Consumer Behaviour and Attitudes when Shopping Around for Multiple Financial and Household Services

Abstract

In developed economies, such as the UK, to function from day to day every household requires a substantial array of basic services that might be termed 'household infrastructure'. These include utilities, such as energy supply and communications, and financial services, such as banking and insurance. Increasingly, UK governments have adopted the view that the best outcomes for consumers and the most efficient allocation of resources in virtually all markets, including those for household infrastructure, are achieved through competitive markets.

Effective competition requires consumers to engage actively in these markets, being prepared to switch providers in order to signal their preferences and influence the pricing and product decisions of firms. In many of the household infrastructure markets, there is evidence that consumers are not sufficiently engaged to drive competition in this ideal way. Numerous studies have looked at the barriers to engagement in individual markets and proposed ways to foster consumer-driven competition for each particular service. However, little research has been done looking at whether the need to engage simultaneously in many different markets could itself constitute a barrier.

The research presented here used a survey of over 1,000 consumers to examine their behaviour and attitudes when shopping around for multiple services. It finds that the average household shops around for fewer than half of the infrastructure services they use and suggests that regulators may find it tough to persuade households to shop for the rest. Consumers who do not shop around tend to overestimate the difficulty of the task, are more likely to think that providers are all the same (especially for energy) and that the potential savings are too small to make shopping around worthwhile (particularly in the case of energy, insurance and credit cards). Respondents also took part in a cognitive test which, if reliable, suggests that even when consumers do engage, their shopping around might not drive competition effectively.

Read IKD Working Paper 80 - Consumer Behaviour and Attitudes when Shopping Around for Multiple Financial and Household Services.