The most generous discounts available to electricity consumers have stopped the exodus of customers from Contact Energy Ltd, but at a cost estimated by market observers to be around $14 million a year.
Highly placed industry sources have told BusinessDesk they estimate that is the cost of Contact's new 22 per cent discount off normal tariffs for people who receive and pay their power bills online.
Contact previously offered a 12 per cent discount and had pursued a strategy of price leadership in the sector for more than a decade before last month's decision to offer deep discounts after losing some 15,000 customers in the first two months of an Electricity Authority campaign encouraging consumers to compare power prices.
While Contact's listed tariffs are still higher than many competitors' before the discount, the 22 per cent reduction available for online customers has transformed Contact's competitiveness on the Consumer's Institute Powerswitch website.
Latest figures from the Electricity Authority show Contact still lost a net 413 customers in the month of August, but that was a huge improvement on the average 7,679 customers lost in each of the previous two months. Contact has lost around 13 per cent of its total customer base since it peaked in September 2008.
Industry observers have been amazed by the Contact offer, which is being actively extended to its existing customer base and extensively advertised, ensuring that uptake is likely to be high for the offer, which is believed to leave Contact with very little, if any, profit margin on its electricity sales.
Contact has already indicated it sees customer retention as a key goal at present, and expects electricity tariffs to continue climbing in future years, while two years of relatively low wholesale market spot prices are unlikely to be maintained.
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