Is knowledge power?

Just when consumers thought it was safe to relax in front of the fire and forget about suppliers, npower and British Gas are squabbling over prices again, creating new confusion over tariffs – the the ultimate benefit of the companies, says David Benady.

As calls grow for an inquiry into sky-high residential energy charges, utility giant npower has gone on the offensive this week with a press campaign attacking British Gas for raising prices on its Click Energy online plan (MW last week).

The campaign has drawn a withering response from British Gas, which accused npower of seeking to divert attention from the much steeper price rises on its own Gas Guardian tariff. In reality, these price hikes result from the end of a price freeze for both tariffs, but npower is trying to turn this into another price fighting battle with the market leader.

This latest skirmish between energy suppliers comes after a decade in which gas and electricity wholesale supply prices have soared and pushed domestic bills through the roof. But as wholesale prices are now falling, many believe the energy companies are dragging their feet in lowering domestic prices accordingly. Conservative leader David Cameron has this week demanded a competition inquiry into the domestic energy market “to make sure people are getting a fair deal.”

Since the energy market was liberalised in the late 1990s, a Byzantine array of prices, payment plans, discounts and value claims has developed. There are more than 3,000 different energy tariffs on offer in the UK, making it difficult for consumers to work out which is the most appropriate plan for them.

Those with internet access can use one of the many price comparison websites sites such as uSwitch and Simplyswitch as an easy way around the confusion.

In a few minutes, the sites provide information on the cheapest tariffs for each user and give information on the strength of customer service. They make their money by receiving commissions for every customer that switches to a company using their service. This has led to accusations that they favour those companies paying the highest commissions, though they deny this, and point to accreditation from bodies such as Energywatch, the official energy users’ watchdog.

Right switch?
The sites offer to find the best deals on energy, financial services and telecoms products and their popularity has grown in recent years. Yet it is thought they are only used by a minority and they refuse to give figures on how many consumers switch through themOne thing is certain – working out the best value prices across a range of products is going to get ever more confusing.

Banks, telecoms companies and other brand owners regularly baffle consumers with complex prices, which cloud market transparency and induce a sense of inertia. The bundling together of services in telecoms is a case in point. So-called “free” broadband offers and the tripleand four-play packages of broadcasters and telecoms giants is making comparison by price almost impossible. Attempts to add value to offers with loyalty points is another fly in the ointment for consumers.

Whether these strategies are a deliberate attempt to obfuscate or simply a logical consequence of hyper-competition is hard to fathom.

According to Ben Wooltorton, marketing director of Simplyswitch.com, there is an element of deliberate confusion pricing in many markets. He says: “The companies walk a tightrope between drawing direct comparisons when looking to attract new customers, but when they are looking to retain customers they blur the distinctions so it is difficult to draw comparisons.”

Wooltorton is convinced the price comparison sites will eventually make confusion pricing a thing of the past, but adds: “In recent months, the big suppliers have got good at creating a sense of inevitability about price rises, and that it is not worth changing.” He envisages confusion spreading through many sectors as competition heats up and companies introduce increasingly segmented offers.

Dousing the truth
Little could sum up the mind-numbing complexity of the liberalised energy market better than npower’s press campaign. It attacks British Gas’ price rises but fails to mention that the prices on its own Gas Guardian tariff are about to rise by 40%. All this comes at a time when regulator Ofgem has threatened to take action against companies that do not pass the savings on to consumers.

A British Gas spokesman says in response to the npower ads: “We find it extraordinary of npower to attack us over rising prices when we are the only supplier to have publicly committed to cut prices in the spring.”

He adds that it is “equally extraordinary” that npower is pointing to 29,000 British Gas customers coming off the Click Energy price freeze and getting a 12% price rise, when several hundred thousand Gas Guardian customers will see prices rise 40% with the end of its introductory price freeze.

Npower head of customer marketing Kevin Peake says the campaign highlights the fact that British Gas has vowed to cut its prices this year to stem its loss of customers, yet here it is raising them. “The difference is that we are lower than British Gas already and it has to cut its prices to stem the losses. We are putting up the price of Gas Guardian because it is coming to the end of a fixed-rate period.”

However, the British Gas spokesman adds: “It is also worth pointing out that our average Click Energy customer is still paying much less than most of the npower customers who roll off the Gas Guardian on to its standard tariff.” Peake claims it is a price difference of a mere £1. “Like for like, our average is £628 versus £705 for British Gas,” he says.

Such claims and counter-claims are likely to lull most people into a deep torpor in front of their gas fires. Gas and electricity are areas of little interest, though people have really started taking notice since the recent steep price rises – gas bills have risen by 71% and electricity bills by 45% since 2003, according to Ofgem. Energy liberalisation has forced consumers, however reluctantly, to spend their time checking up on their providers to make sure they are getting the best deal and not paying over the odds. They are being led into playing the slippery, competitive games of energy companies. A real massacre of the innocents.

As a spokesman for Ofgem – the energy regulator, which is a keen exponent of free market ideology – says: “Suppliers are trying lots of different ways to win people’s business and that has got to be a good thing.” Alongside the power companies’ huge media budgets, there are some 6,000 door-to-door energy sales people walking the streets of the UK. But the competing claims of rival companies are likely to drive many energy users to distraction.

Meanwhile, uSwitch.com marketing director Barry Holloway believes companies are looking to move the focus away from price and towards customer service. This is a balance that consumers must be aware of – if something is cheap the service is often inferior. He points to credit cards: “The battle is played out by focusing on headline rates and pricing and there’s a deterioration in customer service,” he says. He gives the example of so-called “free” broadband from Carphone Warehouse and the attendant customer service problems its customers faced.

Straight down the priceline
If a market is suffering from confusion pricing, a new or existing entrant can revolutionise the situation by introducing simple price structures. Virgin purported to do this in mobile phones and financial services. Abbey claimed it had “turned banking on its head” with its 2003 campaign to simplify charges and jargon. But it proved to be shortlived.

Such attempts at market glasnost are few and far between. Consumer choice is largely illusory in markets such as utilities and financial services where there are a variety of players offering largely indistinguishable products. It may take a competition inquiry into domestic energy charges before utility companies simplify their charges and introduce tariffs which are easy to compare.

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