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Personal Finance

When 'New and Improved' is more like 'Meh'

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David Kerr

David Kerr


From time to time here at Bonkers Towers we marvel at the creativity of product suppliers. We monitor product data on a 24 hour basis and make daily adjustments to our product databases. So, for example, when Bank of Ireland remove their innovative "Double Your Interest" savings account from the market so shortly after releasing it, we take notice and change our database accordingly. These changes happen all the time - daily in fact. Some are small, some introduce new products and some retire old ones. 

The Boffins here at Bonkers Towers who monitor & assess the data changes consider most of them to be tweaks around the edges - a rate adjustment to an existing Savings account, in Broadband it might be the changes Vodafone made this week (June 29th 2011) to their Home Broadband plans - bringing increased download allowances across the board and significantly reduced pricing for their higher speed plans. Their change is likely to be a response to the changing world of Broadband which Simon wrote about here and here.

However, sometimes a new product pops up in an existing product category which has the Boffins scratching their heads. A new slant on an existing category. That's exactly what happened in the energy world this week. A large Gas and Electricity supplier started to show a new type of energy tariff on their website. One that hasn't been seen in this country before - a banded tariff for Electricity - with 3 bands. 

Now as some of our beloved Bonkers Anoraks will know, there is a group of Boffins working over at Bord Gais who have had Winter Saver and No Standing Charge domestic gas tariffs for ages, and both of those tariffs have 2 bands, so we've been dealing with those things for some time. However we had yet to come across a multi-banded Electricity tariff with variable pricing in Ireland. 

Strangely, shortly after the tariffs been put up on the website, they were taken down again.  

OK, hardly two-headed turtle strange, but it was a little unusual. A team of folks had conceived, modelled and priced a new type of Electricity tariff, amended their website accordingly, and then reversed their changes from the website, obliterating it from existence.

The point here isn't about a delay to a new tariff launch, or a website being changed. The point is about product evolution as all of us, consumers and suppliers alike, get used to having a freedom of choice in who supplies us, how we pay, how much we pay and the other little incentives that try to entice us into moving supplier.

So what's so crazy about a banded Electricity tariff? They're designed to be of variable price and to capture a particular group of customers in the energy market - low, medium or high use customers - whichever group the energy supplier wants to attract  are targeted and lo, a new Tariff is created. They can be very effective in reaching a particular group of consumers, because the bands of pricing enable the tariff to become attractive to a particular group of consumers when the tariff is put to test by the number crunchers like

The tariff seen this week was interesting in that it was geared to low use customers - offering a maximum discount to those customers who use 2,000kWh or less in a year, medium discount to those using less than 3,500kWh in a year, and a low discount to those using more than that. In fact the discount was levied per day of use, not per year, so if you had a high-use day (washing, tumble drying) then you would gobble up the maximum discount quickly and then find yourself consuming electricity for the rest of the day without any discount at all. If you're interested in the mechanics, the offer was for 15% discount for the first 2,000kWh, 10% for the next 1,500kWh and no discount for the rest. Those consumption amounts are per year and are averaged out into daily consumption "allowances" at the various price points.  

Our Boffins quickly managed to whip up new Magic Beans to digest this fantastic new tariff and were keen to see how it's pricing would sit in the world of tariffs that we now find ourselves in. The answer? "Meh". Not great. Not attractive. In fact, for an average user, the supplier themselves have cheaper tariffs than the new one for most types of customer. So perhaps the pricing was off a little, but the structure was new & innovative, and for the Boffins at Bonkers Towers, terrifically exciting. They don't get out much.

We applaud these types of innovation because they are needed to keep a healthy and buoyant switching market for Irish consumers to research, select and switch to new suppliers or tariffs. Did you know we're #1 in Europe right now as far as Electricity switching goes? and #2 in the World? We've taken to switching energy suppliers like ducks to water - partly because of the shrinking nature of household budgets and partly because we've correctly recognized that there's no point in paying more for electricity than we have to - when we change supplier it's just a new bill, it's the same electrons whizzing down the cable and into our toaster (or hair straightener).

What's next for Gas & Electricity tariffs? We can expect this Autumn to have a new price war for energy as suppliers grapple with their newly found ability to win customers for gas, electricity and bundles. Some will be content to offer good customer service and fair pricing others will be aggressive on price but may be lacking in customer service. Somewhere in the mix we'll be enticed to move suppliers by free gifts and discouraged from switching by agreeing to penalties if we do. 

During that tumult, be here doing sums and trying to make sense of the Brave New World of transparent choice. Our Boffins will be making new Magic Beans and we'll be able to shine a light on the shenanigans being played by suppliers; we'll also be able to shine a light on those suppliers making honest plays to attract customers with fair deals.  

We encourage a challenge on our sums, our thinking and our Boffins. 

Most of all, we encourage everyone to check that they're not paying too much for the boring stuff in life (like a leccy bill) so we can leave some cash in the kitty for fun.


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