It has been an interesting few weeks for price comparison websites.
As a business energy broker, we take, what we believe to be, a very principled stance. Whilst we are not a price comparison website, we share many of the fundamental commercial characteristics. As such we are able to take an objective view of how we should do business and how others should.
We are dedicated to providing our customers with the best deal for their business without bias, operating in a transparent manner which we feel others could learn from.
To that end:
- We’re a business energy broker working on a ‘whole market’ basis
- Our background is in energy supply so we know the market and its failings intimately
- We get paid by suppliers for delivering them customers but these commercial terms have no bearing on our recommendations to our customers
- We are happy to disclose any commission we may earn from a deal and provide our customers with a unique key facts document that details this
- We are here to make the business energy market work better for UK businesses and to lead change in the way suppliers and TPIs alike (Third Party Intermediaries) operate
It’s with a view to improving the market that we are writing this article.
The Big Deal
It was the ‘Big Deal’ that ‘broke’ the story of price comparison websites “hiding deals” that they “did not have commercial arrangements for”. The Big Deal markets itself as a collective switching organisation using bulk buying power to secure a good deal for customers.
This is a worthy idea but unproven, indeed some have claimed that the first collective switch did not deliver a market leading contract. That remains a concern, as does the lack of transparency in the process and offers delivered to customers who sign up for the switch. We would like to see this model operate on an open auction platform basis so that customers can see who is bidding for their business, at what price and when, and vote to take a deal or not. In doing so, once a critical mass has been achieved that fulfils the offering supplier’s commercial needs a portion of those customers can take the deal that is attractive to them and so on.
Savings Clubs
Taking inspiration from the ‘Big Deal’ other organisations have launched ostensibly similar products however on closer inspection it appears to not actually be the case. These ‘clubs’ rather than bringing customers together to bulk buy, collate individual customer data and preferences (such as target price) and when a deal comes to market that matches that target are switched by the organisation. There is nothing wrong in this as the customer gets the deal they asked for, however control is given over to an organisation who has a vested interest (commission payments from suppliers) for switching customers on a regular basis.
Hiding deals
Hiding deals is controversial and wrong. Yet there have been some who have defended such behaviour with arguments such as:
Offering all deals openly, including those that were only available directly through suppliers, would lead to price comparison websites being the marketing tool for discounting suppliers yet earning no benefit from the resultant direct switch.
We have some sympathy with this argument, clearly it would be wrong for a supplier to demand representation on a platform and then refuse to allow it to be delivered via that platform. That however is different entirely from the platform itself unilaterally ‘hiding’ a deal that it can technically fulfil but chooses not to for commercial reasons.
Suppliers can refuse to be featured on price comparison websites or can withhold some deals from the websites.
Taking the model of Direct Line in the insurance industry, this is an entirely reasonable commercial strategy and one which is not in any way contradictory to the existence of price comparison websites. If a Supplier refuses to make its products available then the platform cannot be obliged to and would not be allowed to feature such deals. However that is not hiding deals, it is a commercial strategy of a supplier to voluntarily choose not to use such platforms as a marketing medium and to instead adopt a complementary alternative marketing strategy for their business, exactly as Direct Line does.
Featuring smaller suppliers on the price comparison websites rather than ‘hiding’ them could result in their prices attracting too many customers and them being unable to cope with the volume.
The beauty of the principle of price comparison websites is that they are dynamic and can quickly react to the changes in supplier offerings. Suppliers control their own commercial strategies, it is not for such platforms to do so on their behalf. If a ‘small’ supplier tops the table and wins business it is clearly within their power to withdraw their price offer when they have reached their critical mass. A price comparison website has no business in deciding this for the supplier. Hiding deals on this basis is simply unacceptable.
All price comparison websites need to get paid, if they feature offers for which they do not have a commercial agreement, or one that is not deemed equitable, then it is reasonable, from a business perspective, to not offer this deal.
Getting paid is of course reasonable; there is little point in being in business without it. Promoting some deals above others on the basis of the commission earned and not the ‘value’ of the deal to the customer is however no reasonable or acceptable. This is not a fine line, it is a very large broad line and any organisation knows when they have intentionally set themselves up to cross it. Customers should be able to be confident of the ‘impartial’ nature of any such platform. Is it really so difficult for price comparison websites to list the suppliers who are not actively featured so the customer can make an informed decision whether to continue with a purchase or leave the site for more investigation before returning to complete a deal? After all if your platform has the best deals, what’s the risk? And if your platform doesn’t have the best deals then you can’t reasonably expect customers to shop with you.
Hidden deals are not an issue in themselves, it is the failure to disclose commission that is an issue.
This is interesting. Hidden deals are an issue. Equally so is the failure to disclose commission. Hiding deals is unacceptable. Likewise refusing to disclose commission (or in some circumstances to claim no commission is involved through misleading text such as “free service”) is equally unacceptable.
Disclosing Commissions
Failure to disclose the potential commission earned from an energy switch is almost universal amongst the price comparison and broker / TPI / consultant market.
Just as worryingly, the failure to disclose any existence of such commission is equally common with the words “free” used ever so slightly too often for comfort by many players.
Of course the service is not free, it wouldn’t be there if it was!
So why not just disclose? As was the case with ‘hiding’ deals, the justifications are many:
Price comparison websites are contractually prevented (by suppliers) to publish commission.
This is not our experience at all, of course in any commercial agreement there are confidentiality clauses that must be abided by all parties however this has never covered the disclosure of the individual commission payments potentially due from a service provided. Indeed the energy suppliers have been increasingly proactive in their encouragement of such disclosure following our lead in doing so.
Competitors could discover commercial arrangements of individual organisations.
This is true if disclosure was public, but disclosure need not be public as long as the parties involved have complete transparency. Furthermore, even if this were to be the case then competitor knowledge is unlikely to have any bearing on respective commercial strategies because ultimately each will have their own imperatives for operating. Indeed if the impact was to start a ‘price’ war then the strongest platforms would survive and customers would benefit from prices forced downwards. That’s what a well functioning market delivers.
Customers would be influenced away by an ‘agenda’ from other parties
If suppliers can demonstrably prove that the existence of price comparison websites and TPIs increases the cost of end users then that is a commercial challenge that such parties must address. The fact is however that whilst ad hoc discounted deals can ‘beat’ the market, the wider buying population does not have access to such deals. Platforms such as these are the most cost effective way for suppliers to attract new and retain existing customers. They operate on a pay for what you receive basis and avoid the need for suppliers to engage in costly, and unpredictable, sponsorship and advertising campaigns. Any supplier can probably prove on an adhoc basis that they were cheaper going direct “in this instance”, suggesting that this would be the case en masse and without such platforms is another matter entirely. Simply it wouldn’t be the case. As such an individual supplier might operate a short term ‘bashing’ strategy but this would soon become an isolated folly once commercial realities hit home.
Suppliers don’t reveal their marketing costs so why should we reveal commissions?
This is a fair point, but not disclosing commissions is not the way to go to improve the market. Just as one would expect price comparison websites to be honest about their commercial model, so should suppliers be. In an ideal world supplier investment in marketing activity to generate direct sales, and the costs incurred by customers as a result should be equally disclosed. This however is not an ideal world and the failure of one party to do the right thing is not justification for others to follow likewise.
Put simply, there is no justification for hiding deals. That is why we would never do so.
Equally there is no justification for not disclosing commission. That is why we provide all of our customers with a key facts statement disclosing how much commission we will potentially be paid for arranging the deal.
As ever, if you can’t trust your price comparison website or broker to tell you the truth about their commission, how do you know how much they are earning from your sale and could you get a cheaper price elsewhere?