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Is the rate of energy switching really lower than in 2003?

Could energy switching be lower than 10 years ago?

It’s hard to believe given the prevalence of energy issues on newspapers’ front-pages but according to collective switching group “The Big Deal” that’s the case.

Henry de Zoete, co-founder of the Big Deal said:

“Energy UK and the Big 6 claim that the market is working because more and more people are switching. The truth is the opposite.”

A spokesperson from Energy UK countered:

“More small and medium sized suppliers are competing than ever before.

“Their share of the market is growing as customers take advantage of the choices on offer.

“What’s more, the final quarter of 2013 saw the highest level of switching of any quarter in the last ten years with more people than ever hunting for a deal to suit them.”

So who’s telling the truth?

Well both are actually.

There are more energy suppliers, and they are growing, but from a very small base and in very small increments in comparison to the continued domination of the Big 6.

There was a boost in switching in Q4 2013 as there always is when domestic price rises hit.

And there have been significantly less switches in 2013 (5.88m) compared to 7.2m in 2003.

So if both a right, what’s the message?

One element of the domestic energy switching market that is often forgotten is switching fatigue.

Whilst the players in the market tend to move their prices together (mostly upwards) there is naturally less variability between suppliers (a common complaint).

A side effect of this is an apathy that questions the point of switching if all suppliers are equally expensive.

Though this is not always technically the case it is the perception that is borne out in reality on the second or third switch.

Quite simply the cost savings diminish the more one switches. Indeed the domestic energy switching market itself has recognised this fact and this has led them to develop new offerings of fixed price periods selling security over absolute price saving.

But the loss of headline catching savings breeds ennui within domestic switching, hence the drop in activity.

Happily business energy doesn’t work the same way. Prices are bespoke, are directly linked to the wholesale energy market and are the subject of very different supplier commercial strategies.
All of which leads to frequent pricing and contracting opportunity in an outwardly volatile market. Even when the market inexorably rises there is always a strong deal to be struck.

Bizarrely some organisations such as the Federation of Small Business have called for the business market to follow the domestic model and reduce the choice and variance between suppliers. Quite how that tackles the issue of encouraging switching and saving businesses money is unclear.

For now though domestic customers’ loss is business’ gain. That’s the real big deal.

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