Delivering Lack of Credibility

Enclosed with the DeliveryDemon’s shocker of a winter gas bill was the most infuriating whinge letter from British Gas. They are clearly ensconced on the current commercial bandwagon whereby suppliers are trying to deny any responsibility for the cost of doing business.

From utilities to airline tickets to online retailers, companies are passing on to their customers the cost of doing business, completely ignoring the fact that normal pricing practice already takes account of this. In other words, these companies are ramping up their profits by double charging. Needless to say, when the cost of doing business drops, the price reduction rarely matches that drop and the reduction is never factored into both of the double charging elements.

British Gas’s whinge was that it had no control over the cost of infrastructure or wholesale prices so, poor profitable mega corp, it was forced into passing on price increases to its customers. So how real is this claim?

First, infrastructure. We have an artificial market here, with money bouncing between the profit-making body responsible for infrastructure and the profit making body responsible for billing. The infrastructure body has no responsibility to end consumers and the billing company has no will to negotiate reductions in the amount it is charged for infrastructure. In other words, there is a serious flaw in the artificial market created by the breakup of utility monoliths.

Gas wholesale prices seems, on the surface, to be more plausible – until you look at the facts behind it. The DeliveryDemon had a quick look at gas bills over the last few years and compared them to wholesale gas prices. Since the price of gas is supposedly less than 50% of the bill, it would be reasonable to expect gas bills to reflect this.

Using 1999 as the base, wholesale prices peaked briefly in 2005, before dropping back to 423% of base. In the same period, unit prices to consumers leapt to 256% of base, staying above 200% of base despite wholesale prices dropping. Current consumer prices are 254% of base, while wholesale prices are 167% of base. Clearly not a good deal for consumers, and confirmation that, while wholesale price increases are passed on, the same cannot be said of decreases.

And what has this meant for British Gas? Profit has gone from £365M to £2,400M, a 650% increase. Dividends per share has gone from 8.6p to 21.6p, a 250% increase.

A simplistic analysis, perhaps. But simplicity has a way of highlighting the important points. And it is very clear that consumers are NOT getting a good deal from British Gas.

The DeliveryDemon has a message for British Gas, and for the many other large corporations trying to mask profiteering.

You are a large, profitable and powerful organisation, and you are not offering customers a good deal. STOP trying to pretend you are hard done by. There is not a cat in hell’s chance of anyone taking your complaints seriously. It just emphasises your role in rip-off Britain.

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