Is the Cheapest always the best?

And is the cheapest always the cheapest?

For a whole range of items it’s clear that where there is an obvious and understood increase in benefit the price will be higher and people will choose to pay that. A Mercedes is far more expensive than a Ford for a
functional equivalent and we can all understand that but what happens when the
products don’t have such a clear distinction in benefit?

The perception that lots of stuff in reality is actually identical has given rise to the current plethora of internet switching sites that promote and exploit the concept of price as being the single decision factor and
make comparison between providers on that single basis. We are now used to
seeing house and car insurance, utilities, loans, mortgages and more ranked in
order of price with simple to understand options giving the impression that you
get exactly what you need at the lowest possible price. But does it really do
that?

The first thing to consider is that this benefit comes at a cost which will be reflected in the price at some point. Switching sites advertise very heavily and that’s not cheap. There income is derived via a
commission based system which naturally makes suppliers that pay more
attractive than those who don’t.

Secondly, some of the products don’t quite fit into the simple parameter frame that the websites have to use to avoid being as complex as the product might really be and that means assumptions are made that may not
suit your particular circumstance. The reality is that there are more aspects
to all of these products than just today’s price.

Thirdly, it would be a dumb move as a provider to consistently be presented as a bad deal, or to be in the most expensive half of the list. There is no opportunity to raise the profile of other important factors
like customer services and telephone answering because the sites can only work
by using this single comparison factor of price. Anyone who has spent half an
hour waiting for BT to answer may place some value on prompt responses and single
point resolution.

The natural result of all of these factors means that rankings often shift with the same comparison site over a relatively short period of time and between sites. The temptation is for suppliers to present
temporary deals to shift up the rankings then promote that improvement even when
the deal has ended. We are all familiar with ‘only £NN.NN for the first three
months’.

My business is utilities and energy is a major part of that. With 14 supply regions and multiple tariff options for each supplier the resultant tariff options for Gas, Electricity and Dual Fuel exceed 2000. When
you also consider that tariff changes occur far more regularly than they used
to the best looking deal today may not be the best looking deal tomorrow and
even if you were constantly diligent the switching time of between 6 – 8 weeks
means that always going for today’s cheapest option may end up being much more
expensive than you thought.

The other thing to watch out for is the rolling contract. One marketing strategy is to offer a fixed price (or not) in return for a 12 or 18, or 24 month contract. The rolling part means that when the contract is due
to expire you will be notified in a manner which is usually hard to spot and with
a limited amount of time to act. If you don’t spot it and don’t act you
automatically agree to a further 12, 18, or 24 month contract at the new
contractual rate which may be significantly higher than before. Most people aren’t aware of
this technique, only glance at their bills anyway and many find themselves
trapped with big bills for a considerable time.

In my next blog I’ll explain how the Utility Warehouse sets it’s energy pricing levels.

If you have any questions on energy or telephony or broadband provision I will be pleased to help.