Almost all domestic energy customers are aware they can switch tariff and depending on a customers tariff choice and circumstances, they could save over £300 by switching tariff. Despite this just over 50% of customers are on expensive default energy tariffs. This is not because most of these customers are trying to change tariff and failing, they simply are not engaging in the first place- these customers are disengaged from their energy tariff choices.
We have been concerned about customer disengagement for many years. We carry out surveys with customers every year to understand why they don’t switch tariff, we monitor trends, and we regularly do in depth qualitative research with disengaged customers. Previous engagement remedies haven’t always produce the outcomes we were looking for.
In 2016, the Competition and Markets Authority completed the Energy Market Investigation. They recommended Ofgem should take forward a number of activities to address low levels of consumer engagement, these included:
- Establish an ongoing programme of research and trials to find new effective ways to help prompt engagement.
- Develop a database for affected customers and services to support them.
Since January 2017, when Ofgem put in place new powers (SLC 32A) to test consumer engagement measures, we have run 10 trials. The aims of these were to encourage consumer engagement, promote competition and innovation in the retail energy market.
A number of the trials linked directly to the database remedy - the Small Scale Trial, Check Your Energy Deal, and the opt-in Collective Switch. It was important to determine which services were most effective before building and launching the database.
The 10 trials we ran included over 1.1 million energy customers, and resulted in over 94,000 of them switching to new energy tariffs, with most of them making an active choice about their energy tariff for the first time in years. In total, these customers have saved around £21.3 million between them.
We have published a paper summarising the trials, their effectiveness and the insight we have gained.
Go to cross trial summary paper.
Ofgem's consumer trials
Better Offer Trials
In January 2017 we tested the first database related service. We carried out a small trial where energy suppliers contacted customers with better tariff offers by post, with encouraging results. We wanted to explore the better offer concept more and across different platforms. This led to the development of the Cheaper Market Offer Letter and to test the digital service – Check Your Energy Deal (see below).
Go to small-scale trial results.
Cheaper Market Offer Letter (CMOL)
Ofgem’s first large-scale trial, with around 150,000 customers from two energy suppliers, tested the effect of a Cheaper Market Offer Letter on encouraging engagement. We trialled this with dual fuel customers on a default energy tariff for over one year. The trial was carried out between June and August 2017 and had a positive result – showing an increase in switching.
Go to CMOL results.
Cheaper Market Offer Communication (CMOC)
Building on the earlier Cheaper Market Offer Letter trial, this included a much larger and more representative group of customers. It also tested the effectiveness of different variations of the communication. Working with five energy suppliers, approx. 600,000 customers were selected to take part. The trial ended in autumn 2018.
Collective switch trials
For more details and the full results of the Collective Switch trials go to Collective Switch trials report and go to qualitative research for the second Collective Switch.
The first Collective Switch trial
In spring 2018, we ran our first Collective Switch trial. Approximately 50,000 customers on a default energy tariff received letters showing personalised savings if they switched from their current deal to an exclusive tariff. We saw a huge impact, with more than one in five changing their energy deal.
The second Collective Switch trial
Following the results of the first Collective Switch trial, we designed a package of further trials. The second trial tested the replicability of the first Collective Switch trial at a larger scale and the impact of an exclusive tariffs versus a tariff available across the market. Across all the trial arms, 105,000 customers participated and was run in autumn/winter 2018. Again, we saw a significant impact, with switching in the collective switch arm seven times that seen in the control group.
The third Collective Switch trial
Building on the previous trials, the third Collective Switch trial was designed to be identical to the second trial, but to take place after the introduction of the default tariff price cap. This was our most impactful trial to date in term of switching rates, with 29% of participants in the collective switch arm switching, compared to 4.5% in the control group. This had 105,000 customers in the trial and was conducted in spring 2019.
This trial tested whether customers who participated in the first trial but didn't switch could be prompted again by being sent another Collective Switch offer six months later. This trial was at a smaller scale, with 2,570 customers being re-contacted. 14% of customers chose to switch, compared to 2% in the control group, showing that customers do respond to repeated prompts. This trial was completed in autumn/ winter 2018.
Small and medium supplier trial
This trial tested whether the brand of the supplier offering the exclusive, collective switch tariff impacted on customer behaviour. In this trial, 1,375 customers received a collective switch intervention with the exclusive tariff from a lesser known supplier. The impact was substantial, with 19% switching in the collective switch arm compared to 4% in the control group, however this is a lower impact than we have seen in collective switch trials offering tariffs with better known suppliers. This trial was completed in autumn/ winter 2018.
Other engagement interventions
Check Your Energy Deal (CYED)
Testing the effectiveness of a digital service, where tariff information and energy consumption were pre-entered for customers, we ran this trial from September to November 2017. The trial wasn’t open to everyone – around 10,000 customers with a single supplier, who worked with us to deliver this trial. We carried out this trial in Northampton.
Go to CYED results.
End of Fixed Term Communication (EFTC)
When customers come to the end of their fixed energy tariff, they move onto a default tariff and typically pay more for their energy. Working with one large energy supplier, we trialled a communication designed to encourage more customers to re-fix at the end of their fixed tariff. We tested this with around 20,000 customers on the day their fixed tariff ended.
Go to EFTC results.
Ofgem disengaged customer database
To help consumers on more expensive standard energy tariffs, the CMA recommended that we:
- Develop and operate a secure database of information of consumers who have been on a poor value default tariff with the same supplier for three years or more. The database will contain, for example, information about these consumers’ energy tariffs and annual energy use. This is needed to calculate cheaper tariff offers.
- Test how the service(s) work so we can address any potential running problems and ensure customer data is secure.
- Monitor the impact of the service(s) on improving engagement in the market.
In addition, the CMA recommended that we work to identify, test and implement measures to give consumers information that will further encourage engagement in the market.
We didn’t want to launch a service to millions of customers without having tested it first. So we trialled different approaches to test what is most effective, alongside our trials on engaging customers and helping them to switch.
Based on this we developed and tested the Small Scale Trial, Check Your Energy Deal, and the opt-in Collective Switch, information on these trials can be found above.
In Spring 2019, we notified stakeholders that we were pausing work on the database, to review the programme, testing whether it was on the right track to deliver the best outcomes for disengaged consumers in the most appropriate way.
In September 2019 we completed the review, and we consider there may be more effective ways of enabling the necessary data to be shared; aligning with our open data and data mobility initiatives. As a result, we have decided not to build a database of disengaged consumers at this time.
Furthermore, the database was one of a number of remedies aimed at addressing the detriment incurred by disengaged consumers on poor value default tariffs. In January 2019, Ofgem implemented the default tariff cap, the provides protection to all customers on default tariffs and has removed around £1bn of consumer detriment.
We consider our focus should be on determining how best to ensure that the retail energy market works more effectively when the current price cap is lifted – as it must be no later than 2023. This includes developing measures to promote competition and enable innovation, while ensuring consumers remain engaged and protected in this more complex world.