Free Market. Involving the Consumer in the Choice Process

by Luca RIZZI – Sales Director Audax Energia Italia

In July 2020 – one year later than expected – the electricity market will open up completely to free competition, putting an end to what is called “greater protection” and the long transition phase that began in 2007 (in 2003 for gas).

A first consequence is that Italians - at least those who have not done so yet - will have to choose which operator to turn to for the supply of electricity and gas. A second is that they will have to orient themselves among a multiplicity of offers and rates that are diversified among themselves. A third is that, from this finally free market, the consumer will be able to draw advantages in terms of cost and/or service.

But where are we with the liberalization process? With what level of awareness are consumers preparing to choose between the different operators present today in Italy?

From 2007 to today, the number of users who have left the protected market has been constantly growing. A decision taken, in 2017 alone, by 1.5 million domestic customers and 300 thousand customers defined as "other uses" (for example small businesses). Furthermore, according to 2018 data provided by the Authority (Arera) and referring to electricity, 46% of families (13.3 million users) and 58% of SMEs (4.3 million) have now switched to the free market, choosing among the sales companies operating in Italy. These, in the last twelve months, have risen to 554 compared to 507 in 2017.

As regards gas (data updated to 2017), however, the 44% for domestic users and the 52% for condominium users have definitively abandoned the protection.

These are numbers that demonstrate that change is underway and is indisputable, regardless of the slowness with which it proceeds.

What is still very far away is the average user's knowledge of the liberalization of the market and the impacts that it could have on habits regarding energy consumption. A recent and interesting study promoted by the Authority and carried out by the Research Hub institute has taken a snapshot of the situation [+info].

The survey, conducted on a sample of 3,000 users, highlighted that almost half of the interviewees (48%) do not know what it means, nor what it entails to be in a competitive regime. And not only that, considering that the vast majority of them do not even feel the urgency to find out; according to the data, in the last 3 months, only 18% of users have taken information on the free market or its operators. And this despite the succession - practically weekly - of news on the high bill.

46% then states that he is “happy” with his current provider - or at least that he maintains a “neutral” position (42%) - so much so that he intends to faithfully continue the relationship even when he switches to the free market (60%). A judgment that, however, is not always based on real knowledge of the conditions of the service, given that 70% of those interviewed states that they do not know what the cost components of the electricity bill are…

This loyalty to old suppliers is not surprising and can be traced back partly to the perception of a service deemed satisfactory, partly to other reasons that are always present when it comes to looking at the new: the force of habit and the fear of novelties brought by change. The main motivations of those who responded to the survey in fact concern the worry of incurring negative experiences (15%), low trust in operators (6.4%), fear about the real quality of the service (9%) and the lack of clarity on the advantages of the switch (14%).

And this resistance to change, to which the aforementioned concerns contribute, is also combined with a certain “laziness” in dedicating time to the issue. The Arera data referring to 2017 seem to confirm this trend: 68% of those who have switched to the free market (domestic sector) have done so by choosing “historical suppliers”, that is, the seller connected to the distribution company.

Closely tied to this dynamic is, in fact, the topic of information. The Internet remains the primary source (54%), followed by other channels such as - for example - conversations with friends or relatives (33.8%), traditional media such as radio or TV (30.6%) or call centers of energy sales companies (24.3%). Yet, despite the web being indicated first, comparison portals are still little or underused: only 19% of those who have changed operator have consulted one of these platforms. This is also true for the official Arera portal, visited by very few.

Age certainly matters. And the 20-40 age group is the most likely and proactive in consulting the Internet and digital tools when it comes to changing providers.

A trend that clearly emerges from a recent survey conducted by Bain&Company and Google on the impacts of digital in energy. It highlights another element: price is not the only evaluation criterion in the final choice, especially when faced with more aware and informed behaviors. Although remaining at the top of the list, the rate is not the only decision factor; the signing of the contract is increasingly influenced by the presence of services and products connected to the simple sale of energy (whether they are additional services or products, technological or smart, green or facility management).

So, almost a year after the complete liberalization, the real work of the operators in the sector - sales companies first and foremost - must be directed towards greater consumer involvement in order to increase their awareness, but also to stimulate their curiosity and desire to learn more and learn more.

The goal? To remove mistrust and fear towards the new and change.