Why are customers reluctant to switch energy tariffs? - 30/09/2011

Have you managed to switch energy tariffs yet? If not, why not?

This is the question that behavioural economists are asking, particularly in light of the recent round of price hikes that the Big Six energy suppliers announced this summer and a lack of interest in moving providers from the British public.

According to the BBC, there are different types of consumer, some of whom are more likely to compare energy prices and switch to other providers if they find a suitable deal.

Professor James Devlin, deputy dean of Nottingham University Business School, explained: "Some are happy to chase every deal and get a kick out of finding them. Others don't want to read all the small print."

Consumers may also comply with the 'status quo bias' principle, which is when people tend not to change something unless there is a good reason to do so, such as saving a significant amount per year on gas and electricity bills.

The broadcaster noted that this could be perceived as laziness, but Professor Devlin believes 'quasi-rational processes' could be behind this apparent inertia.

"An attractive promotional offer for a savings account or ISA may see interest rates fall after a few months. In any case, the difference between 2.5 per cent and three per cent may only deliver a small extra return," the news source posited.

"So the value someone attaches to the time it takes might, in their judgement, not be worth it, even if to an outsider they're paying £50 too much on their gas."

Earlier this month, energy secretary Chris Huhne hit out at customers who have not shopped around for their energy package, suggesting that "they do not bother" carrying out a quick online energy comparison to find cheap gas, electricity or dual fuel deals.

"They spend less time shopping around for a bill that's on average more than £1,000 a year than they would shop around for a £25 toaster," the minister added.

But for most householders, searching for a new tariff couldn't be easier, as it takes around 15 minutes to fill in details about current energy use and average bills then peruse the options that websites such as energyhelpline.com provide.

Why then, if it is so simple to do, don't more people switch?

Money saving expert Martin Lewis said many customers believe there is little point in moving to a different energy supplier if the utility company is going to hike prices soon after changing tariff.

"People want instant gratification but the savings from switching may take time to register. For that reason people should stop talking about monthly bills and focus on the annual amount," the BBC stated.

Research from Ofgem earlier this year found around 80 per cent of householders are missing out on saving an extra £100 a year by failing to check out other gas and electricity tariffs.

With winter coming up and the inevitable expense of the holiday season approaching, it would be sensible to free up as much disposable income as possible.

Additionally, this winter could quite easily be as cold as the last and, with most of the major utilities' price hikes having been implemented, householders may be hit with significantly larger bills than they were expecting.

With this in mind, customers would be missing a trick by not visiting an energy comparison site and shopping around for a cheaper energy package.

If they hurry, consumers may be able to move on to one of the few cheap fixed rate packages around, although these are in danger of being withdrawn from the market at any time.

If you want to find out more about switching energy suppliers and how you could save up to £453 in minutes, click here.

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