Meerkats. Opera singers. Twerking men in high heels. And now Skeletor. The big price comparison sites have very different ad campaigns — all of them equally annoying — but the service they provide is broadly similar. Or is it?
The Competition and Markets Authority has been probing the websites we use when we want to save money on our bills, insurance policies or find a cheap credit card.
It launched an investigation into Compare the Market this week, probing whether the meerkats are striking deals with insurers that prevent them from selling cover more cheaply on other websites.
But the most shocking thing I read in its wider report is that many consumers believe price comparison websites are unbiased and run for their benefit.
This helps explain why satisfaction levels with these digital comparison tools are sky high. And why not? Pretty much everybody who uses one will save money by switching supplier. The key question is — could they be saving more?
The CMA’s research found that consumers did not typically think price comparison websites were pushing any particular supplier or product, and often described them as “unbiased” or “there to help consumers”. I can see why they would fall into this trap.
Using an online aggregator to find the best deal doesn’t just save money — it saves time. As the CMA so artfully put it this week, these websites help people to buy products that are “complicated and not immediately interesting”. Too right! Who wants to waste a Saturday afternoon gathering umpteen online insurance quotations when a few clicks can show you lots in one place?
However, consumers are not generally aware of the business models driving these commercial organisations.
They provide their services to us free of charge because they make money by charging a commission to suppliers — be they energy companies, insurers or lenders — when we switch or sign up via their platform.
Paying this commission is, the watchdog said, usually a better deal for the suppliers compared to the cost of advertising directly for customers themselves (and my goodness, the price comparison websites dominate every ad break on TV). Their power is growing: more than 11m people switched their home or motor insurance, credit card or broadband via the biggest price comparison sites in 2015.
And the cheaper the deal, the higher its ranking will be. When you add the cost of commission, the supplier could well be acquiring a new customer at a loss. But they are hoping that inertia — surely the biggest driver of profits in the financial services industry — will come to the rescue.
When your cheap deal runs out, the amount you are charged will shoot up — unless you switch again (thus generating another commission payment for the websites).
Regulators are also concerned about the incessant focus on price. The top insurance policy may be the cheapest — but has the level of cover been “hollowed out” to bring the cost down? Check the small print carefully.
And the results presented by price comparison websites aren’t always comprehensive. If they don’t have a commission-paying relationship with a certain supplier, they may not list their products (some brands abstain from being listed on price comparison websites).
The order of results presented can be skewed by all manner of things (including sponsored deals) and may depend on which preferences you have ticked (or unticked). The CMA wants websites to make this clearer.
For example, when I recently switched energy providers on uSwitch, the first search I did projected I could save £213 with Eon, which was flagged “most popular plan for your region”.
I fiddled about in the settings, which defaulted to: “Only show plans uSwitch can help me switch to.” I clicked “Include plans that require switching directly through the supplier”.
You can try, said the website, but that just means more work for you! I then found we could potentially save even more — £253 a year — by switching to Bulb, a small, renewable energy provider.
As a consumer, am I satisfied? Hmm. I recognise that price comparison sites are huge companies that need to make a profit for their shareholders. With a bit of savvy, I’ve found an even cheaper deal through uSwitch that won’t make it any money. And the company did send a handy email alert to remind me that our current energy deal was coming to an end.
The industry knows me as a “free-rider”. Similarly, the CMA notes that many people use price comparison sites to get a quote, then haggle with their current supplier rather than switching.
The reality is that not that all comparison sites are the same, so try more than one if you can — and check how they have ordered the results.
As I’ve written here before, the problem with switching is that you have to keep doing it to avoid being gouged on price. Wouldn’t it be better for consumers if energy companies, banks and insurers rewarded our loyalty instead?
The current system that constantly churns millions of customers on to loss-leading deals seems crazily inefficient — for suppliers and customers alike. Ultimately, the fortunes that brands and price comparison websites spend on marketing campaigns and commission payments will be passed to the consumer in the form of higher prices.
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