Blog Post

Why are Challenger Energy Suppliers growing in popularity and how can they stay competitive?

Richard Simmonds • March 16, 2021

Since the UK energy market was opened up to more competition in an attempt to give consumers more choice and better value for money the popularity of smaller energy suppliers has soared. We take a look at how smaller energy suppliers can stay competitive against their larger rivals.

The Rise of Challenger Energy Suppliers

The UK’s electricity retails market was first opened up to full competition in 1999 and ever since consumers both domestic and non-domestic have been able to seek out the best tariffs from their supplier.

Initially, consumers were hesitant to switch, and new companies were slow to react which allowed the (now former) Big Six suppliers to dominate the energy supply market.

Since then, more and more companies have entered the fray and while many have fallen in their attempt to establish themselves many others have asserted themselves by offering the cheapest tariffs and most efficient customer service.

New innovations and an embracing of the internet and other technologies have allowed some challenger suppliers to even surpass the once all-powerful Big Six, so much so that Ofgem was forced to change the way it describes energy suppliers in the market.

The Big Six are no more, instead, they have been renamed as ‘large’ suppliers and those that ruled the roost since the end of state control and held 5% of market share are now known as ‘large legacy’ suppliers.

Also read: End of the 'Big Six' Energy Suppliers as the rise of challengers’ force Ofgem reclassification

The current ‘Big Six’ are British Gas, Eon, EDF, Ovo Energy, Npower and Scottish Power. The likes of Ovo for example replaced SSE and is now the country’s second-largest after its acquisition of Spark Energy.

Medium suppliers are those whose market share now exceeds 1% whilst smaller suppliers are classed as having below 1% for gas and electric.

Also read: Acquisitions and mergers have been the biggest form of energy supplier growth

Growing popularity

More and more households and businesses are turning to smaller energy suppliers with data released by Cornwall Insight showing that back in 2015 small and medium suppliers held just 12.1% of the market. In the space of just five years, that share has more than doubled to 30.3%.

This growth shows no sign of slowing down as consumers concerned over rising energy bills seek out the best deals.

Data released by Energy UK showed that the number of consumers switching provider hit a record high in 2020 with just under six million recorded. 28% of all recorded switches were from larger to small and medium suppliers.

Smaller suppliers can operate more flexibly allowing them to offer cheaper tariffs and by using technology and innovative software can out-compete the larger suppliers when it comes to offering excellent customer service.

Also read: Smaller Energy Suppliers continued to snap up market share in 2020 shows new report

Hitting the headlines

Challenger energy suppliers like Octopus Energy and Bulb regularly hit the headlines and rarely for the energy sector they’re nearly all positive. Offering ground-breaking customer service, competitions and showcasing their ambitions and technology has garnered them a lot of interest from the media.

The vast majority of negative headlines focus on rising energy bills with the most recent example being the hiking of Ofgem’s price cap.

All of the large suppliers quickly announced that they were raising their prices, with several taking their prices right up to the cap limit.

In comparison, smaller energy suppliers have continued to offer much cheaper tariffs, a move that is sure to see another increase in consumers switching to them when the cap comes into force in April.

Newer energy suppliers have to win all of their customers as soon as they enter the market and the best way to do this is to compete on price.

It’s not all about pricing

Despite cheaper tariffs still being the biggest draw for consumers, challenger energy suppliers are also outcompeting their larger rivals when it comes to offering excellent customer service.

Anna Moss, Retail Manager at Cornwall Insight, said: 'Newer brands have to win all their customers from entering the market. One way to do this is to price more competitively, which can reflect a few factors.'

'Challenger suppliers don't face all the same policy costs as larger suppliers, for example, energy company obligation and warm homes discount. Also, newer organisations tend to be more agile.

'With newer, more efficient systems and outsourced services, they might offer tariffs at low or negative margins to build their customer base. However, this would be down to the supplier's business model.'

Also read: Ofgem Hikes Energy Price Cap raising Energy Bills to pre-pandemic levels

Innovation keeps them competitive

The use of software such as that offered by Dyball Associates empowers suppliers to innovate and gives them the ability to understand how their customers behave, keep track of marketing and sales efforts and greater efficiency. The main benefits of such software are:

Find new revenue streams – Discovering what your customers want allows your business to offer them added value and identify possible new revenue streams.
Proactively help customers – A CRM allows you to track a customer’s journey allowing you to become more proactive when it comes to offering them assistance and new services as and when they require them.
Boost customer satisfaction - Being able to cut the time it takes to resolve queries and to handle customers more professionally will ensure you always get five stars of satisfaction from your customer.
Enhance efficiency - Every employee will be able to work as a team with others in the business, by having a centrally held source of information and resources at their fingertips at all times.

Dyball offers a range of software and services to help energy suppliers. These include:

Energy Supplier & Energy Billing System

Customer Self-service Portal

Customer Switching Portal

DCC Adapter

Energy Managed Services

Looking to enter the UK energy market? Dyball Associates team of energy market consultants can guide you through the steps to get qualified and attain your gas or electricity licence.

Whether you’re looking for electricity and gas systems or support on starting an energy supply company, Dyball Associates can help.

Dyball Associates are proud to help new supply businesses successfully launch in the UK market.

Through our energy market consultancy services, and the software we've developed, we're supporting new UK electricity and gas suppliers get set up and start supplying.