Energy Retailers Now Slammed For Actually Being Competitive
July 15th, 2009
In the unloved world of electricity retailing, it is almost inevitable evidence of serious competition for retail customers would be reported as a waste of customers’ money. What other retail industry is criticised for making sharp offers to attract customers, always on the assumption costs are met somewhere? Perhaps what retail customers disbelieve, after tariff increases of 64% over the last 20 years, is the cut would ever occur on a power company’s bottom line.
However, this may be what’s happening as a plethora of offers from power companies suggests they will contemplate spending as much as $250 to acquire or keep customers, with additional spend available for high value customers, such as those buying both electricity and gas or LPG. This is high by recent standards. First came the predatory attacks on Contact Energy incumbencies in the wake of the company’s ham-fisted combination of hiking both tariffs and directors fees just before the last election, early in the global credit crunch. MightyRiverPower’s Auckland-centric Mercury Energy used that debacle as a lever into Wellington dual energy customers, and into Christchurch electricity, while launching in Contact’s Dunedin stronghold, at prices which would kill Contact’s margins but mean little to Mercury because the customer base is small for a start. While Mercury cracked 20% retail market share for the first time in April, according to Electricity Commission tables, Contact lost close to 10% of its customer base between September and March, and is now spending heavily to regain customers, at 25.1% market share.
Contact believes it has stemmed the outflow, reporting net customer gains in recent weekly reporting, and has at least a couple more months of high visibility spend to go, mainly on-line, in print media, and billboards. There is no TV component to the Contact offering as yet, although its advertising agency, Saatchi & Saatchi would be bound to welcome such a move, having just lost the TVNZ account after a decade.
The industry’s other giant retailer, Genesis (24.6% market share in May), has also been gouged by more competitive offerings from Mercury and Meridian, although Meridian’s start-up Powershop has yet to make significant impact and has just 0.1% market share. There is a flood of offers in the market, many involving straight cash inducements of up to $200, often expressed as a lump sum off the first bill. Contact and others are also using price frozen contracts to attract customers, despite industry experience that customers churn strongly when such contracts end see much higher new prices cut in.
However, retailers appear generally unprepared to act as a source of funding for customers seeking insulation and clean heating solutions, using the highly popular government subsidy scheme. While this area has been ripe for building customer loyalty, billing system limitations and high exposure to uncreditworthy customers have tended to make power companies wary of becoming de facto hire purchase vendors.
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