News Analysis: British Gas faces price backlash

As rival Npower unleashes a price-led assault, British Gas must brace itself for a customer exodus.

Changing gas or electricity provider probably ranks about as highly on the scale of fun as filling in a tax return or cleaning the toilet. But the raft of double-digit price rises announced recently by energy suppliers has forced even the most apathetic consumer to reach for their calculator.

As the most expensive gas supplier in most regions and with a 61% share of the gas market, British Gas has borne the brunt of the bad publicity.

This has prompted the UK's third-biggest gas supplier, Npower, to launch a campaign of price-based advertising intended to scoop up disgruntled British Gas customers (Marketing, 6 October).

'British Gas is losing support among its younger customers,' argues Kevin Peake, Npower's head of customer marketing. 'This, together with the publicity over price increases, gives us the opportunity to take on British Gas in a much stronger way than we have in the past.'

TV, press and radio ads will focus on the fact that Npower is 10% cheaper than British Gas. Initially a supplier of electricity alone, Npower is trying to build its credentials in the gas market, of which it has a 9% share, according to regulator Ofgem.

Npower has also hired chef Antony Worrall Thompson to front a PR campaign highlighting the benefits of using gas to cook, which will focus on its sponsorship of the BBC Good Food Show.

Awareness of the recent price rises among consumers is high. Consumer body Energywatch registered a 28% increase in calls to its office on 25 August, the first working day after British Gas announced a 12.4% hike in its gas bills and a 9.4% rise in electricity prices. The group advised British Gas customers to move to another supplier.

Growing problem

British Gas' problems don't end there. USwitch, one of nine websites that works out the best deal for consumers and swaps their supplier for them, has seen a 700% increase in those changing provider over the past six weeks, with 83% of these transactions involving people deserting British Gas.

Moreover, a telephone survey conducted by NOP discovered that 23% of British Gas customers were considering switching their supplier.

Although British Gas price increases were high (and the second round this year), it isn't the only company to have raised prices.

Since the 1998 privatisation of the energy market, gas prices have fallen across the board, but are now veering back toward pre-1998 levels as suppliers suffer from a sudden hike in the wholesale cost of gas. This is a consequence of reserves in the North Sea running low, meaning companies are being forced to import it. European gas prices are also linked to the price of oil, which is also on the rise.

So how many customers does Npower stand to gain from its ad drive? USwitch doubts British Gas will actually lose 23% of its customers. A spokesman points out that there is a big difference between people saying they intend to change supplier and actually putting in the effort to do so.

Nevertheless, an Energywatch spokesman believes British Gas' rivals stand to gain, as long as their advertising directs consumers to independent comparison of prices. 'The fact is that 50% of consumers haven't switched their energy supplier since privatisation, even though they can make significant savings by doing so. We're pleased to see companies aggressively campaigning for custom - it can only make consumers more aware of their choices.'

It may not be in Npower's interests to be too transparent about pricing; it is by no means the cheapest supplier on offer. But Peake says the company's main priority is to persuade its electricity customers to sign up to its gas service as well. In the run-up to Christmas, however, consumers may well have more enticing tasks in hand than contemplating their gas bill.

Low-price strategy

If rivals are to benefit from British Gas' price rises, they must pick their strategy carefully. EDF Energy chose a good time for its latest ad campaign. In the two weeks following the news of British Gas' price increases, it ran press ads flagging up its lower prices. As the campaign came to a close, EDF posted its own price rise - though at 3.5% it was one of the lowest.

Powergen refused to comment for this piece, but is believed to be pursuing a low-key, low-price strategy.

British Gas' main defence against its competitors is its emphasis on customer service and positioning as a multi-service brand offering a range of home-management services, such as boiler maintenance.

Amid the battle for consumers' hearts and minds, actor Ricky Tomlinson has been dropped from its product-led ad campaign to put more focus on the brand. Nick Smith, British Gas' director of marketing, said: 'As we continue to focus on excellence in customer service, it seems a natural progression to start a conversation with customers about the brand's emotional benefits.'

Gareth Davies, managing consultant at economic consultant Oxera, believes British Gas could convince customers to stay by pursuing this customer service strategy. 'It gives consumers who are unsure what to do a reason to put off a decision.' After all, the market leader will always benefit from the apathy of consumers who cannot bring themselves to even think about gas.


Average annual gas bills

Supplier Average bill Autumn price Market

(pounds) increase (%) share (%)

1 British Gas 451 12.4 61

2 Npower 402 11.8 9

3 ScottishPower 395 11.8 6

4 EDF Energy* 377 3.5 5

5 Scottish & Southern Energy 366 n/a 7

6 Powergen 357 3.1 12

Source: uSwitch/Ofgem Bill size based on a medium-level user

*incorporates London Energy, Seeboard & SWEB Energy


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