Brandreview Energy markets: do dynamic contracts drive market shares?

Brandreview is an initiative of Validators in collaboration with VU Amsterdam with the goal of gaining insight into brands and the mental market share in the consumer's brain. This month we are putting our energy into energy suppliers. Each month, Validators and VU Amsterdam take an in-depth look at a specific industry to familiarize brands with this approach. The previous analysis focused on DIY stores, this time we share a summary of our research around energy suppliers.

'Energy consumer' has 14 reasons to choose supplier

Brand building is no longer just about being top of mind, but about understanding consumers’ needs when choosing an energy provider. Every consumer is different and has their own specific needs. In the Brand Growth model, these needs are called Category Entry Points (CEPs). Find out exactly what a CEP entails in just twelve minutes. For this article, we’ve selected the two most and least important CEPs. This provides an initial insight into what drives consumers and highlights just how crucial these factors are in the decision-making process. It offers marketers concrete starting points for communication and marketing planning.

As it turns out, consumers particularly value transparent terms and the absence of hidden costs in their contract. In addition, the reliability of the energy supplier plays a major role in the selection process, making the market all the more challenging for new, unknown providers. These two main needs show that consumers prefer security over other aspects, such as cost savings, in these uncertain times. Consumers hate uncertainty, especially when it comes to their finances. It is essential for energy suppliers to offer their customers a clear understanding of contract form and costs. If an energy supplier does not do this, it loses significant market share.

Sustainability, in the form of green power, is considered relevant by 65% of consumers, falling in the middle of the needs spectrum. While many marketers may be hoping for higher relevance, this is a pattern we see in other sectors as well. Sustainability is becoming increasingly important in most markets, especially when it comes to brand relevance; Greenchoice and Vandebron in particular are gaining on this.

Figure 1: Reasons for choosing an energy supplier

Fight to meet need 'flexible contracts'

The energy market has changed significantly in the last two years because of the war in Ukraine, leading to high energy prices and energy suppliers no longer offering fixed contracts. Normally consumers are reluctant to change, but it seems that the demand for flexibility and control is permanent. Consequently, the need for flexible contracts now has about 40% relevance. We call these new categories Growth CEPs, where brands can easily gain market share with targeted campaigns and marketing strategies.

Battle for market leadership

Energy industry analysis proves that it pays to invest in increasing mental market share. The reasons consumers give for choosing an energy contract (CEPs) correspond well to the actual choices they make. Vattenfall, Eneco and Essent top both in real and mental market shares, which corresponds to the market shares as reported by ACM (Authority Consumer and Market). In this, Vattenfall is the market leader.

If we compare the real market shares according to ACM with those based on customer share in the sample, we see that they are almost similar. The three leaders are below the equilibrium point, meaning that their actual market share is higher than the mental market share. This indicates potential risks of loss in market share and calls for (marketing) attention and vigilance.

The new entrants in the market are above the equilibrium point and are actively seeking greater market share. One intriguing player is ANWB, which has entered the market as a new energy provider. ANWB is a trusted Dutch brand known as a provider of assistance in a market that is full of uncertainty. This position is interesting and gives ANWB, as a small player in the market, the opportunity to compete with the big brands on key CEPs such as transparency and reliability. If the growth in dynamic contracts among consumers increases, ANWB has a strong starting position. ANWB is the market leader (Source ACM, August 2023) in dynamic contracts market.

Two other important metrics come into play in the in-depth analysis of mental availability: mental reach and network size (see table below). Mental reach represents the percentage of survey respondents who mentioned the brand in a CEP (a type of consideration), while network size says something about the average number of CEPs.

Vattenfall stands out due to higher network size and lower mental reach. So Vattenfall can best focus on increasing mental reach to grow market share. The same is also true for Engie and ANWB, which leave some market share on mental reach. Budget Energie, on the other hand, lags more on network reach because they are mainly linked to the cheapest tariff.

Each energy brand has specific Entry Points on which they can grow their mental reach. So that directly affects the content and messages of marketing and communications efforts. The workshop on Nov. 21 will talk more about this.

Figure 2: Mental versus real market share of energy markets

Strategic review: will dynamic contracts shake up the market?

The increasing demand for dynamic contracts resembles the behavioral change we also see in the automotive industry. Once consumers choose a new approach, such as purchasing an electric car, this change is often permanent. This phenomenon now appears possible in the energy market, where the first quarter million dynamic contracts are a reality. This development is forcing energy suppliers to offer more flexible contract forms and ensure full transparency as consumers not only embrace but also expect this change. It seems that the energy market is gearing up for a new standard, where flexibility and transparency are essential to remain competitive. It will be interesting to see how energy suppliers respond to this challenge and how this development will shape the market in the coming years.

Figure 3: Mental reach and network size.