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The challenge of consumer empowerment

Posted on: Monday 11th of August 2014

A new report by the energy regulator Ofgem underlines the growing importance of ‘Third Party Intermediaries’ (what Ctrl-Shift calls ‘PIMS’) in the energy sector.

The report, proposing changes to a voluntary Confidence Code for price comparison sites, draws on research conducted by Ctrl-Shift for Ofgem on the changing face of consumer empowerment in the industry.

Ctrl-Shift’s original research is published by Ofgem with its Confidence Code proposals.

 

Findings

Ctrl-Shift identified a range of different trends which, separately and together, have the potential to empower consumers within energy markets and change the ways consumers interact with their energy suppliers. They include the growing role of:

  • Price comparison services
  • Collective switching
  • Advice services (especially in areas such as energy saving)
  • Online campaigns and campaigning
  • Personal data empowerment
  • Households as energy producers (e.g. renewables)
  • Smart meters
  • Smart homes
  • Behavioural economics, with its insights into the realities of consumer behaviour and consumer decision-making processes

 

No magic bullet

A key finding is that there is no single magic bullet of empowerment. Consumers can be disempowered because they can’t access information, because they don’t understand the information they are presented with, or because they are not confident about their ability to make best use of this information. They can be disempowered because of the actual or perceived costs of trying to ‘do something’ outweigh the perceived benefits. They can be disempowered because they lack bargaining power – or simply feel they lack bargaining power.

In other words, effective empowerment depends on the right mix of practical, emotional and psychological enablers; it’s a complex service design challenge.

A strategic challenge … and opportunity

A key question underlying the research is: “is a more empowered consumer ‘good’ or ‘bad’ for energy companies?”  At first sight it looks ‘bad’ because a more empowered consumer will be more demanding, more likely to shop around for better prices and service,  and therefore be less profitable.

That may be true in a pure commodity market where everything revolves around the price of one particular input such as gas or electricity.  However, in more complex and sophisticated markets where value is driven more by behaviour changes (tweaking the heating temperature) and by careful consideration of many different factors (e.g. home insulation, alternative energy sources) empowering customers can be the best way to add value, ‘trade up’ and cross-sell new services, and build brand trust and reputation.

This is the big strategic question now facing all the major energy companies.