Why Don’t People Switch Energy Supplier?

Another round of energy company price rises in the UK has triggered the usual media debate about why many people don’t bother to switch supplier to save money?

The answer is rooted in the nature of the consumer brain.  Sadly, this is something that politicians and regulators have failed to get to grips with when they have intervened to try and create a more effective consumer market.

So here are five reasons that people don’t switch energy supplier, even when doing so could save them £100+ in a year:

      1. There isn’t actually a financial reward from switching.
        It’s nice to get £100.  Most of us believe we would do quite a lot to get £100.  Certainly, if you asked people, many would say that they would give up half an hour of their time to get £100.But, here’s the thing.  If you decide today to switch energy supplier to a cheaper company it will mean that in a year’s time you will be £100 better off than you would have been had you not switched.  Most people don’t get a thrill from this sentiment; it’s too far in the future and too abstract a notion.The only way you’d actually get to see the £100 is if you carried on paying the same monthly amount, but put the difference into a separate account and then took it out to spend it after 12 months: I don’t know who would do that, but I do know I wouldn’t want to be sat next to them at a party!
      2. It’s cognitively demanding.
        I’m not suggesting that it’s beyond most people to switch energy supplier.  There are lots of comparison services that make it fairly easy to do.  However, because it’s not something that people have much experience of, it requires them to consciously attend to every step of the process.  This isn’t something we do lightly.Cognitive effort is a finite resource.  Most of us would rather use whatever amount we have for something that, when we get to the end of it, we feel a decent level of reward.  This gets us back to the first point.
      3. The people in the media make it feel like a pointless endeavour.
        I defy you to find a story in the media about energy prices increasing that doesn’t include a comment along the lines of, “Other energy suppliers are expected to increase their prices within the next few weeks.”Even though this is true, knowing that any effort you expend in switching to a new supplier based on current prices is likely to be negated to some degree by an imminent price increase allows us to justify our dislike of the cognitive effort (point two) and diminishes the potential gain that was already something we would never see (point one).
      4. No one else is switching.
        As we all know, because the media, government regulator and so-called ‘consumer interest groups’ keep telling us, hardly anyone bothers to switch energy supplier.  And even those people that do mostly have the good sense not to sit next to people at parties and tell them about it.So the prevailing social proof is that this isn’t something other people do.  Which makes it infinitely more comfortable for us not to do anything either.
      5. People don’t think about their energy supplier.
        It’s rare for me to wake up in the morning, turn on the light and get a warm glow from the fact that electricity is being squeezed into my home (or however they get it there).  Nor, come to think of it, do I say a short prayer of thanks to the people who ensure that gas is squirted into my boiler so that hot water can be pumped around the radiators and make it warm.  Mind you, given the way energy prices have risen, the thermostat is set to ‘just above cryogenic suspension’ level.But the point is that no one really thinks about energy, except when it’s in the news because the prices are going up again.  That makes people not want to think about energy.  Even those that do must think about making a bad situation slightly less bad: it’s hardly a reason to throw a party and tell everyone how thrilled you are about the saving you’ve made.

All of this means that some very intelligent intervention is required by regulators to get people switching.  I have no idea what that would look like, but I do know that carefully designed, psychologically valid experiments would be required to find something that works.

What ‘works’ looks like is an important point.  I’m not an economist, but I know some clever people who are.  I’m reliably informed that you only need a proportion of people in a market to switch to create enough competition to make prices competitive.

When that happens, switchers benefit by getting the cheapest prices – which is fair enough, since they’ve bothered to do something to get those prices (or been dull enough to trade off the time they could have been jumping on the bed for time spent comparing energy tariffs).  Meanwhile, the rest of us benefit because the energy companies have to compete to get the people who will switch and all prices are lower as a result.

Unfortunately, the recent move to simplify the market has, I’m told, simply resulted in a situation where everyone pays more than they used to do.  Apparently, this was what was predicted and this is exactly what happened.

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