Close to half of householders won't need price cuts to consider switching

Nearly half of UK householders would consider switching water supplier under a competitive household retail market even if bill reductions were not on offer according to a recent study. The finding emerged alongside results from an Ofwat cost benefit analysis which included a warning that competition in household water retail would bring only "modest savings" on bills.

In a report for Ofwat, market researcher Accent found that 45% of customers in a survey were likely to pursue switching irrespective of any savings on offer. Accent found also that while a half of all respondents would consider switching, 22% were likely, in most instances, to need a substantive saving on offer to do so.

Ofwat, in its government-requested cost benefit analysis found that savings from residential market competition would amount to only £6 a year - about 1.6% of the average bill – in the regulator's best case scenario. Meanwhile Accent reported that domestic customers declaring interest in the possibility of switching needed substantive savings on offer to make considering a switch worthwhile. It found that 6% of saving seekers would see a reduction in bills of up to 5% as sufficient incentive to switch while 49% would need to see a cut of 5-25% and 23% would seek 26-50% cuts. The average expectation was 25%.

Ofwat said retail competition could deliver improved customer service, environmental benefits and more innovative services and products. It was upbeat about the prospect of retailers entering the market offering multi utility deals – bundling water and energy. "Multi-utility entry may also give retailers an opportunity to leverage practices, technology or learning from other sectors to help customers save money on their bills." Ofwat chief executive Cathryn Ross told THE WATER REPORT (see your July/ August issue) that this could make life challenging for existing water retailers but also provide opportunities.

Accent concluded that measures that potentially simplified billing could "maximise engagement". Such measures were, Accent said, " linked to the multi-utility market model." Accent added: "The initiative most likely to capture customers’ attention is for companies to offer price-related loyalty discounts, linked to either number of services provided or usage based. Ideas around simplifying billing solutions could also maximise engagement and are linked to the multi-utility market model."

Ofwat considered four scenarios and assigned the following overall benefits to them:

  • low cost, widespread innovation, strong competitive activity among retailers (£2,327m benefit – £6 a year saving);

  • low cost, less innovation and competitive activity among retailers (£1,215m benefit);

  • high costs, less innovation and competitive activity among retailers £655m benefit); and

  • high costs, little innovation and weaker competitive activity among retailers (£639m cost).

Ofwat is consulting on its findings before publishing its final report to government in the autumn.