Competition and switching in the residential electricity market in Australia, 2007

While South Australia and Victoria lead the way in customer switching, conditions vary across the States and the recent hike in wholesale prices is holding back retailers, especially new entrants, in competing effectively. This brief examines switching trends across the country's competitive States, customers' drivers for switching, the most effective and preferred channels and future prospects.



Report Highlights
While price and specific financial incentives, such as loyalty or sign-on bonuses, are the most influential in attracting customers, dual fuel is a key factor in customers' decisions when choosing a new supplier. Of all respondents with both electricity and mains gas that had switched, 73% were supplied both gas and electricity by the same utility. Door-to-door sales are by far the most effective, initiating the most recent switch for 58% of switchers. The telephone is only really effective for existing customers, and using telemarketers for new customer acquisition is more challenging after the establishment of the Do Not Call Registry, which attracted a million users in its first month. In Queensland, those in metropolitan areas and with larger bills were by far the more likely to seek out a new supplier in order to switch in the first six months of competition. However, with high wholesale prices, the number of competitors to AGL and Origin Energy is likely to be limited purely to those with a strong hedge position.


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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Australian States continue to exhibit amongst the world's highest levels of customer switching and churn 2
South Australia and Victoria lead the way in customer switching in Australia 2
Globally South Australia and Victoria have comparable switching rates to highly competitive markets such as the UK 4
Switching and churn rates have been shaped by markedly different market conditions across the competitive States 4
Rising regulated retail prices 4
Dual fuel offerings 4
Aggressive new entrants 5
Wholesale prices are expected to have a major influence on near-term acquisition strategies 5
Driving customer switching - results from an Australian household customer survey 6
Customers want lower prices and other financial incentives, but convenience of dual fuel also key 6
Retailer representatives are core to facilitating switching 10
But with one quarter of switchers considering switching again, having won the customer the focus needs to turn to retention 13
Convincing non-switchers increasingly means reducing the inconvenience of switching supplier 14
Green energy and customer service levels more influential for non-switchers, but price still key 16
In targeting customers in the future, telemarketing is, and will remain, unpopular 18
Expectations for retail competition in Queensland 21
Full retail competition in Queensland commencing on 1 July 21
Consumers keen to seek out a cheaper deal 21
But high wholesale prices will hinder new entrants' discounting 22
ACTIONS 24
Driving customer acquisition 24
Dual fuel offers are the most attractive non-financial inducement to switch 24
Door-to-door by far the most effective method and forecast to continue to be so 24
Inconvenience as a key factor behind non-switching 24
Green energy at no extra cost a key factor for non-switchers 25
Penetrating the newly opened Queensland market 25
South-east Queensland expected to see most intense competition, but stifled by wholesale prices 25
APPENDIX 26
Definitions 26
Methodology 26
Further reading 27
Sources and relevant links 27
Ask the analyst 27
Datamonitor consulting 27
Disclaimer 27

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Table 1: On a scale of 1 to 5 with 1 being irrelevant and 5 being critical, how important/influential were the following in your decision to switch electricity supplier 8
Table 2: Average rating of importance/influence of incentives to switch electricity supplier - by State 10
Table 3: For the most recent switch, which of the following were sources of information (tick all that apply) 11
Table 4: What channel initiated your most recent switch to the new supplier (please choose one) 12
Table 5: When would you consider switching again? 14
Table 6: If you did not switch, what were the main reasons (tick all that apply) - State 16
Table 7: How important/influential would the following be in your decision to switch supplier in the future? Please rate 1 - 5 where 1 = irrelevant and 5 = critical 17
Table 8: Through which of the following channels would you be willing to be contacted by retailers with regards to future offers (Tick all that apply) 19
Table 9: Through which of the following channels would you be willing to be contacted by retailers with regards to future offers (Tick all that apply) - by State 20
Table 10: Through which of the following channels would you be willing to be contacted by retailers with regards to future offers (Tick all that apply) - by State 20
Table 11: Full retail contestability will be coming to Queensland in July 2007. Which of the following statements best fits your intentions 22
Table 12: Survey sample by State 26


Figure 1: Switching rates in the Victorian, NSW and South Australian power markets - small consumers, 2003-2007 3
Figure 2: On a scale of 1 to 5 with 1 being irrelevant and 5 being critical, how important/influential were the following in your decision to switch electricity supplier 7
Figure 3: Average rating of importance/influence of incentives to switch electricity supplier - by State 9
Figure 4: Channels used to initiate switching by State (VIC, NSW and SA) 13
Figure 5: If you did not switch, what were the main reasons (tick all that apply) 15
Figure 6: What is the likelihood that you would switch for a 10% saving? 18

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