Electricity customers pay the price of loyalty
New Zealand’s electricity market regulator is investigating whether customers are well-served by the current market practice of offering sweeteners to tempt back those who try to switch to a new provider.
As more retail brands enter the market, pressure is going on customers to look for a better deal. But in most cases, their existing provider comes up with a better offer to get them to stay.
Electric Kiwi chief executive Luke Blincoe said that as a result, customers who did not bother to shop around were left out of pocket.
They were paying hundreds of dollars more each year for their power than was offered to new customers, he said.
Industry data shows Mercury wins back 40 per cent of its customers who try to change to a new provider – often with the promise of a discount or a credit on their power bills. Meridian wins back 27 per cent.
By comparison, telecommunication firms are not allowed to fight for customers who change. An industry code states that the company losing the customer may not contact the customer in an attempt to win them back, or refer them to any other personnel in their company who engage in retail sales activity.
When a power customer changes provider, the switching process is recorded in a registry so that the customer receives uninterrupted power supply and pays the right amount of money to the winning and losing retailers.
A ‘‘save’’ occurs when the customer is stopped before the switching process has been completed. A ‘‘win-back’’ occurs when the losing retailer wins back the customer after the switch has been completed.
In January 2015, the Electricity Authority implemented a measure to provide winning retailers with the option of being protected against saves, the ‘‘save protection scheme’’. It decided not to regulate win-backs.
Retailers losing customers are prohibited from contacting any who switch to a save-protected retailer until after a switch has been completed. Retailers which opt into the scheme are also prohibited from attempting saves, even if the customer is switching to a retailer that is not in the scheme.
This has left most retailers waiting until the switch is completed before trying to win the customer back.
Electricity Authority chief executive Carl Hansen said the authority reviewed the scheme in 2016 and found some issues with it.
‘‘Also, some retailers had been raising concerns about the competition effects of win-backs. As a result, the authority decided to review the whole customer acquisition process – that is, both saves and win-backs – once more.
‘‘The current review is being undertaken by the Market Development Advisory Group, which has an independent chair and its members are consumers and industry participants.’’ Submissions are due by June 29. Blincoe said there should be a new rule that they must wait 45 days.
‘‘It would create a broader-based downward pressure on price … we would get a better outcome for more customers without win-back opportunities. It’s the best price for the most mobile customers.’’
He said those who did not switch were usually less attractive to other companies, such as people on low incomes or who did not use a lot of power.
David Goadby, founder of Energyclubnz, said the power companies’ competition centred on only just under 10 per cent of the market, who were active switchers.
‘‘With the big retailers making increased profits then the only person who is funding the higher deals for the new and leaving customers are the brand’s loyal customers to whom they give nothing. If nearly 10 per cent of customers are being offered fantastic deals including lower pricing and credits, which in the Mercury example ranges from between $200 to $400, then the other 90 per cent of customers have to fund this. This means that loyal households could be having to spend an extra $22 to $44 a year on helping to deliver lower pricing to switching customers.’’
Companies should be willing to offer their best rates to loyal customers, too, he said,
‘‘In my view this market isn’t efficient or fair. In most of the big guys, the Crown owns 51 per cent or 52 per cent. I don’t understand how there can be so much discrimination on pricing even down the same street.’’
Hansen said winning back customers was a normal part of the competitive process.
‘‘Consumers are usually the winners from it. However, we have asked the Market Development Advisory Group to look into these competition processes to assess whether there are any factors causing poor outcomes for consumers.
‘‘Even before we undertook any work on these issues we were aware the telecommunication code restricts telco retailers from undertaking win-backs for fixedline customers. However, they don’t appear to do so for cellphone customers.’’
A Mercury spokeswoman said it was common across the industry.
‘‘Winning back customers is an important way for us to understand and learn from why someone might choose to leave us. It means we can identify and remedy the situation for them – for example, they might have had a customer service experience that doesn’t meet our standards,’’ she said.
‘‘This would never be at the disadvantage of existing customers ... All our customers enjoy competitive rates, but we also look to reward our loyal customers with other benefits. Free Power Days, Airpoints rewards, energy monitoring tools, award-winning customer service, discounts on e-bikes and e-scooters, EV charging discounts and solar packages are all great examples of how we do this.
‘‘We know price is only one factor customers consider when choosing their electricity provider, so it’s important we differentiate ourselves from those who focus only on price.’’