Deal or no deal – a call for transparency in the price comparison market

Everyone likes a bargain. Have you seen day time TV recently? Whether its Arnold Schwarzenegger and those damn meerkats or would be welsh opera singers, the need to seek out the best possible deal is as ingratiated into British culture as David Dickenson’s tan. Unfortunately, just like David’s orange veneer, what looks like a good deal is often only skin-deep.  Anyone conducting a quick search on broadband deals might be inclined to think that the internet was free in the UK – until the offer ends and the provider start turning the screws…Welcome to the wonderful world of marketing.

I’d like to talk for a moment about “introductory offers”.  When a company offers something for less than its normal cost, particularly where a subscription cost is involved they are not doing so out of the kindness of their hearts. They are doing so because a user acquired during the marketing activity will continue to subscribe or pay after the period in which the marketing incentive ends. In other words, at some point down the line the user becomes profitable.

Ok so nothing groundbreaking here, and in fact I think it’s fair to assume that most consumers get it. You sign up, get a few months free and then pay what you should have been paying in the first place. You’re happy, the company’s happy, everything’s just fine and dandy.

But what happens when the consumer goes through a middleman to find that deal – when they use a service specifically designed to provide that choice, and then facilitate the sign up? This is where the waters muddy a little more, especially when the choice presented to the consumer is not as open and free as they may believe.

And therein lies the rub of affiliate marketing. Comparison websites, like uSwitch and Compare the Market, make money from every referral they process. A lot of money. Each year an estimated 5m people chose to change their energy supplier in the UK using price comparison websites, with the overall market valued at hundreds of millions of pounds.

The problem with this model isn’t that they are making money (although one would question what “savings” are left for the consumer when the energy companies can afford to both market their services and pay considerable commission to price comparison websites). The real problem is that they only make money on some of the deals shown. This means that they are incentivized to deliberately push customers toward the deals that are, for them, the most lucrative.

Think about that for a moment. You offer someone two choices, A and B. If they pick option A, you get £100. If they pick option B, you get nothing. Which option are you going to want them to pick? This is exactly the dilemma price comparison websites face, and the result is consumer misdirection on a massive scale. In fact, in a survey conducted by “TheBigDeal” in late 2014 found that all of the major price comparison sites deliberately hid the cheapest deals from their customers. In the most, they incorporated a mechanism asking users to select deals available “now” or “today” – selecting either of these options would automatically exclude deals that did not earn the sites a kickback.

Again, these sites have worked hard to get around the Ofgen regulations by displaying which of the deals are proprietary, but with over 43% of consumers not realising that these sites charge energy companies a commission it seems that the relevance of this is lost in  the majority cases. When the consumer does not understand the implications of their choices, how can they be said to be fair and without bias? I would argue that in the current model they are anything but.

The real problem is that profit and choice don’t play well together. When the options presented represent different value to the entity providing the choice then it is hard to see how this model can operate without bias – harder still when then entire business model of your company depends on your customers making specific choices, and impossible when you throw in a bunch of demanding shareholders.

Clearly, something has to change, and in the UK we are beginning to see some progress in this area. The Big Deal use mass consumer buying power to negotiate cheaper deals for their members, coining the term “collective switching”. It’s a clever move and one that will hopefully put the consumer first again. The trouble here is that they still have to look after their own bottom line, so the profit / choice complication is not entirely removed.

Here at C H O R E D we don’t think it’s about negotiating the lowest deal, or forcing people into restrictive, long term contracts. Simply, we believe that the answer lies in consumer empowerment through presenting an unbiased view of utility costs. Since we went live in September 2015 we have processed thousands and thousands of bills, throughout the UK. In 2016 we intend to open source this data, to make it easy for anyone in the UK to see exactly how much each and every utility costs on a month by month basis.

The point here is that we already have our bottom line taken care of – we have built a payment platform that ties in to every major utility company in the UK allowing our users to easily split and pay their bills directly to their utility providers. Much like booking a train ticket, we charge a small fee for the service – which, according to our users is a lot better than chasing 5 erstwhile housemates for their share of the gas.

But it means that we can afford to present this choice without bias. We deliberately built our payment platform at arms length from all utility suppliers, so unlike other services in this area our users are free to choose which bills they want to process through us. This is exactly the position we aim to take in 2016 in offering a free and unbiased choice on utility switching – and it’s something that we truly hope will encourage a much fairer and open approach from some of the more established websites out there already.

Oliver – CEO

PrevBack to Blog