Ofgas must dispel advertising hot air

The marketing tactics employed by gas suppliers are threatening to damage deregulation of the market, with the public slanging match between the rivals affecting consumer confidence. Ofgas must act, says David Benady.

Gas deregulation is giving all those participating in the free-for-all a very bad name.

In the past two months British Gas Trading has accused rival suppliers Calortex and Eastern of misleading consumers and the Advertising Standards Authority has upheld its complaints (MW October 16); industry regulator Ofgas has accused British Gas Trading of similar behaviour with a showdown between the two expected soon; and the Gas Consumers Council has suggested Ofgas itself is failing to protect consumers from some of the more outrageous ad claims being made.

Although deregulation has only been partially introduced in the UK, the ASA is already receiving record numbers of complaints, mostly from rivals, about gas companies’ advertising. This is partly because there are now more companies in the market and so more to complain about, but also because of the intense competition between rivals for a share of the deregulated market.

Some observers believe that unless the advertising is cleaned up, the process of deregulation will itself be damaged.

The Gas Consumers Council manager for Scotland, Euan Robson, says Ofgas should do more to protect consumers from misleading advertising claims: “Ofgas does not seem to be as rigorous as it should be over companies comparing like-for-like prices. If consumers disbelieve the percentages (of discounts offered), it could undermine deregulation.”

Deregulation started last year in the South-west and South-east of England, and at the beginning of last month in Scotland and North-east England. So far, 659,000 customers out of a possible 4.5 million households have left British Gas for independent gas suppliers.

While this is worrying for British Gas, it is an equally testing time for the independent companies – they need at least 1 million customers each before they can achieve a worthwhile return on their capital investment. There are 20 companies apart from British Gas, and only 19 million consumers. Margins are small in this industry – perhaps an average 15 a year profit per household.

Logic dictates that not all the companies will survive in this market. As a consequence the gas companies appear to have discovered an interesting way of misleading consumers, one which is becoming standard practice across the industry.

The Calortex ad, created by the IMP agency but censured by the ASA, ran: “Thanks to our SuperSaver plan, a family with an average yearly gas bill can save about 20 per cent, which works out at an impressive 70.” The ASA ruled that the comparison was unfair as it compared Calortex’s discounted tariff for customers paying by direct debit with the undiscounted British Gas standard tariff.

Calortex’s rather pathetic defence was quoted in the ASA report: “It said that because this was the first press ad of its campaign, it had not been fully familiar with the rules about the use of price comparisons.”

Eastern’s ads, created by TBWA Payne Stracey, used a similar comparison between its own discounted price for direct debit customers and BGT’s standard tariff – it was also panned by the ASA.

But Calortex commercial director Neil Lambert says that this method of comparing savings between the standard BGT tariff and its own discounted direct debit tariff is an industry norm.

He admits that Calortex still makes the same comparison in its literature, though it explains the comparison much more clearly than in the censured ads.

He also says it is difficult to compare prices across the various companies: “There are three different factors in comparing pricing – consumption levels, five payment methods and also regional tariffs. Which price do you quote? It is a very complex issue.”

Robson gives what he sees as one of the most extreme cases of companies failing to compare like with like. Southern Electric Gas compared BGT’s standard tariff with VAT at eight per cent, with its own direct debit price with VAT at five per cent. The case is being examined by the ASA.

British Gas Trading has been a major source of complaints to the ASA – from its rivals – about misleading ads produced for it by BMP DDB. And has had its knuckles rapped by Ofgas for misleading the public. Ofgas has ordered its Centrica division to withdraw ads and leaflets, including one which it claimed suggested rival salespeople were untrustworthy.

Ofgas has also rebuked BGT for ads in Scotland offering savings of up to 26 per cent from next January. In a letter to Centrica boss Roy Gardner, Ofgas director of regulation and business affairs Dr Eileen Marshall says the price cuts are yet to be approved by Ofgas. She continues: “The statement that savings could be up to 26 per cent is misleading because you have taken the extreme case of a very low-consumption consumer. Such a consumer is highly unrepresentative as a basis for stating the potential savings available to the generality of customers. Therefore, we believe that this statement may mislead consumers.”

BGT remains defiant, refusing to make any changes to its promotions – which could lead to an interesting showdown between the largest gas retailer and the regulator.

The consumer has little protection against these misleading claims. Ofgas is committed to promoting free competition in the gas market and is unwilling to make waves about misleading ads, unless they concern British Gas Trading.

But the regulator is about to introduce a new clause into gas supply licences on what it calls “marketing”. This puts the onus on companies to control the way their salesforces behave on the doorstep, and comes after the dubious doorstep tactics of some of the independents received the full glare of the media spotlight (MW August 21).

But the clause says nothing about “marketing” as most would understand it. There is no mention of companies complying with data protection regulations. And hardly a word is uttered about advertising and how to avoid misleading the public.

If Ofgas is to get the public’s support for deregulation, it must stem this tide of misleading ads which is blackening the image of gas deregulation.

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