Many households could save hundreds of pounds each year by shopping around for consumer goods and services such as energy, broadband, car insurance and bank accounts.
Yet huge numbers do not take advantage of potential savings: rates of switching and engagement are low. High rates of consumer inertia mean there is substantial untapped potential for households to make big savings.
What explains these high rates of inertia? How can consumers be helped to unlock these savings and improve standards of living? Should switch, don’t switch draws on insights from social psychology and behavioural economics to improve our understanding of consumer behaviour. Using these insights, together with detailed analysis of each of the key markets in which consumers spend significant sums, it gives four recommendations for ways policy and regulation can be improved to overcome consumer inertia, help households save money, and improve standards of living.
The report’s recommendations to help address consumer inertia include:
- 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.
This report was kindly supported by Compare the Market.