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Co-operative buying is more sustainable than collective switching

Posted on 26 July 2012

This week saw the launch of Cornwall Together, a collective switching project being promoted by the Eden Project, Cornwall County Council and local employers and operated by commercial switching site Uswitch.

Like the Big Switch reverse auction organised by Which? and the online campaigning body 38 Degrees in May, Cornwall Together aims to combine the buying power of thousands of households in the hope of extracting a better price for electricity and gas than is available on the open market.

We took part in the Big Switch because we support many of Which?’s consumer-focused campaigns and we share many of their values. We had some reservations about the Big Switch project but, once we were satisfied that we could bid an existing tariff and avoid discriminating against our existing customers, we threw our hat into the ring and were delighted to win the auction in all three tariff categories.

Now, with lots of other collective switching schemes springing up all around the country, it’s time to reflect on whether collective switching is really the best solution for hard-pressed consumers. We do have some reservations.

1. Collective switching could be unfair on most consumers
The main criticism of collective switching schemes is that they can be unfair to loyal customers. In some energy suppliers, loyal customers end up subsidising eye-catching tariffs created to tempt new customers. Collective switching could make this cross subsidisation in the energy market even more extreme.

Co-operative Energy treats all its customers fairly: there is no cross-subsidisation between groups of customers. New customers are not offered better deals than existing customers.

2. Collective switching does not achieve buying economies of scale
Buying economies of scale are achieved when people group together to buy long term and in large volumes and then share the benefits. The problem with collective switching is that, although it may result in scale, it does not result in long term commitments. The supplier cannot accurately predict long term demand as the customers acquired through collective switching may not commit to staying for long.

Co-operative Energy encourages customers to be loyal by sharing profits with them. This allows long term purchasing commitments to be made, which achieves better value for all.

3. The market will become more opaque
Presently all price comparison sites accredited by Consumer Focus show all suppliers’ tariffs. A world in which different collective switching projects offer different terms from the same provider would become even more confusing for consumers. Far from reducing the number of tariffs on the market, collective switching could exacerbate tariff proliferation.

Co-operative Energy is committed to keeping things simple and to not offering special deals to certain groups of customers.

4. Collective switching requires constant vigilance
Collective switching relies on the customer being prepared to shop around. If they don’t shop around, they are susceptible to being moved onto the supplier’s default tariff, which could be expensive. If anything this requires an even more engaged energy consumer than exists today.

Co-operative Energy is always competitively priced. Loyalty is rewarded with a share of profits. The aim is for customers to never feel the need to switch again.

That’s why we’re promoting the concept of co-operative buying as an alternative to collective switching. Better to commit long term to a supplier you part own than to have to shop around constantly just to keep your supplier “honest”.

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