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An inertia busting business model

Posted on: Tuesday 13th of December 2011

Here is an interesting talk by Consumer Focus’ Richard Bates at the Government’s recent conference on Collective Purchasing.

The core idea is how to take universal human tendencies – such as being a tad lazy, and putting things off to tomorrow – and turn them into something that can be used to empower consumers rather than disempower.

The issue Richard tackles here is inertia. Each of us has to manage a range of accounts with a number of different suppliers: gas, electricity, phone, mobile phone, broadband, car insurance, home insurance, travel insurance, ISAs and other savings accounts, credit cards, mortgages and so on.

If we were 100% ‘rational’ and active, we would be constantly monitoring their relative performance and switching to better deals when the time is ripe. But doing all that monitoring and all that switching is a pain in the neck, so we tend not to do it. Instead of making better decisions, we let inertia get the better of us.

Unscrupulous suppliers, of course, are well aware of this tendency to inertia and often exploit it to the full: making ‘unbeatable’ offers to lure the consumer into a deal, and then using inertia to fleece them as time goes on.

Richard’s proposal brings two themes together to create a new type of business model.

First, create a ‘power of attorney’ style service that actively seeks better deals when a contract is due for renewal, without your having to ask it. This allows consumers to keep their inertia, but now the inertia lies with a service that’s being active on their behalf. Second, make it even more attractive by making it a group buying exercise – so that they have negotiating clout too.

Of course, nothing is ever simple. Getting people together to act effectively in group buying units isn’t always easy. The relationship between the ‘power of attorney’ service and the individual needs carefully monitoring. But, in today’s internet enabled times, this idea surely has legs.

 

But where’s the win-win?

The broader issue it raises is that of the relationship between empowered consumers and their suppliers.  Consumer inertia creates toxic market signals for suppliers. Inertia often makes it easier and more profitable for a supplier to  exploit the inertia than to compete around price, quality and value. Over time, this leads to hostile customers and a low-trust environment which manifests itself either in switching campaigns and/or in negative press comment, regulatory scrutiny and so on.

Once ‘hooked’ on inertia it’s very difficult for suppliers to go ‘cold turkey’: in doing so they face a potentially immediate and painful fall in profits. They also need to overhaul marketing strategies and tactics – moving from aggressive customer acquisition to a much greater focus on loyalty.

This raises an equally important question for new  consumer empowering services, including this power of attorney version. ‘Are we merely arming consumers more effectively in an ever intensifying adversarial battle? Or is there something in what we are doing which opens up a win-win way forward?’

I think there are big potential win-wins in services of this type. They revolve around reduced go-to-market and transaction costs for suppliers and, in some cases, the ability to access volunteered information from their customers.

But these ‘win-wins’ need to be worked on. They won’t just happen automatically.

 

Alan Mitchell