How price comparison websites failed the energy sector

The energy market is in a state of flux with Government and industry striving to reach net zero, whilst supporting consumer ambitions of living more sustainable lifestyles. For these reasons, energy suppliers are having to adapt their business models to achieve emission reduction targets and better serve a more discerning customer base. Suppliers are however being failed by traditional price comparison websites (PCW), historically their primary customer acquisition channel, meaning many are seeking new and innovative ways to engage, acquire and retain customers beyond this traditional channel.

Positioning themselves as the “consumer champion”, PCWs have played a vital role in breaking down early engagement barriers by giving consumers access to a broad view of suppliers in a single place. The relative ease of comparing suppliers and seeing how much one could save has made it the primary customer acquisition source for suppliers with 65% of all annual switches taking place via PCWs. Despite this, only 20% of the market switches suppliers each year, many of whom have previously switched. Consumer engagement in the energy market has been a challenge ever since deregulation with 55% of the market having never switched, leaving us to question whether the PCW model remains well placed to support customers as the market evolves.

By default, PCWs rank supplier tariffs solely based on price with little to no differentiation, creating the perception that cheapest is best. Marketing campaigns center exclusively on projected savings, encouraging customers to switch away from their existing “rip-off” energy supplier. Without the ability to differentiate beyond price, suppliers are forced into a price war, often promoting unsustainable loss-making tariffs to acquire customers. The need to sell at such low prices gave rise to the “tease and squeeze” strategy of acquiring customers on cheap loss-making tariffs with the goal of then making a return on customers that default onto expensive standard variable tariffs (SVT). In this dynamic, engaged customers are forced to switch each year to avoid defaulting onto the SVT. This in turn exacerbates customer dissatisfaction, erodes trust and delivers no value to either customer or supplier. The only party winning is the PCW, allowing them to double down on the “rip-off” “cheapest is best” marketing campaigns and profiting from subsequent switching activity from disgruntled consumers.

Rather than support the businesses that pay them to acquire customers, PCWs actively work against the supplier by churning their customers after the initial term. The wider implications of this dynamic is a market full of undifferentiated, unprofitable energy suppliers battling to stay afloat. As a result many suppliers have entirely abandoned or limited engagement with PCWs in favour of direct marketing and sales activity in an attempt to build sustainable businesses.

As the market evolves, we’re seeing a change in the way energy suppliers differentiate themselves and acquire customers. Many innovative suppliers are looking beyond the supply of energy and shifting to an Energy-as-a-Service (EaaS) business model.

EaaS is where customers pay for an energy service without having to make any upfront monetary commitment. EaaS models usually take the form of a subscription for electrical devices owned by a service company or management of energy usage to deliver the desired energy service. For example, an energy supplier may package up energy supply, solar panels, battery storage, an electric vehicle (EV) chargepoint and EV leasing into one monthly payment. The customer can reduce their carbon footprint, remove any upfront costs and achieve greater savings over a longer period of time. The energy supplier increases customer lifetime value by increasing margin and retention via a differentiated high value proposition.

In the early stages of EaaS adoption, energy suppliers will target their established customer bases as a means of growing their EaaS businesses. However as demand and competition increases there will be a need to broaden marketing activity and look beyond existing customers. Given the government’s ambitions to ban the sale of new petrol and diesel cars by 2030, and ban gas boilers in new builds by 2025, it is clear the opportunity to move beyond low margin domestic energy supply is an attractive one.

The low-value, high-churn, price-led business models offered by PCWs are not fit to support this evolution. When promoting the value of switching, more needs to be done to promote the net zero goal and move away from the bargain basement “cheap is best” messaging that has dominated the industry for too long. There is an opportunity for innovative Third Party Intermediaries to tackle the consumer engagement problem and promote a sustainable value-led narrative that will work for suppliers, customers and help realise the UK’s net zero ambition.

Youtility is committed to building a more sustainable marketplace delivering long term value to the end customer, as such we are working with bank and fintech clients, energy suppliers and consumer advocacy groups to break down engagement barriers and deliver a solution that works for all.