A new Social Market Foundation report entitled Should switch, don’t switch: Overcoming consumer inertia, supported by comparethemarket.com, launches at the Conservative party conference on Monday.
Social Market Foundation (SMF) makes recommendations to help address consumer inertia:
- Implementing an annual government-backed ‘Active Consumer Week’, taking place in January, so that consumers are prompted into switching once a year – saving them time and money.
- Expanding and completing the government’s Midata initiative and using this to empower consumers by offering a ‘one stop shop’ online for all of their consumer data, enabling easier and quicker comparisons.
- Nudging consumers away from the practice of ‘rolling over’ their tariffs after contract expiry.
Should switch, don’t switch examines why consumers display more engagement in some markets, such as the car insurance market; where 32% of consumers report having switched in the previous 12 months as policies expire; compared with the current account market where just 7% report switching. It identifies key behavioural biases that affect the decision making of consumers, namely:
- Too much information – research shows consumers make better decisions, and are happier with them, when confronted with less information. Some consumers may be put off entirely by too much information.
- Framing – consumers are sensitive to wording around price and value, such as “half price”, “months free” or limited time deals.
- Habits – behaviour often becomes habitual, which becomes a barrier to making well-reasoned decisions.
- Biased beliefs and inconsistent preferences – people make decisions based on poor predictions of future behaviour.
Learning lessons from these markets where consumers are most active, combined with insights from behavioural economics and social psychology, Should switch, don’t switch provides a detailed understanding of how government and regulators can help overcome consumer inertia and enable households to save money. The report makes a number of recommendations, including:
- Implementing an annual government-backed ‘Active Consumer Week’, taking place in January, so that consumers only have to engage with switching once a year – saving them time and money. During this week firms would be obliged to communicate with consumers who have let their contracts roll over to inform them about the scheme and compete for their custom by offering the best value options. By holding it in January it is hoped that Active Consumer Week would become a part of every consumers New Year’s resolutions.
- Expanding and completing the government’s Midata initiative, which make available the financial data held on consumers in standardised, safe, electronic and portable formats, and using this to empower consumers by offering a ‘one stop shop’ online for all of their consumer data, enabling easier and quicker comparisons.
- Nudging consumers away from the practice of ‘rolling over’ their tariffs after contract expiry. Regulate to ensure firms communicate the end of a contract to the customer, highlighting the ways in which they could get better value (including purchasing from a different provider), and introduce a regulated ‘emergency tariff’ for those failing to renew their contract before it ends – similar in nature to the emergency tax code.
Ben Richards, report author and researcher at the Social Market Foundation, commented:
“Consumer inertia means that households are missing out on hundreds – and in some cases thousands – of pounds in annual savings. These savings can be made by regularly switching products such as gas and electricity, mobile contracts, broadband, and car insurance. Given the huge size of the savings available we would expect most consumers to switch – but a large number don’t.
“Government and regulators should be doing more to help. Consumers are much more engaged in some markets than others – we must take lessons from how these markets operate. Behavioural economics also gives us clues about how to help consumer decision-making – too much complex information can lead to poor decisions, for instance. In Should switch, don’t switch we recommend implementing an annual government-backed ‘Active Consumer Week’, so that consumers only have to switch on to switching once a year – saving them time, hassle and most importantly money.”
Paul Galligan, Managing Director of comparethemarket.com, said:
“It is very clear that consumers are facing real issues when it comes to managing their household finances, with several barriers adding to the problem. There is a real need for industry, government and regulators to come together to find solutions that motivate consumers to take action. The findings of Should switch, don’t switch provide practical measures that can be put in place to tackle behavioural barriers and ultimately result in better financial outcomes for consumers. We have a real opportunity through this report and the findings that the newly launched, Institute of Inertia unearths, to tackle a growing societal problem.”
Notes to Editors:
- The launch event is being held at The Conservative Party Conference on Monday 5th October, 45pm, Exchange 1 Manchester Central.
- A copy of the report, Should switch, don’t switch: Overcoming consumer inertia, is attached to this release.
- The report is supported by comparethemarket.com and the Social Market Foundation retains absolute editorial control over its outputs.
- The Social Market Foundation (SMF) is a leading independent UK Think Tank which develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach smf.jynk.net.