Rising Prices: Trick or Treat?

With Halloween upon us, this week we take another look at the spectre of rising wholesale energy costs and how this could change the landscape of competition and consumer engagement. In our last blog post, we explored the effects of rising wholesale costs on hedging strategies. This time, we’re taking a look at how these rising prices are affecting the marketplace and the customer’s incentive to switch.

Up until recently prices were at historic lows, and this created a fertile ground for independent suppliers to rise-up and offer competitive, market leading tariffs that their bigger rivals were unable to match.

With prices now back on the increase, however, those looking to compete at the top of the Price Comparison Websites will undoubtedly find themselves wrestling with ghostly thin margins, and for some, operating a loss-leader strategy.

For big and small suppliers alike, remaining price competitive is becoming increasingly challenging.

A report from Bernstein published today has backed this up, highlighting that the price difference between the Big 6 SVT’s and the Independents 12mth fixed offers has halved since May of this year (from 24% to 12%), which represents the smallest price gap in two years.

The report also draws a link between the shrinking price differential and customer switching, which has fallen from 27% to 19%.

Should these trends continue, the report argue, the gap in prices could narrow further and it follows that customer switching will decrease with it.

Rising prices, less customer switching… are new entrants and existing independents in for a fright?

Whilst the prospect of rising prices looks to be a foreboding omen for suppliers, consumers see things differently.

Looking back to the CMA’s findings earlier this year – with 70% of customers on an SVT of the big 6, and all 70% of those able to save £330 just by switching – it’s clear that the price of energy isn’t the only motivating factor for switching.

What the CMA did find was that the industry lacked consumer engagement. This is the key for all suppliers to remember, and is the real challenge that the industry faces.

So, if you think you’ve got a compelling and unique proposition and want to disrupt the market, get in touch today to see how we could help you.