There is a fundamental problem at the heart of many industries - consumers seem to be unwilling or unable to do anything to switch their supplier despite the savings or enhancements to their service that could accrue by doing so. For example, less than 5% of consumers have switched their current account in the last year and despite somewhat higher levels of churn in energy and telecoms, it's overall still pretty anaemic.
Is keeping it simple the answer?
So why don't consumers switch? If you asked people would they be willing to put in an hour or two of work to save what could amount to in some cases hundreds of pounds then it seems like a no-brainer that they would do so. Regulators have long been scratching their heads on this issue. They increasingly see the problem as being due to the way brands in these sectors often seem to build complexity into their offerings, making it harder for consumers to compare propositions. The Office of Fair Trading has called this a Confusopoloy, effectively accusing suppliers of attempting to keep consumers confused and therefore adverse to engaging in the market. Regulators have tried to fix this by simplifying things - so Ofcom is proposing to simplify switching across telecoms markets, the Payments Council's Current Account Switch Service aims to make it easier to switch bank accounts and Ofgem's Retail Market Review is aiming to take steps to help consumers find better deals.
More radical solutions are called for
But, asks Richard Bates in a recent report published by Consumer Futures, all these reforms seem to suggest that eager consumers are all waiting in the wings for the processes to become easier whereupon they will flood the marketplace seeking out new suppliers. The problem is that this places the burden purely on the shoulders of the consumer, the assumption being that once the clouds are lifted, our rational economic sides will kick in and will propel us to make sensible decisions. But we know that it is not that simple as a big part of the reason for the lack of activity is that we don't think rationally, so it's not just about making the process simpler. If it were that simple then surely a smaller brand seeking to generate market share would have cleaned up long ago.
Wired for inaction
Unfortunately, it seems that we are wired for inertia, with behavioural economics showing us time and again that the way in which we think about these things is in favour of basically doing nothing. For example, 'hyperbolic discounting' means we tend to over emphasise in our minds short term costs over long term benefits. So the hassle of having to find our usage details and search for the best offer pretty much always outstrips the attractiveness of savings which may accrue over the course of the year. Another example is 'regret aversion' where people are worried about making a decision that they fear they will come to regret in the future. People are concerned not only with what they have but how it compares to what they might have had - so again they do nothing. There are many other examples of the ways in which our brains are wired in favour of the status quo.
So it seems highly unlikely that any of the activities of regulators to simplify the decision process will make any real difference to the market, the problem is getting consumers to engage in the first place. But a new breed of companies is set to potentially change all this. Intermediaries which sit between brands and consumers to help find the best deal. Of course we are all used to the first generation of intermediaries, price comparison sites. But in their current form these are limited. They focus on price, one service at a time and, importantly, don't always have the trust of consumers that they will always see the best deal.
A disruptive innovation coming this way
The new breed of intermediaries has a much more rounded offer. They not only look at price but also supplier performance from third-party rating sites but also use personal data that has been volunteered by individuals about their preferences. And as well as using a wider range of information, the fundamental business model changes, so it is no longer about a one-off or occasional use but an ongoing relationship that checks you are on the right tariff with the right supplier and not just for one, but for a whole range of services. So you can continually be assured that you are getting the best deal on the terms that you specify in advance (whether that be level of price saving, ethical suppliers, quality of service etc). And not only that but these services increasingly do the actual switching on your behalf when a better supplier is found, thus avoiding another hurdle that otherwise means consumers do nothing. So these services turn consumer inertia on its head. The very fact that consumers are inert becomes something that works in their favour as these 'choice engines' constantly work on their behalf without having to do anything.
Examples of these sorts of intermediaries include Incahoot's concierge service where you send in household bills and they will take responsibility for overhauling your household finances. Another is billmonitor which examines your historical mobile phone transaction data, identifying trends you may not be aware of to put you on the best deal. Intently allows consumers to broadcast their purchase intentions to the market, letting sellers approach them in a privacy friendly way.
There are a growing number of these sorts of services and the market is surely set to grow as government regulation concerning personal data comes into force. In the UK the government's midata programme is requiring firms to make available to consumers their transaction data in a machine readable, transportable format. A similar programme called Green Button is underway in the US, providing consumers access to online personal energy-usage data. These developments mean that it will be easier than ever for the new breed of intermediaries to collect information on your behalf. Currently you either have to enter it yourself or exist in a somewhat legally grey area of providing your online account details. Spreadsheets are available from suppliers in some sectors but these can be pretty cumbersome and onerous for the average consumer to navigate.
Implications are immense
The implications of these changes are huge. If it works as many expect then sectors which are often considered not to be working in the favour of the consumer, such as the utilities market, can expect to be massively disrupted. There are serious implications for these brands which will now need to rely less on consumer inertia through obfuscation about proposition and rise to the challenge of differentiating themselves through new products and services as well as helping consumers make the best decision. And last but not least, consumers should expect these services to deliver them real empowerment as well as money in their pocket. This is powerful stuff which brands ignore at their peril.