Making the switch

With some of the most competitive electricity markets in the world, the Nordic markets have seen low levels of customer switching. There are various reasons for this, ranging from the meter requirement in Sweden, to the convergence of prices. As a result, suppliers have had to refine marketing strategies to attract new customers and encourage switching.

Lisa Petrovic,

Energy Analyst,


In early 1999, Datamonitor surveyed the major suppliers and utilities across the Nordic region (representing over 50 per cent of retail power sales) in order to identify the major strategies companies were utilising in their campaigns to attain and retain customers. The survey also sought to identify the most effective strategies as well as predict future customer switching and identify potential new entrants.

Wholesale sector

Various strategies are used to target industrial and commercial customers in the region. The most popular, and most effective to date, has been direct mail. However, looking ahead companies are starting to appreciate the benefits that can be gained by direct contact with their suppliers through an account manager.

Of the suppliers surveyed, while 94 per cent used direct mail and a similar percentage had internet sites through which they marketed their services, only 69 per cent used account managers to win new business and 56 per cent used a telesales force. The share using account managers is growing, however, as direct contact is proving to be the most effective after direct mail. Of those interviewed 33 per cent quoted direct mail as the most effective marketing strategy to date and 25 per cent quoted direct contact (telesales or account manager).

Having seen that a relatively small proportion of the industrial and commercial markets have switched, it is interesting to establish whether this is due to a lack of effort on the part of the customer or whether existing suppliers are offering the best deal.

In March 1999 a panel of 200 major electricity users in the Nordic markets, representing 15 per cent of the industrial and commercial markets, were surveyed. Of the customers interviewed across Sweden, Norway and Finland, within the previous six months between 38 per cent and 56 per cent had renewed their contracts with their suppliers, while 12 per cent to 36 per cent had switched.

When asked for the reasons behind renewing, the vast majority stated that their existing suppliers offered the lowest price, with other suppliers failing to offer sufficient savings to encourage switching.

Foreign activity in the region has primarily been limited to other Nordic companies such as Vattenfall in Finland and Norway, or Fortum in Sweden in the form of Birka Energi. Other non-Nordic countries, however, are showing greater interest in the region such as Eastern Energy from the UK and PreussenElektra in Germany.

As much as 36 per cent of suppliers surveyed felt that new entrants would come from areas outside the Nordic region. In addition to countries such as the UK and Germany, many mentioned the US and France. Over a quarter, however, disagreed with the statement and believed new entrants would continue to come from within the Nordic region.

End-users were asked whether they would consider using a non-Nordic supplier if the prices and terms were acceptable. An overwhelming majority of respondents in the three most liberalized markets stated they would consider a non-Nordic supplier. Approximately 93 per cent of Norwegian respondents stated they would do so.

This is not a surprise since Norway has the most competitive and mature market in the region. Around one-third of Swedish respondents, however, stated they would not consider a supplier outside the Nordic region for various reasons.

Of those respondents that stated they would not consider a non-Nordic supplier, their reservations were as follows: 50 per cent of respondents in Sweden mentioned the lack of geographic proximity of non-Nordic suppliers, which could translate into communication problems and poorer customer service.

The other 50 per cent of Swedish end-users mentioned various reasons including satisfaction with current domestic supplier, and better prices from Swedish suppliers. Half of respondents in Finland were wary about the security of supply when considering non-Nordic supply. The other half were also concerned about the lack of geographic proximity that might affect communication and service.

Of the few respondents that would not consider a non-Nordic supplier in Norway, all stated their main concern to be security of supply.

Retail supply

As part of the Datamonitor utility survey, suppliers were asked to list the marketing strategies utilised thus far to attract or retain household customers. Suppliers were also asked to state what they believed to be the most effective strategies.

All the suppliers surveyed stated they used some kind of media tool, whether it be television or radio to target domestic customers and 91 per cent of suppliers used the Internet as a marketing tool for the household sector. A further 73 per cent stated they sponsored various local or national events in order to advertise themselves.

Less than half of suppliers surveyed (45 per cent), however, used telesales to attract new domestic customers and, indeed both this and sponsorship were felt to be less effective than both media and direct mail. This is likely to be due to the fact that the domestic customer base is a large one, and telesales may not be the most efficient or indeed cost-effective way of acquiring new customers.

Both direct mail and the media are more defensive than aggressive strategies and as the barriers to entry, such as metering costs, disappear one may see an upsurge in more pro-active marketing techniques such as telesales and doorstep selling which is proving to be the most successful tactic in the UK.

Switching in the domestic sector has been low for number of reasons. On the technical side, metering is an issue which could plague the Swedish market up until 1 November 1999. By early 1999 only 30 000 households out of 4.7 million had switched supplier in Sweden, in no small part because of the requirement to purchase a new meter when switching supplier. Although the price for replacing a meter was capped by the Swedish government at SKr2500, this still completely eradicated the possibility of any cost savings.

The abolishment of the meter requirement in 1999 should encourage switching in the household sector. In addition some 200 000 small businesses with fusing up to 63A, such as farmers, greenhouses and offices, are predicted to be exempt from metering requirements. The result is expected to be a race by suppliers for the domestic market, which has effectively been stalled since the market was opened to competition at the beginning of 1996.

Sweden is not the only country experiencing customer inertia as a result of metering costs. The Finnish domestic market was fully opened on 1 September 1998, but recent surveys show that only one-third of households have plans to switch supplier. This is partly because there is meter-reading and handling charges of around FM200, which households will have to pay when switching supplier.

In addition, households may be required to enter two separate contracts, one with the local distributor, and one with the new supplier for supply and delivery, resulting in two separate bills. This means that after separate billing, a 10-20 per cent cut in electricity price from the new supplier will only bring a 5-10 per cent reduction in total costs. Offers of up to 25 per cent reductions in electricity prices only reduce a bill by 10-12 per cent after transmission charges and taxes are added.

Of those intending to switch it is interesting to note that, while two-thirds plan to seek the cheapest source of electricity, most of the remainder stated their prime concern was acquiring environmentally friendly energy.

The deregulation of the Finnish domestic market has, however, been enlivened by the abolition of the hourly metering requirement for small users, as of September 1998. As a result, price competition is expected to increase, especially for households using electricity for heating purposes. This has prompted electricity suppliers to develop new services and working practices.

Since the introduction of competition for household users in September 1998, over one-third of Finland`s power companies have reduced their tariffs. Many companies have been marketing electricity aggressively in the traditional operating territories of small distributors who have been hard hit, as their operating margins do not allow for matching price cuts.

Oulun Energia, for example, has been reported to state that it is difficult to maintain market position with local customers in the face of lower priced offers by such competitors as Vattenfall. Many small companies may soon run into financial difficulty if they continue to reduce margins to excessively low rates.

Entrance, either directly or indirectly, into the domestic market by non-utilities has yet to occur in the Nordic market. However, it has been a trend witnessed in the UK power market.

An overwhelming 63 per cent of Nordic suppliers felt that entrance into the residential sector by non-utilities would occur over the next five years. Only 12 per cent disagreed with this statement while a similar share remained neutral on the matter.

Future switching

Despite recent trends, suppliers are confident that switching figures will pick up in future. Half of those surveyed disagreed with the statement that the Nordic market had developed to such an extent that switching would remain low. Reasons included the inability of domestic customers to switch in Sweden and Finland.

Norway: The Norwegian power market has been open to competition the longest of all the Nordic countries and as expected has seen higher levels of switching. Some 7.2 per cent of the domestic market has switched supplier, representing around 144 000 households. According to Datamonitor, it is anticipated that switching figures will continue to grow steadily up until 2005 reaching a level of around 17.6 per cent.

Despite the relatively mature state of competition, Norway continues to demonstrate a certain level of dynamism as new players, such as Statoil, enter the market. This trend should continue in the future as large players on the European continent, who will be undergoing the process of liberalization in their own market, will seek to extend sales to the Nordic region.

With regards to levels of switching in the Norwegian industrial and commercial markets, a slight surge in switching is anticipated up to 2001. As much as two per cent of the industrial and commercial market switched supplier between January and April of 1999 alone, with a steady level of switching continuing for approximately a two-year period and eventually levelling off around 2005.

Finland: The Finnish market was not fully open until September 1998, and in the case of small users, was inhibited by the hourly metering requirement until November 1998. Between September and December 1998, approximately 1 per cent of domestic users switched supplier, according to the Finnish Energy Association. This represents a percentage point per quarter, and it is anticipated that switching figures should climb by a similar figure up until 2002, with domestic switching levelling off to around 15 per cent by 2005.

Unlike Sweden, the Finnish power market is somewhat less concentrated and is characterised by a larger number of players. As a result it is anticipated that switching figures in the industrial and commercial will be slightly higher than in Sweden as more suppliers fight it out for smaller slices of the market. Switching figures are expected to surge between 2001 and 2002 and then again between 2004 and 2005 taking into account the entrance of new market players from both within the Nordic region and the European continent. It is likely that pan-European players will seek a position in the Finnish market closer to 2001.

Sweden: As of early 1999, only 1 per cent of the Swedish domestic market had switched supplier representing around 40 000 households. This lack of switching is easily explained by the meter requirement which will be removed as of November 1999. Switching figures up until 2005 show quite a surge especially between 2000 and 2002 just after the meter requirement is eliminated. Datamonitor forecasts that domestic switching should reach a figure of around 11 per cent by 2005.

Based on industry interviews, Datamonitor predicts that the level of switching in the industrial market will be somewhat lower in Sweden compared to Norway because market players are more established in Sweden, and overall, there are a smaller number of suppliers to choose from.

In addition, larger suppliers are able to fight and protect their market share more successfully. At present switching levels for the industrial and commercial markets are around 10 per cent and it is anticipated that this figure will reach around 18 per cent by 2005.


Despite its relatively long experience with market competition, the Nordic region continues to be a dynamic market, and should continue to be so in the future.

However, the key differentiation remains price. While an increased number of services will not impact significantly on switching, improvements in existing service offerings will. This indicates that opportunities not only exist for current Nordic suppliers but for foreign companies as well.

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Figure 1. Contract renewal versus supplier switching, September 1998 to March 1999, by respondents. Source: Datamonitor

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Figure 2. New entrants are likely to come from countries other than the Nordic region. Source: Datamonitor

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Figure 3. Forecast levels of switching for the Nordic domestic electricity markets, 1999-2005. Source: Datamonitor

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Figure 4. Forecast levels of switching for the Nordic industrial and commercial electricity markets, 2000-2005