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Utility companies must move from being energy retailers to home service providers or “risk being left behind”, according to research consultancy firm The Lazarus Partnership.
In a report, the company said home services are “intrinsically more attractive” as an investment than energy retail, with “higher margins, lower risk and far less political scrutiny”.
The two big players in the home service market are currently British Gas Services and Homeserve – both of which offer boiler repairs and maintenance, among other things.
The report said the market environment for energy retail has become a lot tougher in recent years, witnessing reduced demand and increased competition at the same time as continued accusations of profiteering.
By comparison, the penetration of new technologies such as solar panels, smart meters and smart thermostats is offering new opportunities for growth in the home service market.
“Technology allows home services to move away from a reactive model, waiting for a problem to arise and then trying to fix it as quickly as possible, to a proactive model of maintaining, monitoring and managing the home. We believe that this type of service has much broader appeal than emergency repair cover,” said report author and partner Edmund Reid.
However, it warned, the window of opportunity may be “short-lived”, adding that the first-mover advantage is vital, as once consumers sign up with the service they tend to stick with it and there are economies of scale which can be difficult for new entrants to replicate.
Existing utilities do have some advantages, the report said, such as customer relationships and a workforce to install products. However, they face fierce competition from companies in other sectors “with greater experience of operating in fast-changing, customer-centric markets”.
Companies which resist the change or continue with business as usual “may find they are left behind,” Lazarus warned.
It said with its “existing expertise and willingness to innovate”, Centrica is the best placed of the big six to take advantage of the changing market.
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