Switchme Blog

The most extreme and generous discount available to electricity consumers has stopped the large numbers of customers leaving Contact Energy, but the new incentive could be costing the company around $14m a year.

Contact Energy have previously offered a 12% prompt payment discount but with the On-line On-time offer it has raised to 22% but only where bills are able to be sent via email, and paid via electronic methods.  The reason for the increased discount is that Contact lost some 15,000 customers in the first two months of an Electricity Authority campaign which encourages consumers to compare and switch their power companies.

Despite the implementation of the discount, Contact lost a total of 413 customers for the month of August, but that was still a dramatic improvement from the previous two months where there was an average of 7,679 customers lost.

Electricity experts have been surprised by the offer from Contact which has been currently extended to its existing customer base and has been extensively advertised which ensures that the uptake is going to be extremely high which is believed to leave Contact with marginal if any profit on its electricity sales.

Contacts chief executive Dennis Barnes said the company expected a 3 per rise on the mass market revenue and that the 20 per cent of customers already eligible for this offer were expected to rise to 40 per cent as consumers were switched to the On-line On-time offer.

The biggest customer losses in August went to Mercury’s parent company Mighty River Power who lost over 3,000 customers which was more than the previous two months combined.

TrustPower, which like Contact has always been on the higher end of the published tariffs lost 814 consumers.

The winners of the consumer base were Genesis Energy with their online brand Energy Online who gained 947 and Meridian along with their online brand Powershop gained 2,998 customers.

Contact Energy’s customer migration of approximately 15,000 customers has sparked some significant and generous discounts available to consumers over the last month or so, for example Contact Energy’s Online Ontime offer of 22% prompt payment discount if received and paid for online, which is estimated to cost around $14 million per year for the company.  It is expected that the popularity of this offer could result in minimal profits.

Contact Energy previously offered customers a lower prompt payment discount of 12%, but as consumers became more aware of energy retailer comparison sites such as Switchme.co.nz, they experienced a  2 month period of considerable customer loss, on average around 7,679 per month.

Although Contact’s unit prices are still significantly higher than most of their competitors before the discount, the 22% reduction has altered Contact’s competitiveness on the Switchme website.

Recently some of the smaller power companies have been able to offer extremely competitive tariffs due to low spot prices.  But Contact Energy has the expectation that the price rises will continue to climb in future years, while the recent years of reasonably low wholesale market spot prices are unlikely to be continued.

Dennis Barnes Contact’s chief executive said that there were already 20% of customers eligible for this massive discount, but that with this offer expected that to rise to 40% as they changed over to online billing and payment.

There were other large customer losses in August for Mighty River Power which is part of the Mercury Energy brand which lost over 3,000 customers –which was more than double the previous two months losses amalgamated.  TrustPower who along with Contact have always been at the higher end of tariffs, reported a loss of over 800 customers for the same period.

The major winners were Genesis Energy who won nearly 950 customers over with their tariffs and Meridian Energy who gained nearly 1000 customers.  Both of those totals consist of the new customers who joined for their online brands, Energy Online and Powershop.

Source: www.scoop.co.nz – Business Desk