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Ofgem/BMG Engagement: Part II Brokers

ofgem straplineIn August 2014 Ofgem appointed BMG to conduct research on ‘Micro and Small Business Engagement in Energy Markets’.

Its conclusions have now been published

Although the sample was relatively small at 1,502 and was not randomised but focussed on those who “were most likely to be affected by reforms resulting from Ofgem’s Retail Market Review”, the insight provided is still valuable in understanding the psyche, trust and understanding of businesses engaging in the energy market.

In this second review of the survey’s findings we focus on Brokers (TPIs – Third Party Intermediaries)

Business Juice comment: Ofgem’s focus on Brokers is interesting. There is a clear demarcation between the actual experience of, and the perception of brokers in the market. With satisfaction rates at 81% for amongst broker clients the perception from businesses not engaged with a broker could be see as an anomaly however it is clear that this negative perception is largely driven by the cold calling activities of some brokers.

Why brokers are used?

  • 82% of businesses used brokers in order to compare suppliers/tariffs
  • 76% of businesses used brokers to arranging new energy contracts

Business Juice comment: This latter statistic, or rather the relationship between it and the first, is worrying. Using brokers as a price benchmarking service only to then return directly to a supplier is not good news for the long term future of the energy market. One has to consider, on the balance of probability, would that customer have gone to that supplier and got that price without the service provided by the broker? The answer is no. If the ultimate pricing party, the supplier, has not had to include recovery of all costs e.g. not having incurred the cost of lead generation / market analysis and quote production then the ability to undercut any price is possible. This may result in short term gain for the business but more significantly the direction of the market would favour the supplier, to the detriment of brokers and would inevitably result in their exiting from the market, removing independent price benchmarking and enabling suppliers to set prices at an inevitably higher level than in the current environment.

  • 57% of businesses cite brokers as a source of information when choosing their energy contracts, more than any other source.
  • 26% of all businesses use brokers as their main source of information.
  • 37% of businesses with 10-49 employees cite brokers as their main source of information.
  • 38% of businesses consulted price comparison websites or telephone services
  • 12% of businesses actually used a price comparison website or telephone service to secure their current energy contract;
  • 26% of businesses utilised brokers to undertake energy management activities such as review of consumption and offering advice and recommendations for energy efficiency measures and carbon reduction

Business Juice comment: Our client services include ESOS, energy management, CRC as well as procurement and contract lifetime management

  • 16% of businesses used a broker for accounting purposes such as receiving invoices, validating invoices, resolving errors
  • 98% of businesses that have used brokers and telephone/website price comparison services are significantly more likely to be on a fixed term contract in comparison to those that have not (84%)

Satisfaction with brokers

  • 81% of businesses who used a broker rated their satisfaction as high
  • 51% of businesses were very satisfied
  • 6% of businesses were dissatisfied with brokers
  • 74% of businesses who used a price comparison website or telephone service rate their satisfaction with them as high
  • 9% of businesses claimed dissatisfaction with price comparison websites
  • 63% of businesses who have consulted brokers but ultimately not used them reported a negative view of brokers
  • 61% of businesses reported that brokers had a ‘professional tone’
  • 25% of businesses reported that this was not the case
  • 28% of businesses with 1-9 employees are more likely than average to consider the tone of brokers as unprofessional

Perception of brokers

  • 44% of businesses, including those who had never used a broker, had a negative perception of brokers
  • 24% of businesses who were users of broker services held a negative perception

Ofgem/BMG Comment: These findings suggest that wider perceptions of energy brokers do not match the experience of businesses that have used them.

Transparency of brokers

  • 50% of businesses reported that their broker identified themselves clearly
  • 37% of businesses however claimed the broker did not identify themselves clearly
  • 40% of businesses considered that brokers provided accurate information about the services they offered
  • 34% however believed this was not the case

Business Juice comment: We always lead with our brand, our goal is to be the pre-eminent brand in business energy, which may sound arrogant, but which we say it is essential as an antidote to the opacity of the business energy market and its players

  • 92% of businesses that recall being charged were aware of this charge before using the broker’s services
  • 23% of businesses say brokers had been upfront about the cost of using their service.
  • 5% of businesses that have used a broker said they were charged for the broker’s services.
  • 53% of businesses paid through a regular fee added to the energy bill
  • 25% of businesses made a one off payment to the broker
  • 68% of businesses considered the fee to be about right
  • 25% of businesses considered the fee to be too much.

Business Juice comment: We provide a unique key facts statement for all our customers with including full commission disclosure. This is part of unique transparency in the business energy market.

Ofgem/BMG Comment: That so few respondents are aware indicates a lack of clarity of the cost of broker services.

Ofgem/BMG Comment: By business size, those with 10-49 employees are more likely to report brokers have identified themselves clearly and are upfront about the cost of their services.

Ofgem/BMG Comment: These views may be in part related to the larger micro and small businesses being more familiar and confident in dealing with brokers.

  • 28% of businesses without employees are more likely than average to disagree that brokers were upfront about the cost to their business for their services.

Cold calling by brokers

  • Respondents that report being approached by a broker were just over twice as likely to say that brokers were not upfront about whether there was a cost to their business.
  • 85% of businesses reported being approached by a broker in the last 12 months
  • 38% of businesses report more than 10 contacts from brokers
  • 41% of businesses report up to 10 approaches by brokers in the last 12 months.
  • 15% of businesses had not been approached by a broker in the last 12 months;
  • 23% of businesses reported between 11 and 50 contacts from a broker over the 12 months
  • 14% of businesses reported a very large number of calls from brokers, reflecting, on average, a few calls from brokers every week.
  • Retail and wholesale businesses are significantly more likely than average to recall having been approached more than 50 times by brokers
  • The average number of contacts by energy brokers was 28 per year.

Business Juice comment: We do not cold call! We’re here for you when you need us, not the other way around.