Customers are now actively encouraged to switch to get the best deal possible deal, as a result of this suppliers are now experiencing less loyalty and more customers shopping around. Latest research from Cornwall Insight’s most recent domestic market share data illustrates a trend of rising customer churn – or attrition – for energy suppliers across the market.
The below chart shows the churn rate for different supplier types emphasising this upward trajectory in the customer turnover, with small and medium suppliers (SaMS) having the highest proportion of customer churn.
Anna Moss, Retail Team Lead at Cornwall Insight, said:
“It is expected that there will be a higher level of customers switching away from SaMS, as they do not have a legacy customer base. Also, due to the very nature of the customers being with these suppliers, they have had to make an active switch at least once – demonstrating some market engagement that is likely to be repeated.
“Customer churn varies significantly across the market. Newer suppliers that are growing their customer base rely on one-year fixed tariffs. As a result, their churn will be limited until the customers reach their renewal period. In comparison, those suppliers offering variable tariffs will see a completely different customer turnover rate. Churn can also vary between customer group and demographics as they all have varying tendencies to engage with the market.
“SaMS saw a peak in average churn in 2017 – when it stood close to 30% – since then they have seen a decline in customer turnover. Despite this, SaMS still experience one in four customers leaving them every year.
“This year, structural reasons for churn have been increasing, despite the introduction of a price cap which might otherwise have been expected to reduce it. Price rises throughout 2018, new routes to engagement (including automated switching services and the resurgence of telesales) and Ofgem’s disengaged customer database trials, have all prompted customers across the market to change their energy provider.
“This creates a challenge for all suppliers, not just SaMS, that are looking to maintain and build a customer portfolio. Managing these risks will be increasingly important to maintain and grow a business, as the cost of customer acquisition can be significant.”
–Ends
Notes to Editors
Supplier definitions
- Small suppliers have fewer than 250,000 household energy accounts and stand below the current thresholds for participating in energy efficiency schemes
- Medium suppliers are those that have entered the market from cold and built portfolios over 250,000 domestic energy accounts
- The six large suppliers (British Gas, EDF Energy, E.ON UK, npower, SSE and Scottish Power) all serve more than 3mn household energy accounts and have been active in the domestic energy market since liberalisation
- White label suppliers are those that sell energy using a third-party supplier to fulfil their energy industry compliance obligations
