Customer satisfaction and loyalty in an era of switching

Ofgem has raised the bar for companies when it comes to protecting consumers’ interests, now it’s up to suppliers to go the extra mile, particularly for vulnerable customers, says Alex Prentice of Huntswood

Ofgem has been making good on its promise to “protect the consumer further”. Since 1 May, customers have been receiving automatic compensation for late credit refunds or in cases where they have been switched to another supplier in error.

The new rules are designed to give confidence to consumers in the switching process and reassure them that, if something goes wrong, they will be rightly compensated.

While most switches go smoothly, a significant number of consumers encounter problems such as switches not being finalised within the 21-day limit or difficulty with final bills, accessing refunds and credit balances. In fact, Ofgem calculates that if automatic compensation had been in place in 2017, an estimated £73.1 million would have been paid to customers.

This demonstrates the scale of the problem the regulator is working to resolve. As energy companies feel the impact of the new compensation scheme, Ofgem is forcing action to improve customer service and the switching process in general.

Complexities surrounding the price cap

Automatic compensation for switching has helped to give vast numbers of customers some peace of mind.

However, the watchdog’s well-publicised energy price cap hasn’t been so clear cut, leading to much confusion and controversy about its long-term effects. Some claim it has actually encouraged energy companies to raise their prices to the maximum limit, others say it has given consumers a false sense of security and discouraged switching. The fear is that fixing the energy price might actually have dampened competition, rather than boosted it.

There is no doubt that energy pricing is a very complex area and the volatility of wholesale energy costs does not help. It’s a difficult path to tread – the balance between championing consumer choice and consumer protection.

Dr Maria Ioannidou, a lecturer at Queen Mary University of London, recently conducted a study exploring the implications of energy price caps.

She explains: “The research suggests that, contrary to what many think, price caps do not necessarily mean that consumers are more empowered. Regulated prices impede the development of retail competition and can prevent market entry from new suppliers, thus reducing consumer choice. Furthermore, artificially low retail prices prompt consumers to disengage from the market, and negatively impact consumers’ propensity to switch providers.”

Putting the customer first

Only time will tell if the price cap actually serves to reduce energy bills for consumers long term, particularly those most vulnerable. Providers should, meanwhile, continue to focus on ensuring that their customer service differentiates them and that they are always transparent and fair when it comes to dealing with their customers.

Building the concept of “fair” into pricing strategies will be critical and this is something that firms should be consistently reviewing if they wish to ensure customers remain satisfied and loyal. Total fairness in pricing is unlikely to be achieved overnight, but providers need to have the right resource and processes in place to ensure they are on track.

Ofgem has been particularly concerned with how vulnerable consumers can suffer if not supported appropriately. Providers must establish properly embedded systems and policies to identify those in vulnerable situations and ensure that they benefit from the measures put in place.

Huntswood research has found that 47 per cent of firms have no clear policy to meet the needs of vulnerable customers and 93 per cent have no specific training to help staff deal with vulnerability. Regulators are well aware of this gap and, as such, have made it a key priority moving forwards.

Taking vulnerability seriously

When it comes to ensuring good outcomes for vulnerable customers, there are a number of areas to consider, the first of which will be whether firms are transparent about the services on offer. Deals should be easy to understand with no hidden details.

Staff must also be upskilled to ensure they are well placed to identify those in vulnerable circumstances and have both the confidence and authority to offer the customer flexible solutions. It’s also important that frontline staff understand policies surrounding confidentiality and safeguarding.

In this era of price caps, high levels of switching and intense competition, firms need to be actively open, honest and truly customer centric. This is not just a box-ticking exercise in regulatory compliance – taking these ideals to heart will drive customer loyalty and repeat business.

More tailored, flexible solutions will keep customers coming back. They will feel understood and valued if they know exactly what they are getting for their money. It’s fairly simple, really.