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Guest Blog: ‘Think Group’ by Richard Bates

Posted on: Wednesday 2nd of May 2012

Going it alone to search out and switch to a better deal is the orthodox route to better value in our energy, telecoms and financial services markets. Trouble is, trying to find a better deal in these markets can be like panning for gold: it’s difficult to know where to start, it’s time consuming, hard work and the chances of it paying off are slim. The mass consumer inertia that has come to characterise these markets is a predictable response to those high switching costs.

Is an alternative, straightforward route to better value now possible? One where an intermediary can convert mass inertia into a competitive impetus, through acting as a focal point for those consumers who want a better deal, but don’t want to have to go out and pan for it? An approach where the intermediary would fashion their aggregate demand into a winnable block of market share with which it wins a better deal for participating consumers?

Consumer Focus believes the answer to these questions is now yes, and has set out why in a new report – Get it, together – the case for collective switching in the age of connected consumers – published this week.

In the report I argue that, while collective switching would have been possible to conceive of ten years (or more) ago, it would have been impossible to realise then. Even just five years ago, it would have been difficult to make work. But, as successful examples in mainland Europe have recently shown, it’s moved past possible and is now well on the way to inevitable. And, as evidenced by the massive response to the Which? Big Switch project in the GB energy market, there is significant consumer demand for it.

This transformation in the space of a decade reflects the new opportunities for group forming and group action that social technologies have opened up.

Of course, coming together as a group in order to achieve 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. Science points to cooperation within groups being an intrinsic human tendency that has been key to our survival as a species.

But prior to the widespread availability of social technologies, the transaction costs associated with large-scale group formation and, subsequently, the co-ordination and management of group action were prohibitive.

Only organisations with hierarchies and management structures had the means to assemble large groups of people together and co-ordinate and synchronise their collective action 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.

Social technologies have led to a collapse in these transaction costs, meaning it’s not only easy for people to form groups now, it’s also easy for the group to co-ordinate and synchronise its actions in order 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 market place.

Going with the grain of inertia

Crucially for the model of collective switching presented in the Consumer Focus report, it’s now possible for an active intermediary to create the context within which people who align with the group’s objectives can be effective in aggregate – through the power of their numbers – while remaining largely passive in practice. The intermediary assumes the onus for ensuring the group is effective in achieving its shared objective. In the consumer sphere, the intermediary would undertake the heavy lifting in the marketplace, leveraging the aggregate buying power of the group to achieve a benefit for all of its members and managing the processes involved in changing provider. By going with the grain of inertia this minimises the costs of market participation to consumers and offers 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 these markets. By tomorrow collective switching could well have turned the status quo on its head and created a situation where providers will be working hard to win and retain the custom of large groups of consumers. One more manifestation of, to quote Forbes magazine, the ‘social might’ that ‘is now moving toward your company’.

Richard Bates leads the Consumer Empowerment Programme at Consumer Focus@rchrdbts