Is your operation ready for increased customer switching?

While we are still well above ‘normal', energy wholesale prices have fallen significantly since the peak of the energy crisis. If it wasn’t for the Energy Price Guarantee capping a typical bill at £2,500 per year, the Price Cap would have reached £4,268 in January 2023; it fell to £2,074 from July 2023.

We believe suppliers have, since around April, been in a position where they could technically offer fixed price tariffs below the price cap, and kick off a competitive market once again. However, this has been deliberately stifled by the Market Stabilisation Charge (MSC) and the Ban on Acquisition-only tariffs (BAT) to mitigate the risk of further market disruption, as a sudden wave of customer losses could have caused prudent and well-hedged suppliers to face catastrophic losses.

Our view is that many suppliers will be buying for Q423 on the assumption that market switching will increase. This means they assume fewer customers on standard variable tariffs, and will have more flexibility to offer competitive fixed price tariffs, without causing themselves material losses on their existing customer base. We project that we could see a material increase from the announcement of the October price cap onwards.

Before the energy crisis, the most competitive prices on the market were loss-making for that supplier in the first year, on the belief that they could retain the customers in the following years. We don’t expect a return to this level of unsustainable pricing, but we do expect to see much more competitive offers from suppliers outperforming the rest of the pack on costs, and from those more willing to take a hit on their first year margin to grow, or protect, market share. Regardless of which suppliers are ready, the likelihood is that market switching volumes will increase significantly over the next six months.

To some degree, this shift has already started. In June, customer switching levels were up 97% on the same time last year, and while this activity still falls far short of pre-crisis levels, it represents a huge step towards normality.

Back in March, we reported that the early signs of this trend were starting to appear, highlighting the importance of retaining and attracting customers. Our latest blog looks at the same evolved trend from an operational perspective, offering guidance to help suppliers prepare for a surge in switching activity.

Making the switch – How will suppliers be affected?

As the market continues to normalise, change of supply processes will need to scale back up - most of which haven’t been operating at volume for a considerable time. If you’re a supplier whose reduced the size of its change of supply team, and reallocated resources, it’s time to start thinking about ramp up plans.

After a lengthy period of downtime, training and upskilling may be needed. Over this same period, many suppliers have completed migrations to new systems, creating extra challenges around ramp up and speed to competency.

Despite the lack of market activity, the industry has not stood still. Faster switching went live last year, and has therefore not yet been tested at scale in the market. GSOP also needs to be considered, with a £30 fine paid if you’re late processing the change and issuing the final bill.

Getting these processes right is therefore vital. The gain process is often the first real impression a customer gets of a supplier. Getting it wrong can leave a bad taste in the mouth, with the customer maybe even regretting their decision to switch.

Even if the customer is not impacted immediately, errors created at gain can cause problems further down the line – wrong meter, wrong read, wrong tariff. This means bill amendments and inaccurate direct debits, with knock-on effects for debt, customer contact, and inevitably complaints.

At the opposite end of the customer lifecycle is the loss process. If you’re losing customers, you need to be confident on getting your final bills out quickly, if you want to maximise your chance of collecting any residual final debt.

Making sure you’re ready

With increased switching on the horizon, suppliers need to adopt a significant focus on their readiness plans and business controls for these areas. Planning for performance issues is sensible, as problems with a currently negligible impact will grow in magnitude, as volume increases.

It’s important to remember that, unlike in a migration, even if your own internal process and resources are ready for the demand increase, your competitors and third parties might not be. You need to be able to spot these issues early, so you can take action and resolve them quickly.

There are several key tasks that suppliers can be doing right now, to make sure they’re ready for increased demand.

• Plan your volumes and forecast your expected resource requirements. Being able to calculate your expected demand will give you a base to size whether you have a challenge on skills or capacity.
• Review and refresh your control frameworks. Have the right KPIs in place to measure the throughput, quality, and impact of your outcomes for customers. Having the right metrics, alarms, and escalations in place is critical for spotting emerging risks before they can become difficult performance issues. The longer an issue persists, the greater the customer impact when you put it right.
• Reduce the manual effort. Much of the manual fallout from a change of supply can be automated, even some of the more complex reactive process can be fulfilled via RPA, if the logic and workflow is designed with that in mind. Being able to flex technical solutions to meet demand spikes can be an effective way of achieving throughput.

More fundamentally, the core principles of Operational Excellence will apply when handling increased demand. This means having the right people with the right skills in place, and leading them in the right way. The same is true for your processes too – get the right controls in place now, and make sure they’re executed efficiently.

At BFY, we’re vastly experienced in helping clients to improve their back-office processes, as well as optimising workflow, and developing effective control frameworks.

If you’re interested in how we can help in this area, or you’d like support with another operational or service challenge, contact Jon Vincent. For more information on energy market insights and commercial strategy, contact Matt Turner.