In the Spring of 2012 Which?, the UK Consumer Association, and 38 Degrees embarked on the largest collective energy switching exercise undertaken in the UK. The government has perceived this model as a potential means to generate additional consumer activity in the energy market. ‘The Big Switch' (Big-S) provided a unique opportunity to observe participants' actions when they received an offer of a specific energy deal, in particular whether or not they decided to change energy suppliers. The Centre for Competition Policy (CCP) at UEA has built on its experience of studying residential energy switching since the market opened to analyse these decisions.
If you would like to download the report "Who Switched at ‘The Big Switch' and Why?" which provides initial analysis of participants behaviour during the Big-S please click on the following link Who Switched at The Big Switch and Why.
As part of the Big-S, participants provided all their energy related information to Which? in advance, mirroring the information needed by a switching website to identify the best offer for any one individual. This information was then aggregated to provide information to the energy companies bidding for the group of consumers represented in the Big-S. After the auction between energy companies took place, each participant was presented with an offer based on the auction outcome and was asked whether they wanted to accept it or not.
The analysis of data from around 110,000 participants enables us to identify how different factors affected whether or not participants accepted the offer made to them. These factors included the size of potential savings, whether those taking part knew the size of their energy bills and how many offers they saw. We asked those who took part for further information about themselves and their attitudes, and have undertaken further analysis for the 21,000 individuals who responded to these requests.
CCP has sought to understand consumer motivation and potential errors through structured questionnaires which asked for information about searching and switching behaviour and their determinants. The Big-S data enables us to observe an actual decision made by consumers when confronted with an offer or offers. Real money was at stake in the switching decision and there was no expectation or wish that the participants should provide a ‘right' answer to an interviewer. The opportunity to observe so many decisions in a realistic context enables a much richer understanding of the factors affecting these decisions to be obtained. The second unique opportunity provided by the Big-S is to investigate the switching decision separately from the rest of the search process involved in changing energy supplier.
CCP continues to undertake analysis of the Big-S dataset and will publish additional research based on this data in due course
In the Spring of 2012 Which?, the UK Consumers’ Association, and 38 Degrees, one of the UK’s biggest campaigning communities, embarked on The Big Switch (the Big-S), the largest collective energy switching exercise undertaken in the UK. We want to thank you for taking the time to complete the survey questionnaire(s) on which this research is based, and to give you some headline results from our early analysis. We hope that the research will provide insights into switching behaviour which will contribute to developing policies which make the market work better for all consumers. At each stage of the research we have maintained the anonymity of yourself as a Big-S participant. If you would like to see more detailed analysis of the data, please click here to download a full technical version of the report. Here we summarise the results in the report.
While almost 85% of participants could have saved money by switching, only a quarter chose to do so, even though the average savings were substantial at £120, just over a tenth of the average bill. Potential savings were an important determinant of switching, but many participants who could have saved money did not make the change: out of a total of £16.9m of savings1 offered as part of the Big-S, the total savings captured by those who switched supplier was only £5.5m. Clearly other factors, beyond monetary savings, influence people’s switching decisions. One factor that seems to have deterred switching is seeing more than one offer: increased choice is associated with less switching. In terms of the time required to switch, non-switchers generally thought the process would take longer than the time which the switchers reported it actually had taken them to make the change.
Those participating in the Big-S were not typical of the population as a whole - they were older, better educated and more likely to be male and own their own home.
To identify the factors which are most strongly associated with switching we used a Probit regression model, which allows us to isolate the change in the probability of switching associated with each particular factor after controlling for changes in all the other observable factors. This establishes a correlation, i.e. a statistical relationship, between the factors and the probability of switching, though it does not necessarily show that the factors actually caused a change in the probability of switching.
Monetary Savings: A £10 increase in the annual saving offered was associated with an increase in the probability of switching of around 1.5 percentage points.
Increased Choice: Those who saw two offers were less likely to switch. Being shown two offers instead of one was associated with a 6.8 percentage point drop in the probability of switching (the probability of switching dropped from 31% to 24% on average). Participants who faced an exit fee or would lose cashback by switching were less likely to switch than those who did not. Those who relied on Which? to estimate their energy bill were less likely to switch than those who entered information into the Big-S process from an actual energy bill. We interpret this as indicating that people were more likely to switch if they were confident that the savings they were shown would actually materialise.
Motivation: Individuals who took part in the Big-S to save money were more likely to switch than those who simply took part out of curiosity. The natural explanation for this is that those who wanted to save money had a stronger intention of switching.
Preferences for Particular Suppliers: When selecting their energy supplier people do not just consider the price, other non-price factors may also be part of the decision. Unsurprisingly, individuals who preferred the tariff type offered by their existing supplier were less likely to switch, while individuals who preferred the ethical/environmental stance of the new energy supplier they were offered were more likely to switch.
Contact with Existing Supplier: Individuals who contacted their existing supplier after receiving their Big-S offer and were offered a better deal by their existing supplier were less likely to switch. Perhaps more surprising is that a Big-S participant was more likely to switch if they received an unsolicited offer from their existing provider.
Timing: Those who reported that the Big-S was a busy period were less likely to switch.
Motivations to Switch: Individuals who would switch if they were confident that they were obtaining the best deal available were more likely to switch at the Big-S. Those who said they were likely to switch if they were unhappy with their existing supplier were also more likely to have changed supplier at the Big-S.
The Big-S provided a unique opportunity to observe the detailed decisions of a group of energy consumers faced with a real choice of providers in the residential energy market. Many important insights were gained that can feed into the lively policy debate surrounding the UK’s energy markets. Perhaps most significantly, we find that many consumers do not change supplier, even after investing considerable effort to take part in the Big-S, and when little additional effort is required to capture the significant savings on offer.
We also find that a very small increase in choice, namely one additional offer, appears to be associated with lower switching rates for those who entered the Big-S.
We will continue to analyse the results of the two surveys, and the resulting academic papers will be placed on the CCP website as they are completed. Once again we would like to thank you for taking part in this exercise and providing the valuable responses that form the basis of this study.
1 This figure simply adds together all the positive saving amounts that were offered to individual participants as part of the Big-S