British Gas price hike sparks power struggle

Market leader British Gas’s position is under attack as rivals turn its announcement of record price rises into an opportunity for poaching its disgruntled customers.

The British Gas brand promise of “Doing the Right Thing” must be ringing hollow for its 15 million customers who are bracing themselves for steep gas and electricity bill rises, just as freezing winter approaches.

While the utility giant protests that it is being pressured by higher wholesale fuel prices, it is being accused of betraying millions of households with its inflation-busting increases. Consequently its rivals are preparing a marketing onslaught in an attempt to lure customers from the energy company.

The five major rivals to British Gas all admit that there could be no greater opportunity to ramp up marketing than at a time when British Gas has made itself one of the UK’s most expensive energy retailers.

A spokesman for RWE npower says: “There are only six major energy suppliers and all are fighting for a significant share in a market that was historically a monopoly for British Gas. Since the market was deregulated in 1996, British Gas has faced tough competition, so it shouldn’t come as a surprise that its rivals will step up their attempts to lure its customers away.”

EdF Energy, which owns London Electricity, and Eon-owned Powergen are also set to unveil “interesting propositions” in an attempt to poach British Gas customers. A Powergen spokesman says that inquiries to its call centres almost doubled in volume after the British Gas announcement.

In response to the price hike, EdF has already started rolling out a price promise. This guarantees domestic customers who sign up now cheaper regional prices than those offered by British Gas for a typical dual-fuel customer from September 13 to January 31, 2006. An EdF spokesman adds: “At the end of that period, if we are not cheaper than British Gas for a typical dual-fuel customer, participating customers’ accounts will be credited with double the difference plus 1,000 extra Nectar loyalty reward card points.”

Consumers across the country are also being urged to ditch the nation’s biggest utility provider by industry watchdog Energywatch and the regulator Ofgem, which is urging British Gas’s 12 million gas customers and 6.2 million electricity customers to shop around for cheaper alternatives.

With a 12.4 per cent increase in the residential price of gas and a 9.4 per cent increase for electricity, City analysts are predicting that British Gas is likely to lose more than 1 million customers to its rivals. The new prices will take effect from September 20.

But British Gas warns that the era of cheap energy is over and its price escalation reflects the rise in average wholesale prices. Wholesale prices for gas have gone up 28 per cent compared to last year, with a further rise of 25 per cent planned for 2005. Likewise, the average wholesale prices for electricity in 2004 have gone up by 22 per cent, with a further 28 per cent expected in 2005.

It is not only British Gas that has been hit by these wholesale prices: rivals have already hiked gas and electricity charges this year. All energy retailers are indicating that further rises are in store for all consumers and say they understand the reasons for British Gas’s latest move.

An EdF spokesman explains that the increases are not only related to wholesale prices but other factors, such as more investment in the “old” electricity networks built in the Sixties, and new environmental legislation that limits the amount of carbon-dioxide emissions. “Both these factors are putting pressure on all retailers to pass on the costs to consumers.”

British Gas head of marketing communications Charlie Herbert says the company has stuck its neck out by taking the lead in announcing price rises. “We like to be honest with our customers, which is why we have increased the prices in one full sweep, unlike our rivals, which might now try to target our customers and introduce new prices later,” he says.

But British Gas has far from conceded defeat. It will soon be sending a 16-page booklet to all its customers explaining the reasons behind its second price rise this year (effectively raising prices by up to 20 per cent in aggregate). Herbert also says that the company also plans to “invest heavily” in advertising the brand and its “emotional value.”

Details have yet to be unveiled, but he adds that the new retention campaign will build on British Gas’s brand values, such as trust. “We will also be launching new pricing packages for our customers to try to help them through this difficult time,” he says.

However, what is baffling the industry is the reason for the exorbitant rises in wholesale gas and coal prices, which are being passed on to consumers. Regulator Ofgem initiated an enquiry into the matter in November last year, but the results are not yet available.

With all energy companies almost certain to squeeze in another price rise of their own before the year is out, especially now that the market leader has given them leave to do so, customers may need more than strong marketing to ensure brand loyalty.

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