We’re living in strange times, experiencing things we never dreamed possible. The worrying thing is that the light we can look forward to at the end of this tunnel of social and economic uncertainty is the familiar face of a recession, whatever shape that may take.
CSO figures show our unemployment rate stands at 16.7 per cent when we include those on PUP (pandemic unemployment payments). If we remove those in receipt of PUP our unemployment figure looks less worrying at 5 per cent. That is a considerable swing. 5 per cent seems manageable, 17 per cent is a crisis, but that’s the problem with this period of uncertainty. We’re in limbo and we don’t know how to start planning for recovery.
During these times you may have expected to see a huge spike in service provider switching behaviour across categories, but that hasn’t quite happened. In fact for some categories the incidence of switching has actually decreased. Switching providers is one of the most underrated ways households can save money - so the big question is, why don’t more people switch?
In this week's Inside Marketing podcast, media consultant Ian McGrath and account director Olwen Inglis from Dentsu Aegis Network discuss recent findings from Dentsu Consult's research into consumer behaviour and triggers around switching utility and energy suppliers..Listen now:
In most cases we create perception barriers that reinforce our belief that it’s not worth our while: our friends pay less for their utilities because their house is smaller, they’re more conservative with lights, their broadband is slower, and so on. We create a mental hurdle and believe comparisons are difficult, and so inertia trumps effort. We believe the time spent on hold to the call centre isn’t worth the inconsequential savings we may make.
Research conducted by Dentsu Consult (a survey of 760 household electricity and/or gas decision makers was conducted during August 2020) found that in the last year only a small proportion of consumers have switched providers - 38 per cent switched their car/motor Insurance, 28 per cent switched gas supply provider, 24 percent switched their electricity provider, 23 per cent moved broadband/internet provider and 18 percent changed TV service provider.
This inertia to switching is despite the reality that, in most services and categories, switching is not difficult, and there are significant savings available. According to the CRU, the average household can save ¤400 a year by switching. It would therefore seem counter intuitive that at a time when Ireland is facing tremendous financial pressure, the incidence of switching decreases. However, recently released figures from the energy regulator show that switching decreased by 25 per cent in March and April.
A key part of our consumer research was to understand what was causing this behavioural anomaly. You could say that we are currently experiencing the calm before the switching storm. Covid-19 was unprecedented, the impact was seismic. Every industry was affected, every family was impacted.
The level of social disruption was nothing short of tectonic, and we’re still trying to live through the aftermath, still trying to socially adapt to a new normality. The shock to our social systems was so severe, the degree of upheaval to our everyday life so overwhelming, that more mundane tasks like switching providers fell down our list of priorities. Survival was more important and so society was paused and our country fell into a temporary deep sleep as Ireland and the world locked down to prevent a catastrophic collapse of society and our healthcare system.
Six months in, people are starting to pay attention again and consequently utility bills will come under greater scrutiny. Dark economic clouds are gathering on the horizon. Consumers and businesses who were originally cushioned by government economic packages now face uncertainty. Recession is coming, meaning consumers will adjust their economic outlook and spending accordingly.
Covid-19 has had a limited impact on Irish adults’ perceived financial health with many consumers having similar levels of perceived disposable income to 2019. And despite the decimation of several industries, there are many who seamlessly transitioned to remote working, and for many, income remained unaffected with 48 per cent of households surveyed saying the pandemic had no impact on their personal finances.
Despite consumers not yet feeling the pinch of Covid-19 on household income, there is substantial worry looking to the future. 55 per cent are worried about job security or income in the next 12 months. The more immediate impact of the crisis is that consumers are already showing spending reluctance with many re-considering major purchases and more beginning to look at bills to identify financial savings.
In August, over half of consumers (55 per cent) were spending less and saving more due to Covid-19. Two thirds (65 per cent) of people said they are no longer planning on making any big purchases this year, such as a car or house. More importantly for utilities and subscriptions services, nearly three in five (59 per cent) of people surveyed said they are looking more closely at bills to see where they could save money in the next 12 months.
Artificially low levels of switching behaviour in the last year leaves many brands vulnerable to churn, particularly market leaders as consumers are less likely to be locked into initial contracts. This is particularly worrying for utility providers; with more people at home, and the cold snap set to return, we expect this switching lull will suddenly change as consumers see the impact on their home energy costs and bill-shock sets in.
Although switching has been low these last 12 months, switching intention over the next 12 months looks high; over two in five (43 per cent) are planning to switch their car/motor insurance provider, 41 per cent their electricity provider and 40 per cent their gas provider. Broadband/internet and TV service providers are not much safer with over a third also planning to switch in the next 12 months (38 per cent and 35 per cent respectively).
Why does this leave market leaders more vulnerable? Surely brand loyalty and customer satisfaction will protect market leaders and those brands who have followed the long-established rules of 60:40 brand and activation marketing should be safe? This doesn’t seem to be the case as only two in ten households say they wouldn’t consider switching because they’re happy with their current provider.
This may be explained by consumers saying price (93 per cent) is the single most important factor when initially choosing an electricity or gas provider and remains the key motivator for switching (83 per cent), followed by being easy to deal with (45 per cent) and good online customer service (37 per cent).
New battle lines are being drawn, and according to the consumer price is the key battleground. Price triggers are further compounded by the fact that 50 per cent of consumers are likely to use comparison websites when researching energy providers. Covid-19 is likely to fan the flames of growth for aggregator markets in the utility space, and in addition to making price comparison much more palatable for the average consumer, these sites act as the impetus to remove consumer inertia by taking the perceived pain of switching away.
What does this mean for brands as we head into these uncharted waters? The context of Covid and the inevitable recession, and the impact that this will have on consumer behaviour, is something that cannot be ignored. Brands needs to consider the challenges that lie ahead and think beyond the established rules of marketing that may no longer be relevant. We are patient zero, we are only writing the first draft of a new rulebook today for how brands need to behave during pandemics in the future.