What if consumers were as determined as the businesses they dealt with?

| March 31, 2014

Making meaningful comparisons as a customer is challenging. Christopher Zinn says we need help in order to make better decisions as consumers.

It is a big ‘what if’ because too many businesses profit from the lack of determination of their customers for better products, services and even prices.

The public’s desire for improvement is dulled by a widespread disengagement, resignation and inertia that anything they do may actually be much better for them.

And the consumer malaise seems worse in those markets which really count most because of the sums involved: superannuation, health and other insurances, energy such as electricity and telecommunications.

The symptoms are a lack of switching to better offers, which tends to benefit the incumbent above the challenger brand, and even paying over the odds by sticking with the wrong plan and perhaps the wrong provider.

The figures are sobering. The Australian Communications and Media Authority says poor plan choice around telecoms has cost consumers a probably under-estimated $1.5 billion a year.

The ATO holds more than $18 billion in lost superannuation accounts. And despite more than 11 million Australians are covered by private health insurance less than 40,000 of them switch each year.

The fault is not solely the consumers. The ‘confusopoly’ of the mobile phone market in particular makes meaningful comparisons more than challenging.

Our cognitive biases, which make us particularly vulnerable to decisions around money and cause us to favour the present as opposed to the future, do not serve us well when it comes to assessing strategies around retirement savings.

And the complex and changing rules around health cover and premium rebates tend to drive policy-holders to sit pretty instead of seeking better value.

Of course some consumers are determined and realise a little time and effort in acquiring knowledge of these markets can save significant pain and expense.

But there’s a limit to even their patience and how much effort is worth it for how little a reward. There’s also the issue of expertise and the imbalance of information: as consumers we are amateurs buying from professionals.

We may only purchase a new car every few years, but the sales staff sell them every day, and however canny you are they will always know more about the vehicle, its true value and how to upsell you on various unnecessary warranties.

One way to correct this asymmetry, as it’s sometimes called, is to gather like-minded consumers together and use their numbers as leverage in negotiating better terms.

It’s already happening in specific markets such as energy and insurance as One Big Switch, with whom I used to be director of campaigns, has demonstrated here and overseas.

Another way is selectively reforming markets by regulation. In Australia conflicts of interest with financial planners led to the Future of Financial Advice (FoFA) legislation.

The government is seeking to severely dilute these much needed consumer protections, claiming they are somehow excess ‘red-tape’. In fact they represent a much-needed shark-proof cage for consumers to more safely navigate financial waters.

In the US and UK regulation is helping liberate consumers’ usage data from the back offices of utilities and banks so citizens can employ trusted third parties to crunch the numbers and help them make better decisions.

Being determined as a consumer is not just a state of mind, although that helps. In the future it will require the technologies which can bring us together quickly and cheaply to use some people power in markets.

It will also require more consumers to get hold of their own data and then find emerging intermediaries to help them make real sense of the complexity and choice fatigue which bedevils too many markets.

Determined consumers do not need to be told to shop around or read the fine print. They already know that, but they do need help in turning their determination into better decisions.



Christopher Zinn is an independent consumer advocate currently running a campaign to highlight the financial advice protections (www.saveourfofa.com.au). His other initiative is www.determinedconsumer.com.au which is aimed at motivating consumer action. He has worked at CHOICE and One Big Switch as well as the ABC, Channel Nine and several newspapers.