Who switches, and why?

By segmenting your customer base and understanding who is most likely to switch, and why, you will be better placed to win and retain customers, says Gary Muncaster.

The latest report from consultancy Populus, The Sluggish, the Savvy and the Downright Promiscuous – the Truth About Energy Customer Behaviour, reveals that good customer service is the biggest driver of customer loyalty, but confusing switching processes are leading to a prevalent state of inertia among a large group of people.

These should be key considerations for all suppliers, in line with energy secretary Amber Rudd’s policy reset speech late last year, calling for a more consumer-led and competitive market. According to Rudd, the way customers behave now, given the unprecedented level of choice and the relative simplicity of switching, will have a profound influence on how the energy market shifts beyond 2016.

While energy suppliers all round are performing well on key areas such as customer service, there is evidently room for improvement. Companies should act on these insights to develop customer-centric strategies that reflect the behaviour of the different
groups in the market.

Services tops price

The analysis of supplier performance against customers’ likelihood to switch reveals that customer service is the strongest loyalty driver, far ahead of price. Online services and website were the least important of all variables tested, which is likely due to how in today’s device-centric world, being digitally savvy is now considered to be merely a hygiene factor.

The importance of service may also explain why suppliers need to offer yearly savings of at least £290 for the average customer to be motivated enough to switch. And when asked how much of a price increase it would take for customers to be prompted to switch to a new provider, they would have to see an average increase in their yearly bill of £280. Both figures are roughly a fifth of the average UK householder’s combined energy bill.

The fact that it takes a reasonably high amount to trigger action from customers is no doubt evidence of a general lack of engagement and overall sense of inertia.

Populus’s findings also reveal that while 50 per cent of consumers think they could find a better energy deal if they looked, 53 per cent say it is unlikely they will switch supplier in the next 12 months and only 33 per cent have switched tariff in the past two years. Forty-six per cent do not feel price comparison websites are neutral, making it difficult to research new suppliers – a key part of the switching process that perhaps contributed to the widespread inertia demonstrated across customer bases.

Better targeting

The report analyses these behaviours and attributes them to key groups that the customers of UK energy providers fall into: Inert Customers; Savvy Switchers; Spinners; and Tariff Tarts. Energy suppliers must carefully consider these insights to engage different demographics more actively, which is critical for staying in control of the switching game.

The inertia revealed by the results is so widespread that in general, 67 per cent of consumers can be classed as Inert Customers, while 33 per cent can be broadly defined as Savvy Switchers. Large suppliers have the market share of Inert Customers (75 per cent) while small suppliers’ customers tend more frequently to be Savvy Switchers (67 per cent), highlighting the role brand awareness plays in this market.

Brand loyalty, however, appears low for Savvy Switchers, with almost half (49 per cent) considering yet another switch.

However, energy suppliers should not mistake inertia for loyalty. Half of the Inert Customer group (49 per cent) cite the hoops they may have to jump through as a key issue for switching. Thirty-nine per cent of Inert Customers do not know when they would have to cancel their current contract if they wanted to switch tariff or supplier.

The Populus research suggests that what is keeping many customers from switching is a lack of knowledge surrounding energy prices and common misconceptions relating to the switching process itself. Suppliers across the industry spectrum need to mobilise Inert Customers to become active participants in a market that desperately needs their involvement if it is to become truly competitive.

Inert Customers are an untapped audience that, once engaged appropriately, have the power to shake up the market and challenge all suppliers to truly operate with the interest of the customer as their central focus.

Given the impact that Rudd’s strategy is set to make on the energy market this year, surely the time has come for all suppliers, regardless of size, to crack the issue of audience segmentation, differentiation and relevant targeted engagement once and for all.