As one recent news article put it recently:
The publication in hand was Private Eye, and therefore a parody, but of course in every joke is a grain of truth.
Although being able to switch utilities and providers at ease is a step in the right direction for improving how consumers interact with choice, not everyone can, or indeed wants to, spend their lives chasing deals and activating switches: often life gets in the way of such luxuries.
That’s not to say there isn’t a problem of consumer overspending. Ofgem has recently estimated that the average household can save £200 per year by switching gas or electricity supplier. From the Money Advice Service (MAS), being able to find out whether you are overpaying for your utilities and services should take only 20 minutes to find out, and just 17 days to complete the whole switching process.
A Competition and Markets Authority (CMA) report from July was concerned that domestic energy prices are too high and the six largest energy companies, which supply 90 per cent of British customers, accumulated profits that are too excessive. It also found that two thirds of households were “disengaged” and paying more for their energy than those who have switched tariff. Just over a third of the 7,000 people asked did not even realise switching was an option.
Worryingly, at a recent event by the Social Market Foundation (SMF) to launch their new report A Switch In Time, we heard that general consumers are switching their energy suppliers even more than they are for their current accounts – which tells you how relatively low the latter is as a priority.
We see a correlation between low income consumers and low levels of switching. Previous research by Which? found that people in higher socio-economic groups were “more likely to switch than those in the lowest (43 per cent of people in the AB group switched current accounts in the last year, compared to 33 per cent of people in group DE).”
In a recent Ofgem survey they looked at engagement by four types: “switched on”, “tuned in”, “on standby”, “unplugged”, and found that “Switched on consumers are more likely to be from higher socio-economic groups in comparison to other segments” and that “Unplugged consumers are more likely to be from lower socio-economic groups, be on prepayment meters, and live in social rented accommodation”.
In the CMA report on energy switching 35 per cent of those whose household incomes were above £36,000 had switched supplier in the last three years, compared with 20 per cent of those whose household incomes below £18,000.
Lack of engagement?
When the CMA looked into current account switching, they found that engagement is “lower among less advantaged groups and much lower among those who were most often overdrawn because they feel that they would be unable to change banks as other banks were unwilling to take them on”.
Though what might be termed “engagement” here may well be just a question of lacking time, ability, knowledge, and inclination to be able to switch services, rather than disinterest.
Research from the University of Chicago last year interestingly found that households rarely search for alternative retailers, and when they do search they favour the brand leader anyway.
So interestingly, if “engagement” is defined as being motivated to switch, or going the whole way to switching, then switching to the brand leader, instead of the service that offers the best choice, might still narrowly be defined as “engaged”.
But as the Chicago researchers put it, this behaviour is just another side of consumer inertia because it doesn’t put any particular thought into the switch (save for brand recognition) and therefore diminishes the consumer benefit of retail competition.
A lack of real engagement may be to do with a number of factors. Ben Richards, for the SMF, found in his research on consumer inertia and switching options that if people aren’t readily supplied with the following information then rather than switching providers, they tend to switch off:
1. Motivation: consumers must be motivated to identify their best value tariff and provider.
2. Access: consumers must be able to access information about the various offers available in the market.
3. Assessment: consumers must be able to assess these offers in a well-reasoned way.
4. Ability to act: consumers must be able to act on this information and analysis by purchasing the good or service that offers the best value to the customer.
Ben Richards and the SMF call for an Active Consumer Week (AWC) in which regulators and firms liaise to advertise their products simultaneously, giving people a window where they can engage with new services and possibly switch. They call for the AWC to be in January, a time when people are planning for the year ahead.
In other words, people are more likely to respond to switching if there is a deadline (e.g. save money before the December 31st) rather than just increasing the ease of switching services.
Saying switching in general can save money is information that can often be forgotten as time passes. But by providing reminders and cut-off dates to consumers, around a big annual event or the AWC idea, could prevent inertia and help people respond to money saving information while organising around busy lives.