Plans to slash domestic electricity prices by opening the market to competition could backfire according to new evidence showing customers signing up to suppliers with strong branding rather than cheap prices.
Overall, electricity prices have only fallen about five per cent since deregulation last year, but customers are switching to suppliers offering convenient “dual-fuel” deals – combining electricity and gas – and to those with aggressive marketing strategies.
A new report by analysts Datamonitor shows that only four suppliers – British Gas Trading, Eastern Electricity, ScottishPower, and Northern Electric – have gained customers in the UK domestic electricity market since it opened to competition in September 1998.
Only Northern’s pricing is considered to be aggressive nationwide. Most of its extra customers have signed up for dual-fuel electricity and gas. It has increased market share 0.3 per cent to six per cent.
Centrica’s British Gas Trading arm has made the biggest gain as a new entrant, taking 4.2 per cent of the market, equivalent to some 1 million customers. But Datamonitor UK energy consultant Iain Bosbery says: “It is not the most competitive (on price) in various areas. With its large marketing budget and the amount put into advertising, it has traded on the back of the Home Energy brand.”
Eastern Electricity has gained customers without a dual-fuel tariff. Datamonitor says: “It has relied on high-profile marketing activities and a strong brand image to secure new customers and has been extremely successful.”
It has increased market share from 12.5 per cent to 13.1 per cent. ScottishPower – “by no means the most competitive supplier in terms of price” – has increased market share 0.2 per cent to 12.7 per cent.
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