I posted earlier about the difficult conditions facing energy suppliers in the GB market, and repeated my long-held vies that suppliers should be allowed to focus on energy supply and be released from their tax-collection activities. However, in the absence of such a move by policymakers, what can struggling suppliers do for themselves in this challenging market?
1. Do what you’re doing well
Many struggling suppliers score poorly on customer service reviews indicating a badly organised back-office function. Ensuring that billing systems are fit for purpose, and that call centre staff are properly trained is essential for maintaining good customer service as well as ensuring compliance with the wide range of regulatory obligations faced by suppliers. Supply businesses live and die by customer service….getting it wrong is to walk the path to failure.
2. Address problems promptly
Inaccurate billing, taking payments at the wrong time, and inaccurate metering information are among the most common problems consumers face with their suppliers. Suppliers should act promptly to address such problems as they arise, since a high number of customer complaints can lead Ofgem to restrict their ability to grow. Failure to make regulatory payments on time can result in fines. Energy supply is a complex business and operational problems can arise through no fault of the supplier, but failing to address them creates real risks to the future of the business.
3. Develop a clear market strategy
Energy supply is not a high margin business. Suppliers should be clear about their customer positioning – what do they offer that customers cannot get elsewhere, and is this something customers need or value? Great customer service is unlikely to be enough, and the market for “green” energy is now looking crowded. It is increasingly difficult for suppliers to identify a new and attractive niche, but without this gaining market share is difficult.
4. Build a realistic financial model and scale the business accordingly
Because energy supply is a low margin business, a robust and realistic financial model is essential. If market share is being chased through low pricing, how sustainable is this approach? Is cash being set aside to meet tax and regulatory payment obligations – the Renewables Obligation is payable annually and defaults have been rising. How resilient is the model in the face of rising wholesale prices? What is the impact of changes to the price cap? Good financial planning and clever use of scenario analyses can make all the difference.
5. Evaluate corporate actions
The market has been undergoing significant consolidation both through planned M&A activity and as a result of the SOLR process. Smaller suppliers should be open to approaches from larger competitors and consider whether merging with another supplier of a similar size would make sense. Back office processes can be leveraged across a larger customer base, and provide a potentially attractive route to scale.
Energy supply is a difficult business to get right, and it takes time, a good business plan and good processes to develop a sustainable operation.