Facing flameout?

It could be a cold and lonely winter for the UK’s largest gas supplier British Gas, which faces the prospect of being frozen out by customers and rivals following its decision to hike gas prices for the second time in ten months.

Consumer watchdog the Consumers’ Association last week lambasted British Gas and launched a campaign to encourage British Gas’s 13.5 million gas customers – 67 per cent of the gas market – to switch to a cheaper supplier. Energywatch, the independent consumer organisation set up by the Government in 2001, has also called for consumers to boycott British Gas.

Npower, the second-largest supplier in the UK with 1.7 million gas customers, has in contrast frozen its prices for the winter period and is planning a major TV radio and press advertising campaign, created by TBWA, to tell consumers about the price issue.

It is not alone. TXU Energi and Seeboard have also decided to put British Gas out in the cold by freezing their prices for the winter period. Hot for action, Seeboard has already started a press and radio advertising campaign which uses the line “Winter. The perfect time for a price freeze”.

The price isn’t right

In December, British Gas announced it was raising the price of gas by 5.3 per cent in 2002. This followed a price increase the previous April, whereby British Gas domestic gas customers faced bill increases of an average of 4.7 per cent.

But British Gas is not the only gas provider to hike prices. Its move has been mirrored by Electricité de France-owned London Electricity (LE) and E.ON’s Powergen. The increase, claim these companies, has been triggered by “a significant” escalation in wholesale gas costs over the past two years.

According to energy regulator Ofgem, wholesale gas prices doubled between 1999 and 2000, and most companies absorbed these costs instead of passing them on to customers.

But npower director of residential energy Nigel Richardson says: “None of the players in the utility industry are immune to wholesale prices going up, but we think that it is highly inappropriate to jack up customer prices during the winter period.”

He adds: “This is an ideal opportunity for us to be much more customer friendly and demonstrate how we can look after our customers.”

Npower recently had its knuckles rapped by Ofgem – the second time in a year – for receiving an “unacceptably” high number of customer complaints about its sales practices (MW October 11, 2001). By not taking the same route as British Gas, npower has an excellent opportunity finally to turn around its “bad guy” image. As one City analyst puts it: “This will a good time for npower to attract more customers.”

But Richardson insists that npower’s focus will be on retaining customers rather than recruiting new ones. “The price freeze is one of the first steps in our customer relationship management (CRM) development,” he says.

Flammable situation

A TXU spokesman says his company does not feel it is right to seek to recover revenues by putting up price for customers during winter, when heating costs are high. He adds: “This should be a real comfort to our customers, who know that we are competitive on price and have guaranteed to be cheaper for gas than British Gas until 2003.”

But a British Gas spokeswoman says: “The price hike was unavoidable because of the continuing pressure of high [wholesale] gas costs, and British Gas has already absorbed a significant amount of the gas price increases.”

She denies that British Gas’s dominant position in the market makes it easier for it to put up its prices. “Yes we are the largest supplier of gas in the UK, but we cannot afford to be complacent about our market position because consumers now have a choice.”

She adds that the CA’s boycott campaign has been over-hyped by the media, and claims that, even with the price increase, the average annual gas bill for British Gas customers is cheaper than it was five years ago. According to British Gas, in January 1997 the average bill for its gas customers was &£343; in January 2002 it will be &£331.

The spokeswoman adds: “British Gas has hiked its gas price by ten per cent, but Powergen has hiked its by 15 per cent since last year.”

Powergen, which has 900,000 gas customers, believes it is still one of the cheapest players in the market. Marketing director John Evans says: “Putting up prices is a very serious thing to do and we have thought long and hard about it. We are cheap

er than LE and even after the new increased prices, we are still cheaper than npower, which hasn’t increased its gas prices.”

In fact all utility companies seem busy lambasting their rivals on the price increase issue. Npower’s Richardson expresses surprise at being labelled more expensive than Powergen and adds: “Npower is looking at introducing special tariffs which will further freeze the gas prices for over a year. This shows how serious we are about our campaign to be seen as a customer-focused company.”

Datamonitor energy research manager Iain Bosbery says: “The war between utility companies has moved on from marketing to PR,” adding that last year was all about building a critical mass and that this year companies will compete to build a “bigger-better” brand identity.

LE and its sister company SWEB have written to all their 200,000 gas customers to announce the price hike and also to point out that its 5.2 per cent increase is still lower than British Gas’s latest price rise. It also claims its prices “are still 14 per cent cheaper than British Gas for the average customer.”

But Energywatch questions the validity of price rises for gas customers. Wholesale gas prices, it says, have fallen by a third since their peak in December 2000, and Ofgem adds that following the 1999 to 2000 period, wholesale gas prices have remained relatively constant.

The energy consumer watchdog has yet to make a formal complaint to Ofgem, but is considering its options. It is understood that it may even take the matter up with the Office of Fair Trading. But a spokesman for Ofgem says: “It is within the rights of British Gas, or any other company, to put up its prices. It is a competitive market.”

Consumers are notoriously reluctant to stir themselves when it comes to changing long-term relationships with service providers such as banks and utility companies, but if the CA’s campaign gathers pace and customers do switch to suppliers which have frozen their prices, British Gas may have to contemplate an embarrassing U-turn – or sit it out and hope for a thaw in consumer attitudes.

Smoke-out or just hot air?

The Consumers’ Association’s move last week, encouraging British Gas customers to seek cheaper prices from rival suppliers, is the latest in a long line of CA campaigns aimed at showing consumers the power they can wield.

But are consumers listening? CA campaigns provide attractive – and free – editorial copy for tight-fisted newspaper owners, and make morning coffee cups tremble with indignation at the injustices heaped on consumers by powerful economic interests. But few CA campaigns have scored a direct hit, though consumers may get the impression that their interests are being protected by the organisation. Many of the campaigns’ aims are so long term that it will be years before their success or otherwise can be determined.

CA’s campaign against high UK car prices – launched in 1998 – aimed in part to show consumers that they could buy cars up to 30 per cent cheaper overseas. CA set up the Carbusters website in April 2000 to source cheaper cars from Europe for UK buyers. Within months, it had sold off the site to Bizzbuild, valuing it at &£1.3m. Not long afterwards, Carbusters was forced into administration, leaving a string of buyers anxiously waiting for their cars to arrive. Its business has now been taken on by rival Oneswoop.com.

CA claims car prices have fallen ten per cent since its campaign began, though Oneswoop chief executive Andy Carroll says that is true of “list prices” but in reality, taking into account the discounts buyers would have got anyway, UK car prices have fallen only slightly – by between three and five per cent – over the past two years. But CA insists the real measure of success of its campaign will be whether the EU replaces the “block exemption” – which allows car makers to decide how their products are distributed and at what price – with rules allowing retailers, banks and others to sell cars. This is expected early in the summer.

Another of CA’s high profile campaigns has been its effort to bring down the prices of branded goods. But Levi-Strauss’ European Court of Justice victory last November (MW November 22, 2001) spiked efforts by Tesco to sell discounted Levi’s jeans, sourced from outside the EU, in its stores. This has put a damper on hopes that branded goods prices will tumble under competitive pressure. CA says its aim is to encourage reform of the Trademark Directive, but it concedes that this could take years. It claimed a “major success” last April when the Government signalled its willingness to support the campaign.

Other CA campaigns include a High Court challenge to life insurance company Axa to stop it “unfairly” distributing &£1.7bn of “orphan assets” held in its life insurance fund. The High Court ruled in favour of Axa. A campaign for an inquiry into alleged mis-selling of endowment mortgages was ruled out by the Financial Services Authority. One case where CA did have success, though, was in forcing estate agent FPDSavills to change the small print in home sales contracts to remove potentially unfair terms.

CA argues that one of its main aims is to campaign on behalf of consumers and it has a campaign budget of &£5m, from total expenditure of about &£50m a year. But there is debate about the extent of material gains which consumers have made from all this huffing and puffing. If they take up CA’s challenge to find cheaper alternatives to British Gas’s rapidly increasing prices, this will provide much-needed evidence that consumers are indeed listening to the organisation that acts in their name.