendering for new business, is that the data we extract from the market is often either incomplete or inaccurate, which is introducing risk to the bidding process; increasing costs for retailers; and making it difficult for customers to make a true like for like comparison of retailers’ price and service options. Whilst there is no quick fix, provided retailers and wholesalers work together to address data accuracy, then we should start to make real progress in this area.

The downside is that without any proactive steps to improve the quality and completeness of the market data, these issues will often only be exposed as customers’ switch, which doesn’t leave customers reflecting positively on their initial interactions with the new market.

Finally, the market is there to benefit all customers, but there is already evidence that some SMEs are having difficulty finding any retailers willing to switch them. The data quality issues and the complexity referenced above, eat into the very small margins available to service customers. Added to this, the ongoing cost to serve customers is high relative to the margins available, with the meter reading costs in particular disproportionately high (for everyone except the incumbent retailer in the area) relative to the margins available.

There is no doubt that if our experiences are representative of other retailers, then this will be perpetuating the lack of switching within the SME sector. Unless these issues are addressed, it will be very difficult for retailers to be able to offer the types of price discounts and value-added services small and medium sized businesses are expecting. PR19 provides an ideal opportunity to reflect on the experiences to date and to address the limitations of the low margins, in the context of their impact on customers and in light of the materialising costs for retailers associated with the new market.

The fact that there are bedding in issues with the new market is inevitable; no one would have expected the market to operate seamlessly from the outset. Whilst each issue will take time to resolve, it is important that all market participants work together to identify and implement practical and reasonable measures that can help resolve the issues outlined above and deliver a market that truly works for customers.