Energy retailers' marketing tactics

Energy retailers are resorting to hard-sell tactics to increase market share.
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We take a look at the hard-sell tactics that Australian energy retailers such as Energy Australia, AGL, Red Energy, Lumo, Origin and TRUenergy were rolling out late last year, when predictions of price hikes were especially dire.

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The hard sell

It’s not an easy time to be shopping around for an energy provider. With the cost of electricity rocketing and consumers scrambling for better options, retailers are trotting out special deals to try to lock in your business. We’re deluged with marketing material, but whether it’s a good idea to take the bait is far from certain. Late last year, when talk of sky high electricity increases began to reach fever pitch, CHOICE reviewed a slew of online promotions and found, not surprisingly, that they aren’t much help in making an informed decision. They often play on fears of drastic rate hikes, and the deals are far from straightforward.

EnergyAustralia, AGL, Red Energy, Lumo, Origin and TRUenergy all enticed consumers to sign contracts in exchange for a rate freeze, a one-off payment, a 10% or similar discount, a bonus point program, or some combination thereof. Many of the long-term contracts had complicated terms and conditions, warned of unspecified costs and imposed early termination fees. Some promos only included usage; others both usage and delivery to your home (that is, the fixed cost onto which your usage charges are added) to your house. Pay-on-time discounts were especially perplexing. In a typical example, Lumo offered a 13% discount on the company’s “best rates” if customers pay on time, but it also says in the contract terms and conditions that “we may vary your energy charges for any reason”. A quick perusal of the deals on offer at the moment reveals that current marketing tactics are much the same.

As with other offers, the Lumo deal appeared to be contingent on signing a contract that allows the retailer to raise prices, but we couldn’t find these critical details in the online marketing material. By contrast, the number for the sales department on most of the ads was easy to spot. And prices can go up in ways consumers might not expect. For instance, CHOICE member Geoff Goonan told us that his Lumo off-peak charges “increased by a staggering 24.5%” with his latest bill, as opposed to 9.8% for peak charges.

Another member, Nick Haggarty, told us he was shocked to find out his ActewAGL Greenchoice rates were going up in line with those of non-renewable energy customers – due in part to carbon pricing, according to the company. “I completely understand that it’s not possible to have two electricity networks, one from renewable sources and the other from non-renewables,” Nick says. “What I don’t understand is why my bills from ActewAGL have for years included a graph of my greenhouse gas emissions and every one of them has shown them to have been at zero tonnes.” Nick is not the only consumer we’ve heard from who’s been mystified by retailer explanations of renewable pricing calculations. Renewable energy options were excluded from some of the promos we reviewed. 

Locking in rates

It can be a good idea to lock in a rate, but first make sure you understand what you’re locking in as well as all the terms and conditions of the deal.

The marketing is confusing, and much of it has been down and dirty. Energy Australia’s offer to lock in current rates for two years, for instance, was marketed along with a warning that electricity prices have increased more than 50% in Sydney in the past three years. Yet the independent Australian Energy Market Commission (AEMC) has estimated that electricity prices across Australia will see an average annual growth rate of about nine per cent through 2013-14, with retailers free to go below any regulated increase in order to grab market share. In late August 2012, the launch of a Senate inquiry into the causes of high energy bills was announced, which will include looking at options to reduce prices.

Around the same time, AEMC proposed new rules to strengthen regulation of distribution and transmission networks (the poles and wires that delivery electricity to your home, the expansion and upgrading of which are cited as the main cause of electricity price increases) with the aim of reducing consumer costs. And with the Prime Minister herself threatening to use the “big stick of regulation” late last year if the industry doesn’t figure out how to keep prices in check, consumers should be wary of price predictions, especially when they’re made by energy retailers. It can be a good idea to lock in a rate, but first make sure you understand what you’re locking in as well as all the terms and conditions of the deal.

Door-to-door sales

Some energy marketing has been particularly aggressive. In March 2011, for instance, AGL set out to lure at least 500,000 customers away from the competition with the launch of what it called “an aggressive sales and marketing campaign in NSW utilising many channels”. 

At the time, AGL’s GM of marketing, David Hamilton, said: “we intend to educate people about the fact that they can choose their retailer”. (The lure to switch was a modest $300 off the regulated tariff over a three-year period in exchange for committing to a three-year contract.) One marketing channel, AGL’s door-knocking campaign, got the energy giant and independent marketing firm CPM into hot water and cast a revealing light on the current state of energy marketing. 

In March 2012, the ACCC filed a suit against both and accused AGL of misleading and deceptive conduct and making “a range of false representations to consumers in the course of door-to-door selling”. Neighbourhood Energy, part of the Alinta group, and its former marketing company, Australian Green Credits, were also named in the suit. To prevent further transgressions, the ACCC said it and the Australian Energy Regulator had signed agreements with state and territory energy ombudsmen to allow greater scrutiny of the door-to-door marketing of energy products. 

But as recently as August 2012, CPM was advertising for “residential field sales agents” to sell energy products at $18 per hour plus “uncapped commissions” and a chance for weekly and monthly bonuses based on sales. CPM said applicants need only learn some “simple procedures and selling techniques” and would be carted around neighbourhoods in a company van. Backpackers “fluent in English” were invited to apply. In a recent report, the ACCC said one million door-knocking energy sales were attempted across Australia in 2011, usually by external marketing companies. 

There are an average of eight door knocks per year on every Australian household, with residents in NSW and Victoria likely to experience more than the average. The door-knocking epidemic has led to the introduction of a Do Not Knock bill, an idea that CHOICE strongly supports along with the Consumer Action Law Centre’s Do Not Knock Campaign. In a belated act of contrition, both AGL and Energy Australia have since sworn off door knocking campaigns - at least for now.



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