Gas and electricity companies need to improve their communication with customers in order to raise satisfaction levels, writes Caspar Tearle.

Customer satisfaction in the gas and electricity sectors has declined over the course of this year, according to the 2008 JD Power and Associates UK Electricity and Gas Supplier Customer Satisfaction Study. Of course, no customer likes price hikes,
but utility companies need to ensure they are first in communicating any price changes
to consumers if they are to improve satisfaction levels.

Now in its ninth year, the study is based on 2,687 online interviews with domestic electricity customers and 2,650 online interviews with domestic gas customers throughout the UK. The study allows us to develop a model that shows what drives satisfaction. These drivers are: quality and reliability, price and value, image, billing and payment, meter reading and customer service. From this we gain insights into the areas on which utility companies need to focus to increase satisfaction levels.

This year's study

This year's study shows that among gas customers, overall satisfaction in 2008 averages 610 on a 1,000-point scale, down 16 points from 627 in 2007. Among electric utility customers, satisfaction averages 594 in 2008, down 11 points from 605 in 2007.
The gap in scores between the top and bottom-ranked companies has widened in the past two years. While the gap in 2006 was 22 points for both gas and electricity suppliers, in 2008 the difference has increased to 89 points among gas suppliers and to 83 points among electricity suppliers.

Customers are feeling the price increases more than in 2007, with utility costs accounting for a larger proportion of monthly household budgets. Seventy-one per cent of electricity customers reported that their supplier had increased prices in the past 12 months, up from 41 per cent in 2007. The percentage of gas customers who reported awareness of a price increase rose from 39 per cent in 2007 to 76 per cent in 2008.
Our research also shows that the average annual domestic gas bill is reported to have risen by 19 per cent, from £466.44 in 2007 to £554.04 in 2008. Electricity bills for the same period have also increased by 7 per cent, from £540.84 in 2007 to £579.84 in 2008.

With the reported price increases it is not surprising that customers are now more interested in fixed-price contracts. The proportion who say they are interested in subscribing to fixed-price contracts has nearly doubled to 41 per cent for both gas and electricity customers, from 22 per cent in 2007.

The media spotlight

With the media spotlight on the utility industry, companies must work harder to ensure their messages reach the customer directly rather than be beaten to the punch. The findings show that most utility customers - 54 per cent - reported learning about price increases from the media in 2008, while 38 per cent said they found out about increases from their supplier. In contrast, in 2007, 56 per cent of customers said they were informed of price increases by their utility company, while 36 per cent reported finding out through the media.

Our expertise in understanding customer satisfaction dynamics shows the impact this can have on financial performance. Satisfied customers serve as advocates, they are more likely to stay with a company longer and generally purchase more in terms of additional products.

We find that the lack of communication from utility suppliers about price increases can have a negative impact on consumer loyalty. Among customers who say they learned about rising utility costs from the media, 34 per cent said they were likely to switch supplier within the next 12 months. In comparison, switching intent was 13 percentage points lower - 21 per cent - among customers who reported learning about price increases directly from their utility provider.

Customer advice

Suppliers can also improve satisfaction by giving customers information about how to reduce their monthly bills and conserve energy. Fewer than one-third of customers said they had received information from their gas supplier on how to do this.

The decline in overall satisfaction, together with the price increases, has had an effect on customer loyalty. Customers are now less likely to recommend their supplier and more likely to switch. Overall, just over half of all gas customers (56 per cent) said they "definitely" or "probably" would recommend their gas supplier to others. This is a notable drop from the 63 per cent recorded in 2007. Just over half of all electricity customers (58 per cent) said they "definitely" or "probably" would recommend their electricity supplier to others (62 per cent in 2007).

We find that on average, one in four gas and electricity customers said they were likely to switch supplier within the next 12 months. More than half of customers who switch suppliers cite price as the primary reason for switching.

The positives

There are also positive results for utility companies from this year's study, with customers less likely to contact customer services with a complaint. Overall, the proportion of complaints against other issues is down: for electricity customers to 28 per cent in 2008 from 31 per cent in 2007. Similarly, for gas customers, of all contacts with customer service in the past 12 months, one in four (25 per cent) were complaints compared to 28 per cent in 2007.

The perceived quality of service received by gas customers has also improved, with 3 per cent of consumers saying they had experienced one or more brief disruptions of five minutes or less during the past 12 months (down from 4 per cent in 2007). Overall, only 4 per cent of customers said they had experienced a gas disruption of any length in the past 12 months (6 per cent in 2007). Conversely, almost half of electricity customers (49 per cent) had experienced a power cut of any length in the past 12 months (up from 48 per cent in 2007).

Customer service and supply quality and reliability are just two areas where Scottish and Southern Energy performed particularly well. For a third consecutive year, the company topped the overall rankings for gas and electricity suppliers with scores of 660 and 636, respectively.

The 2008 study highlights the key challenges for the industry in improving satisfaction. It has been a turbulent year but the findings provide suppliers with an opportunity to take stock and develop effective strategies to enhance customer satisfaction in the year ahead. 

Caspar Tearle is director of service industries research at global marketing information services company JD Power and Associates. Email: caspar.tearle@jdpa.com

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