There are various business models out there, but one of the most intriguing is that used by the energy suppliers.
We’ve all known for a long time that they make their money by apathy – the best rates are used as bait to attract new customers. When the honeymoon period is over, rates increase and if you don’t move, you pay a premium – but our recent experience really drives home the arrogance of this approach.
We moved our business gas and electric supply last year to British Gas. The prices we got were, admittedly, very attractive. OK, the service wasn’t perfect (they said they were going to bill quarterly, but billed monthly, and took over 6 months to give us the introductory cashback), but it was acceptable.
We then received the renewal notice. To renew our contract, we didn’t have to do a thing. They were obviously helping us, making our life simpler, which was extremely thoughtful of them. However, the increase in price – by staying on their fixed price contract – was staggering. The unit price for electric increased by 66%. The daily standing charge increased by 80%. Ouch!
Why do businesses do it? Do they think that the customer won’t notice? They make claims that they are not like everyone else, they are different, and then they do exactly the same as everyone else – i.e. try to get away with as much as possible whilst trying to look helpful. They make every effort to win new customers whilst not giving a damn about their old customers. They don’t seem bothered by churn. Surely by maintaining a reasonable renewal price, they could actually create some goodwill – and show that they are different from their competitors.
Of course, this kind of behaviour isn’t restricted to energy suppliers. Banks and insurers are also guilty. In fact, most businesses where there is a switching cost to the customer of actually reviewing a continuing service and doing something about it.
As a business, it makes sense to review your costs. The renewal notice we received from British Gas had a 3 month termination period, so this will inevitably catch out other businesses who are too busy, who may only see the increase when it is too late. So be wary of fixed term contracts.