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Realising retention: churn risks for small suppliers

Anna Moss Retail Manager

Our latest domestic market share data shows a trend of rising customer churn for energy suppliers across the market, as consumers choose tariffs or suppliers that offer them a better price, service or added value product. Figure 1 shows an average churn rate for different supplier segmentations. We typically expect to see a higher level of switching away for small or medium suppliers (SaMS), as they have no legacy customer base. All consumers that have joined these suppliers have made an active choice to switch at least once. They have demonstrated some level of market engagement which they might be expected to repeat. However, there is significant differentiation across the market. Newer suppliers that are growing their customer base through one-year fixed tariffs will see limited churn until their first tariff offerings reach the renewal period. Those that offer only one variable tariff may also see different than average churn as the consumer has no fixed point for renewal to consider a switch. Moreover, different consumer groups and demographics show differing tendencies to engage in the market. Even within tariff offerings, market leading fixed deals can see >50% churn rates at renewal across all supplier sizes. SaMS saw a peak in average churn in 2017 (near 30%) at a time when doorstep sales were re-established as an important route to market. Even with declines since then, on average SaMS are still seeing more than one customer in four leave them every year. As we’ve moved into 2019, structural reasons for churn have been increasing, despite the introduction of a price cap. Price rises throughout 2018, new routes to engagement (including automated switching services and a resurgence of telesales) and Ofgem’s disengaged customer database trials have prompted consumers across the market to change their energy provider, creating a challenge for all suppliers 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 acquisition can be significant.

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