Here’s a theory I’m sure you’re familiar with: foster competition within a market and its benefits – prices held down, service driven up and thriving innovation – will follow, as engaged consumers work to maximise their own interest and seek out better deals.
It’s a notion that underpins our energy, telecoms and financial services markets here in Britain.
And here’s a reality that I suspect won’t be unique to Britain: mass inertia is the norm across these sectors. It’s a predictable and understandable consumer response in markets where engagement is not a high priority and which suffer from being archetypal ‘confusopolies’.
The result is an impasse. Consumers stay put and competition gives way to complacency on the provider side. The benefits that competition should deliver for consumers are then in short supply. The fabled invisible hand is, well, all too invisible.
But, what if we created an alternative, much simpler, more powerful way of making these markets work for consumers? One where an intermediary works on behalf of consumers to:
- Provide a focal point around which consumers who want better value, but reject the conventional ‘go it alone’ route to market can cluster
- Convert mass inertia into a competitive impetus by grouping participating consumers’ aggregate demand into a winnable block of market share
- Leverage that aggregate demand to secure a better deal
- Manage the mass switch of participating consumers to the provider who makes the best offer to the group
In a new report for Consumer Focus, I’ve argued the possibility of doing just that. The report expands on a trend I termed ‘Get it, together’ in a previous CI blog. At the core of this trend are the opportunities for new forms of group action enabled by social technologies.
Of course, coming together as a group in order to pursue a shared objective is nothing new.
History is rich with examples of people organising in groups and using the consequent power of numbers to advance collective interests and press for change – whether social, political, or economic.
But the costs associated with large-scale group formation and, subsequently, the co-ordination and management of group action meant that only large organisations with hierarchies and management structures could act in this way. And only then if the benefits achieved outweighed the costs incurred.
Instances of people collaborating as a group outside the bounds of an organisation were mostly limited to small scale, local initiatives.
But social technologies have eroded those costs, meaning it’s not only easy for people to form groups now, it’s also easy for the group to achieve critical mass and to co-ordinate and synchronise its actions to achieve a shared goal.
As a result, we are seeing a proliferation of new kinds of groups, including consumers working together or through intermediaries to achieve a shared objective in the marketplace. The Bank Transfer Day campaigns in the USA harness precisely these dynamics, as do local Carrotmob initiatives.
What’s more, in the past effective group effort often depended on a division of labour that assigned all members a task to undertake in pursuit of the group’s aims. Not anymore.
An active intermediary can now work on behalf of the group and harness the power of its numbers - rather than the efforts of its members - to achieve the shared goal. Other than aligning with the group and signalling assent to an action being undertaken on their behalf, individual members can now be effective in aggregate while remaining largely passive in practice.
In a consumer context, this solves the problem of inertia and minimises the costs of market participation for consumers, offering them the attractive proposition of better outcomes for less effort.
Today, we’re seeing the first wave of initiatives that look to put these ideas into practice and disrupt the markets to which they’re applied. Within the next three to five years collective switching could well turn the status quo on its head and create a situation where providers will have to work much harder to win and retain the custom of large groups of consumers.
Already, collective switching pioneer – iChoosr – has secured significant savings on energy bills for hundreds of thousands of consumers in Belgium and the Netherlands. Consumentenbond has also applied the approach successfully in the Dutch energy market. Which? has just overseen the first instance of collective switching in the British energy market, resulting in a straightforward route to an average saving of £123 for up to 200,000 participating consumers. Choice provided a much needed jolt to the Australian mortgage market by applying a variation of the approach there.
As you may have noticed, three of those four initiatives have been offered by consumer bodies. The success of the exception, iChoosr, has been built on working in partnership with community organisations that consumers know and trust.
This suggests that integrity – a quality with which consumer and community bodies are strongly associated – will be key for consumer adoption of this approach. That’s hardly a surprise given that having the confidence to engage with an intermediary platform on a novel approach to markets that can represent a major financial commitment, will be a key issue for consumers.
Collective switching and wider initiatives harnessing the group dynamic have the potential to disrupt and rebalance how power and information flows in markets. Therefore, existing players who have most to lose are likely to resist the sea change rather than make the running in developing this kind of service.
Bodies working in the consumer interest therefore have vital roles to play as catalysts for collective switching. This could take the form of supporting pioneering intermediary services that work on behalf of consumers in markets; or, wherever necessary, involve the direct development and deployment of the platforms that can open this alternative approach up for consumers.
Richard Bates leads the Consumer Empowerment Programme at Consumer Focus @rchrdbts