‘Labour energy freeze would severely hamper brands’ ability to win new customers’
Labour’s proposals to freeze energy prices could hamper suppliers’ ability to win customers in a non-price competitive market and force them into “doubling down” on loyalty-focused marketing initiatives to protect their existing customer base, industry experts have warned.
Labour leader Ed Miliband revealed plans to freeze gas and electricity prices for two years yesterday (25 September) if he wins the 2015 election. He argued the price-led model, which is being reformed by Ofgem, is “not working” and said energy firms were “part of the problem” affecting rising living costs unless they back the policy.
The announcement has sparked some of the country’s biggest energy providers into launching tactical campaigns to promote their fixed price tarrifs. Npower is running an online advert with the strapline: “Why wait for Ed? Fix your energy prices until March 2017”, while Scottish Power changed the terms in response to Miliband’s pledge (26 September) so prices for new customers are fixed until next year.
The Big Six energy firms have been pursuing more brand-led marketing strategies over the last two years in response to calls for more transparency from the sector, but observers say Miliband’s plan could hamper the wider industry’s ability to win new customers.
Rhys Kealley, lead analyst at Datamonitor Energy and Utilities, says utilities firms would adopt “an extreme risk averse hedging strategy” that would see them focus on customer “maintenance” rather than “acquisition” to prevent losses. It would also signal the death of smaller players entering the market, he adds.
Kealley says: “For suppliers, [the proposals] would mean they would have to right size their customer base ahead of them coming into affect by pushing up prices to absorb costs and acquiring new customers. Once it happens, however, you’ll see companies a lot more concerned with trying not to lose any customers because its’ difficult to win them back in a market where there is low churn.
“This is really the end of smaller players in the market because they won’t have the ability to use price to win new customers.
Ann Robinson, director of consumer policy at uSwitch.com, says: “It’s easy for politicians to make throwaway pledges, but the devil is always in the detail and while a price freeze sounds attractive it could simply force suppliers to push their prices up ahead of the freeze, which could hurt consumers more.
Consumers can use the competitive market to give themselves a price freeze – there are some good value fixed price energy tariffs that will freeze your energy price for around three years – rather than wait for the politicians consumers should protect themselves now.”
Miliband also revealed plans to scrap regulator Ofgem and replace it with “a watchdog with more teeth”. The watchdog is pursuing plans to impose tougher transparency measures around energy bills, although MPs have said it must adopt a more proactive approach to ensure homeowners get a fair deal.
Energy firms have hit back at Labour’s proposals claiming a potential freeze could risk blackouts and stunt overseas investment. Labour, however, insists the energy sector could absorb the projected £4.5bn costs of a freeze citing figures showing billpayers had paid an extra £3.9bn since 2010.
In a statement E.ON, one of the country’s big six energy firms, says: “We already provide our customers who want certainty around prices the ability to fix for up to 24 months in advance. Any of our customers can switch onto a fixed product, and millions already have, right now.
“To get an accurate picture you need to look across a whole year but so far this year we’ve seen the costs we control fall whilst at the same time those we don’t, which include network charges and the cost of government schemes, go up. We’ll always do everything we can to help our customers and most critically that means helping them to use no more than they need. Our efforts to help people go on every day.”
The comments were supported by the country’s other leading companies who pointed to the marketing initiatives rolled out over the last 12 months to highlight they are doing all they can to keep prices affordable.
Plans to ensure all households are on the cheapest gas and electricity tariffs available were met with similar reluctance from the energy sector when they were announced last year. Industry analysts said at the time, the switch could dampen engagement with brands because of a lack of differentiation.