Review of retail household markets in the water and wastewater sector

ICS Consulting are pleased to provide this submission in response to Ofwat’s Call

for Evidence in January 2015. This Call for Evidence is part of Ofwat’s review of

retail household markets in the water and wastewater sector.


Our submission provides previous evidence about customer views and attitudes

to competition in the water sector. In 2010 ICS undertook a market research

survey of close to 3,000 households in England and Wales. The results of this

survey were used in industry responses to DEFRA’s invitation (September 2010)

to “members of the public” to have their say about how the country’s water

supplies are managed in the future.


The survey covered a range of topics, including customer attitudes about

competition in the sector and in particular attitudes about households choosing

water suppliers.


Our submission to the Call for Evidence comprises the previous report on this

survey and some additional findings included with this document. We hope this

provides a helpful historical baseline for understanding customer attitudes about

retail competition in water.


Introduction

The fieldwork for the findings quoted in this submission was conducted between 11th-21st November 2010.


A total of 2,701 adults paying water bills undertook an online survey of about 15 minutes covering a range of questions about water services.


A headline majority (70%) of respondents felt the ability to choose their water supplier was important, but less so compared to other utility services. Those in favour expected the lowest possible price and liked the idea of choice. Those against were unsure of the benefits and questioned if choice would be real.


In this document we complement our main submission with further detail on customer attitudes to retail competition in water. We present to the Ofwat Call for Evidence additional findings on the importance of supplier choice and the stated reasons for and against supplier choice.


In particular we provide breakdowns of previous headline

findings by:

• age group;

• socio-economic group; and

• region.


Does age impact on attitudes?

The youngest bill payers placed the least value in being able to choose their water supplier.

32% of 18-24 year olds surveyed when asked how important it would be to choose said it

was ‘not very/not at all important’. This compared with 28% as an average providing the

same response across all age groups. This evidence could suggest the youngest bill payers

would be the hardest to engage in a competitive market increasing the risk of higher prices.


Motivations for choices

The motivations given for favouring choice appear to be largely unaffected by age with the

exception of price. Aside from the 18-24 group the importance of price decreases with age

as shown the first figure overleaf. This may reflect increasing financial security coming from

decreasing housing cost burdens and children becoming financially independent.

For the subset of respondents who did not indicate a desire to choose their water supplier

differences were less clear. The second figure overleaf shows 18-24 year olds were most

likely to be happy with the current level of service or say that switching would be too much

hassle. This suggests less engagement with water as a service. Customers in the 45-54 age

range were most likely to be openly skeptical with 65% unsure of the benefits of shopping

around.


Does SEG impact on attitudes?

We would expect to see a higher desire to achieve cost savings through choice from lower

income groups given the greater proportional impact this could have on disposable income.

Where SEG is split ABC1, C2DE we do see this in the data below even if the variation is small

(except perhaps on “Not at all important”). Given a larger sample it would be interesting to

see how this changes within the two groupings.


Motivations for choices

The motivations given for favouring choice do appear to vary by SEG as shown in the first

figure overleaf. The most marked difference between the two groupings is a stronger

emphasis on service amongst ABC1 respondents relative to C2DE respondents. Overall

however price is still likely to be the main motivator for demanding the ability to choose for all

customers.


For the subset of respondents who did not indicate a desire to choose their water supplier

differences between the two SEG groupings were minimal (see the second figure overleaf).

Again disaggregation of a larger sample may reveal some genuine differences otherwise

masked by an averaging effect across each group.


Does Region impact on attitudes?

It would be natural to expect variation in attitudes across the geographical regions surveyed.

Respondents from the North-East and North West England, along with those from Wales

most strongly stated the importance of choice with over 75% of respondents believing it to be

‘very’ or ‘quite’ important. Conversely, respondents most likely to believe the opposite came

from London or the South West.


Motivations for choices

The motivations given for favouring choice appear to be affected by region as shown overleaf.

Customers in London were more likely than their peers to be motivated by a change in service

whereas customers in Wales focused more on price than any other aspect.

For the subset of respondents who did not indicate a desire to choose their water supplier

differences, the data below provides some interesting insights. 97% of respondents who did

not value choice from London thought it would be either too much hassle to change supplier

or shop around. The differences between regions suggests factors other than just income

may be at play. Characteristics typical of London could therefore point to potential barriers to

market participation. For instance, a higher proportion of short term rental customers or

limited ‘disposable time’ may reduce the potential for engagement. Typically longer

commutes and longer hours may make the perceived marginal transaction costs higher.


Conclusions

Age may be a factor to consider in the distribution of any benefits from household

competition. The youngest customers will be the hardest to engage so most likely

to miss out. Whilst price is king, the level of service becomes more important as

customers get older, potentially as financial pressures recede.

SEG at the high level analysed shows limited differences between upper and

lower socio-economic grades. More granular information could be more revealing.

However, relatively speaking upper SEG were motivated by service more and

lower groupings by price. This conformed with expectations.

Regionally customers face different price and service levels as their status quo

and logically will have different priorities. Honing in on London, the data highlights

potential barriers to market participation and therefore any benefits of change.

For instance being ‘time poor’, perception of difficulties associated with switching

and being in rented accommodation.


Case Studies

South West Water
Thames Water
Irish Water