Contact Energy fights back as customer exodus accelerates
by Pattrick Smellie
Aug 9 (BusinessDesk) – Contact Energy Ltd. has effectively slashed its electricity tariffs for prompt paying online customers after losing more than 8,000 customers in July.
The losses are the second month of record losses since the Electricity Authority began a campaign urging consumers to shop around for lower power prices.
“Naturally, we are concerned about these losses,” said Ruth Bound, Contact’s general manager, retail. The company had recently launched an unprecedented 22% discount for customers who receive their bills online and pay on time.
Contact lost 7,679 customers in June, the first month of the “What’s My Number?” campaign, and the pace accelerated last month, with a further 8,034 customers leaving for other retailers last month.
The only other electricity retailers to lose customers last month were Mercury Energy, which dropped 2,465 in what is believed to be a deliberate strategy to slim down its customer base, and TrustPower, which lost 448 customers.
Like Contact, TrustPower has traditionally had both the highest electricity prices in the market, and resisted taking on new customers at low tariffs during the last three years of increasing retail electricity market competition.
Contact’s total customer numbers stood at 456,023, a 13.6% drop since they peaked in September 2008 before self-inflicted brand damage began a slide that has barely halted since, and became a flood in the last two months.
The 22% “prompt payment discount” replaces the previous 12% discount, which was raised from 10% in an early response to the more competitive environment which began to emerge from late 2008. It excludes payments by credit cards, but is otherwise being automatically implemented automatically for all current online customers.
“If you already meet the criteria, then you automatically get it,” said Bound.
“We think this is a discount that will reward customers and offer additional benefit for staying with Contact,” she said, but declined to comment specifically on whether Contact retained any profit margin on customers availing themselves of the new offer.
“We look at the integrated value chain through the organisation,” she told BusinessDesk. “This is an investment in retention and long term value so we are comfortable with the numbers we see.”
As both an electricity generator and retailer, Contact has long sought to “hedge” its generation output by matching it with known demand from a mix of industrial, commercial and residential customers.
However, Bound said Contact did not expect current switching levels would last “forever” and like the rest of the industy, the company expects electricity prices to rise as new wind, geothermal and other forms of generation will be more expensive than in the past.
“We aren’t walking away from where we think prices are going to go in the future,” said Bound. “Over time, prices will rise.”While it was early days, initial indications were that the 22% discount was helping to save customers who might otherwise be lured to competitors.
Checks with the Consumer’s Institute Powerswitch website, based on a family of five using only electricity (no gas or LPG), show in some regions that the new discount has pulled Contact into a competitive position against even online retailer PowerSwitch, which recently gained top spot in Consumer’s member poll of electricity retailers.
The biggest customer gains in July went to Meridian and its subsidiary Powershop, which between them added 4,261 customers, Genesis and its subsidiary Energy on Line, with a collective gain of 4,195, and Pulse Utilities, which added 1,352 customers.