The 'complaints gap' is about more than customer service

customer service

CITIZENS Advice say a widening 'complaints gap' is increasingly separating the UK's energy suppliers.

Commenting on their most recent quarterly list of how well 21 providers deal with complaints, they noted that the best-performing provider (SSE) is 80 times better at resolving customer issues than the worst-performing provider (Extra Energy).

They stated that this gap had widened since the last report, magnifying and deepening a trend that has the best-performing suppliers building on their reputations and moving increasingly away from the worst-performing suppliers.

Citizens Advice put this pattern down mainly to the ability to improve on already good customer service and, conversely, the failure to recover from a mounting backlog of complaints. However, it's clear that the business models employed by suppliers, as well as their size and resources, are also a major factor in determining how efficiently they'll serve their customers.

Scores, not numbers

Citizens Advice calculates the performance of any given supplier, not simply by counting the number of complaints received, but by factoring in "the seriousness of the complaint against them and how long it took to resolve."

Therefore, contrary to what the BBC and other outlets have reported,
the lowest-ranked supplier, Extra Energy, didn't receive 1791.2 complaints per 100,000 customers. However, because they took too much time to handle customer issues, and because their complaints were more serious, they received this considerably higher ratio.

This ratio was also higher than the score of 1,682 they received last quarter, providing an example of how energy providers are generally magnifying their performances from previous months.

For example, the top three suppliers - SSE, EDF and E (Gas and Electricity) - all improved their scores from the last Citizens Advice list.

By contrast, the bottom three suppliers - Extra Energy, Co-Operative Energy and Scottish Power - all received worse ratios.

Commenting on such a growing gulf between the best and the worst, the chief executive of Citizens Advice, Gillian Guy, said:

"The latest league table shows some suppliers are getting much better at sorting out their customers' problems, but it's disappointing to see others getting worse at dealing with complaints."

400%

One explanation for this gap is that the best-performing suppliers are simply building on previous gains in their customer service, developing and strengthening cultures that have learnt how to deal effectively with customer problems and complaints.

The flipside of this view would simply see the worst performing suppliers failing to do the same. Rather than cultivating a good rapport with their customer base, a history of bad service is increasingly souring this base against them in a way that results in tension rather than cooperation.

This "culture" explanation does have some truth to it, yet there is perhaps a more fundamental economic explanation of the gap.

This emerges with the realisation that the second best performer from the previous quarter's list - Flow Energy - have slumped dramatically to tenth place.

For the three months between January and March, they earned a score of 32.6. However, by the end of June, their score had increased by more than 400%, to 132.9.

Why did this happen?

The simple answer is that their customer base grew from 100,000 to 220,000 in the six months leading to August.

Such a half-year doubling of their accounts is mightily impressive, yet it's clear that Flow Energy have been the victims of their own meteoric success.

Having been a smallish provider up until February, they discovered that their infrastructure was unequipped to deal with such a massive surge in new custom.

They lacked the resources and personnel to operate at the scale of 200,000 clients, so their new (and existing) customers found that the queries they made went longer without being resolved.

What's ironic about this is that it's highly likely that much of the provider's growth was the result of an excellent showing in Citizen Advice's previous table.

Unsurprisingly, this showing was widely reported in the mainstream press, since the provider had become the first small supplier to reach second place in the table since Citizens Advice started adding small suppliers in 2015.

Speaking of his company's growth in August, Flow Energy's managing director Andrew Beasley almost anticipated their future problems when he said, "Fast expansion can often see customers being neglected; however, we have an outstanding record when it comes to customer service."

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This prior awareness of the dangers of expansion makes it doubly sad that Flow Energy have slipped to 10th position.

However, in all fairness, their ballooning has been remarkably sudden. Also, similar things have happened to other small suppliers.

Between the last two quarters of 2015, for instance, challenger providers Utilita and Green Star Energy both saw their scores get noticeably worse.

Utilita went from 98.3 to 126.7, while Green Star Energy went from a low 49.1 to a hefty 133.4.

This was at the same time as they both experienced a steep rise in customers, as we reported at the time.

Interestingly enough, however, their scores have since travelled in opposite directions. Utilita went from 232.7 complaints per 100,000 in the first quarter of 2016 to a much-reduced 95.6, putting them in seventh place.

Green Star, on the other hand, continued getting worse, moving to 153.6 in 2016's first quarter and then to 265 in the latest three months of the year.

The most likely explanation for this divergence is that Utilita gained their 300,000th customer in January of this year, giving them three times more customers than they had 18 months previously.

With this total they surpassed the 250,000 threshold that qualifies a company as a "large energy supplier."

As such, they have probably been able to reinvest their increased profits in their customer service department, thereby improving their ability to revolve issues and complaints.

This goes to show that, if an independent provider can harness their growth and reinvest profits in customer service, this customer service can improve.

However, it also depends on the business model of the supplier, as can be seen with another look at Extra Energy.

The Birmingham-based company experienced rapid growth as soon as they launched in the UK in April 2014, and now has more than 400,000 customers. Still, their low-cost business model forces them to stick to low capacity when it comes to their customer service department.

It's this low-cost model that saw them attract 36.28% of all customers who switched their energy supplier in 2014. Yet at the same time, their minimal operational costs mean that, as they attract more customers, they almost inevitably attract more complaints.

Hence the "complaints gap".

Save £160 a year

However, in explaining the gap fully, it should also be noted that four of the top five places are occupied by one of the Big Six energy suppliers (SSE, EDF, British Gas, E.On).

These are companies who, controlling so much of the energy market, have been able to reap large profits.

SSE, for instance, claimed profits of £455.2 million in the year to March 31st, while British Gas saw profits last year of £574 million (up by 30%).

With such incomings, these suppliers can afford to run a stronger customer service department, even with a much greater number of customers to serve.

In fact, it's arguable that they need a strong customer service department. Without one they might risk losing those overcharged customers who, discovering that they could save up to £160 a year by switching their provider, need to be won over again.

Since they often provide their customers with a relatively bad deal, they really need a slick customer service operation to compensate and ensure they keep these customers happy.

And perhaps more than anything else, it's this need that the widening "complaints gap" testifies to. Namely, it refers not just to a gap in customer service quality, but also to a gap in how energy suppliers try to retain their customers.

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