There’s an important debate at the moment about the marketing of essential services. It’s taking place in parliament, universities, think tanks, and the media. It involves companies, consumer groups, economic regulators and government. It matters for pressing economic reasons but could have greater long-term significance. It might conclude that present assumptions and terms of trade are, despite appearances, fit for purpose. Equally it might point the way to nothing less than a new direction for consumer capitalism.
National Citizens Advice this month welcomed the announcement by telecoms regulator Ofcom that broadband suppliers must inform customers when their contract is about to end. A useful step in the right direction (though we still believe more is needed to remove the penalty paid by customers who stay loyal to suppliers).
Claiming to reward loyalty is standard practice for consumer businesses. For many it’s also actual practice but for various reasons essential service suppliers tend not to be among them.
In a landmark report last year, Citizens Advice showed energy, mobile, broadband and financial services companies giving much higher priority to winning new customers than looking after existing ones, especially when it came to pricing.
The evidence was overwhelming. Customers who stay loyal (who can’t or don’t micro-manage their contracts with suppliers) could be overpaying by as much as £987 a year.
The report contrasts essential service suppliers with supermarkets and coffee shops who reward loyal customers for repeat business. Why are essential service so different? Many explanations are possible:
These are explanations, not justifications, but relevant to the debate and the future.
The Citizens Advice findings provide powerful support for a ‘super-complaint’ to the Competition and Markets Authority. It demands that government and regulators act to change the behaviour of suppliers in all affected markets. Recent developments in utility regulation are grounds for hoping it will succeed. One example in broadband is Ofcom’s tightening of notice requirements (above). Another is Ofgem changing energy network company licenses to keep out ill-equipped opportunists. A third is the government’s law enforcing a cap on retail energy prices.
These changes should improve the supplier-customer relationship by cutting out individual causes of complaint. They are welcome but seem far smaller in scope than plans to remove the loyalty penalty. Changing the relative positions of new and existing customers by making companies re-balance their marketing priorities could transform the sectors and help restore trust in consumer capitalism itself.
There are of course many reasons why confidence in capitalism is under strain, but clearly mistrust of business is central. And if business sometimes presents an unattractive face, then overcharging and treating customers like suckers are obvious expressions.
The question then becomes: what would be the impact of requiring companies to transfer some of the incentives they now use to attract new customers to benefit existing ones?
The answer is: we don’t know, but here for consideration are some ideas from different perspectives:
– respond to society’s increasingly obvious demand for new behaviour by re-balancing marketing between customer care and customer acquisition
– increase transparency to build confidence particularly in fair prices
– increase investment in improving service standards
– accept and present themselves as private sector companies with public service responsibilities over and above those of other consumer companies
– work with regulators and government to explain their public service objectives and manage any change in investor expectations.
– accept that customers’ expectations are not being met through existing policies
– review their objectives, assumptions and balance in use of regulatory tools, in particular affecting their:
– requirement to stimulate industry competition
– oversight of investment in service standards
– communication of their own role in delivery of services.
– regain confidence in the industries that play such a large part in their quality of life
– begin to see essential services as in a broad sense public services privately provided
– be more willing to take action to help meet local, national or international environmental and supply needs.
Financial markets might:
– respond to government, regulatory and social signals to see utilities as safe long-term investments not lightly regulated, secure revenue streams legally manageable for super returns to capital.
The likelihood of these responses depends on the actual impact of a concerted move in favour of existing customers.
If, as is possible, it seems that such a move would lead all interested groups to focus more on meeting public service and consumer expectations, the change could help restore trust in business and capitalism itself. If, however, as is also possible, it meant going back to out-of-date and uncompetitive ways of working, there would no such advantage.
Could the Citizens Advice super-complaint result in companies being steered to put the interests of existing customers before ‘bird-call’ marketing at their expense? The new priority might benefit society and the economy, but also increase trust in capitalism itself.