Independent consumer advocate Christopher Zinn looks at the issues raised by consumer groups promoting a “big switch”.
A fascinating parallel to the controversial CHOICE Big Bank Switch has just played out in the UK with echoes of the Australian campaign reverberating in the latest group switching experiment.
A tingle rang down my spine as I read some mixed reactions to the culmination of consumer group Which?’s Big Switch where 280,000 households registered to find cheaper gas and electricity contracts.
It all seemed very familiar. In August last year CHOICE pioneered the group switch idea with 40,000 mortgage holders signing up in a few days to see if aggregating consumers could drive a better home loan.
The political potency of cost of living pressures around mortgages and energy meant each campaigns stirred up a hornets’ nest’ seeking to shift markets they believed were uncompetitive.
Such high profile interventions, despite all the precautions, caused consumer expectations to run high. These were perhaps inevitably dashed when the reality trumped the hype.
They were also a lightening rod for allegations that the consumer groups had conflicts of interest, were not transparent enough about the switching fees they were seeking , and stood to make them millions from high fees (a very inflated claim) .
CHOICE partnered with group switching pioneers One Big Switch. Which? was backed by the UK government and 38 Degrees an online change agent.
For Which? initial controversy surrounded the departure of two of the big six energy providers from the process . Five large and small companies took part in a reverse auction; when the results came out last week Co-operative Energy won all three categories.
Some UK Headlines were not kind saying the deal was disappointing, not the cheapest deal on the market and was only available to the first 30,000 switchers.
But Which? has countered saying the criticisms come from vested interests, the average savings would be 123 pounds and if everyone who signed up switched there would be a 25 million pound saving on household bills.
“ …The truth is that nothing is ever that simple in the energy market. We know one deal will not work out cheapest for everyone, as a single energy tariff has a minimum of 98 different prices due to variations in regions, meter type and tariff structures,” wrote Which?’s Richard Lloyd in a blog in the Huffington Post reflecting on the complexity that bedevils and paralyses everyday consumers navigating the energy market.
The deadline for consumers to take up the offers is May 28 when we will get some idea of the conversion rate – the all important number which tells how many are really prepared to take the plunge.
Both endeavours were billed as landmark experiments in consumer power to intervene in markets for essential services which needed more price competition.
The campaigns proved their point through recruiting many who may not have considered switching before; creating new and arguably better deals which changed the market, and pumping some invigoration into the consumer movement.
But the final offers in both cases came from off-Broadway with smaller and unfamiliar players; in the case of Choice’s Big Bank Switch the savings were there but consumers tended to be wary of little known players and so the take up rate was low.
Perhaps we should not be surprised by the negativity given the threat to existing business models; Most of the gorillas in the market – Big Four banks in Australia and some of the Big Six energy companies in UK, refused to play ball; Other vested interests be they mortgage brokers and switching sites vigorously sought to derail the idea as it threatened their business models.
The question for consumer groups now is what next? Such interventions can be uncomfortable, are costly and not nearly as profitable as the critics suggest. But they resonate with consumers, can provide genuine savings and really get up the nose of the incumbents.
What do you think?