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Modernising consumer markets: the Consumer Green Paper
At BIT, we are passionate about ensuring that consumers benefit from well-functioning markets — from better deals to higher quality services. We want governments, regulators and businesses to, in Richard Thaler’s phrase, ‘nudge for good’. The UK Government’s Consumer Green Paper, published yesterday, encourages just that.
The Green Paper is a well-evidenced account of the opportunities and challenges of modern consumer markets. But beyond the theory, it proposes action that will make a real difference to the lives of UK consumers — whether you want to cancel your magazine subscription, understand who you are sharing your personal data with, or get the best service from your energy or mobile phone provider.
It is also a milestone for the Behavioural Insights Team. We were co-authors of the 2011 consumer empowerment strategy and have also contributed to this Green Paper, sharing our experience and expertise on how consumers actually behave in markets, and how businesses react to harness and, unfortunately, sometimes exploit, consumers’ behavioural biases.
Designing better markets
The current Green Paper builds on, and greatly extends, the 2011 strategy. It’s striking how much markets have evolved over the past seven years, with widening gaps between the best and worst value deals in regulated markets, and technology and big data changing what we buy, how we buy it and from whom.
Importantly, the Green Paper also sets out an evolution in the Government’s approach to ensuring that markets really work for consumers — signalling an ambition to not just encourage consumers to actively engage, for example by switching suppliers, but also to ‘shape markets and fundamentally change the incentives on firms’.
We are strong advocates of this ‘market design’ approach. It comes from a deeper understanding of how businesses and consumers interact in reality, and how markets are changing in the digital age.
Proposals to improve outcomes for UK consumers
Many of the proposals in the Green Paper have strong behavioural underpinnings and stand to improve the functioning of markets and the lives of UK consumers.
1. Simpler terms and conditions and cracking down on subscription traps
The UK Government and regulators agree that terms of products and services should be clear and intelligible to consumers, but this is often far from the reality. Overly complex and lengthy terms can lead to consumers either missing or misunderstanding the key points of the contracts they enter into — for example, research by the FCA found that almost half of active credit card users did not know all of the important features of their current credit card, such as the annual fee or credit limit. Similarly, many consumers who take up free trials end up inadvertently paying for unwanted services.
The Green Paper sets out proposals to make it easy for consumers to understand the terms of the products and services they buy — from charges on your credit card to the personal data you are sharing with Instagram.
Advances in online testing, such as BIT’s Predictiv platform, mean we can rigorously test how well a representative sample of UK consumers understand a particular piece of information. Online tests like this can help businesses improve their communications, so that their customers can better understand what they are agreeing to.
We support the Government’s proposal that companies should be regularly test whether their terms and conditions, and privacy policies, are intelligible to consumers and that in some sectors a baseline threshold of comprehension should be met.
We are also delighted to announce our collaboration with BEIS to produce a good practice guide for business on presenting terms and conditions and privacy notices online. The guide will be informed by a series of lab-based randomised control trials, using Predictiv to test different ways of presenting terms and conditions to improve engagement and understanding. We’d welcome views from businesses and other stakeholders as part of this project, so please get in touch.
2. Identifying and helping vulnerable consumers
The Government’s focus on helping vulnerable consumers is also very welcome. As we noted in our paper on applying behavioural science to regulated markets, consumers who are on low incomes, or are vulnerable due to their health or other circumstances, may be more likely display particular behavioural patterns such as ‘scarcity mindset‘.
This scarcity mindset consumes brainpower, or ‘mental bandwidth’, which leaves less cognitive capacity for important tasks such as planning ahead and problem solving. We can help those in difficult circumstances to save money by making it as easy as possible to switch provider or access a tariff reduction.
As suggested in the Green Paper, data sharing can identify vulnerable customers for additional support. For example, the Government has recently suggested that benefits data could matched with energy supplier customer records to automatically give eligible people a discount on their energy bills without them needing to apply.
Examples like this, where help can be given by default without requiring more time and effort from already stretched individuals, are likely to make a real, positive difference to people’s lives.
3. Driving better performance by suppliers and digital comparison tools
The Green Paper proposes performance scorecards for suppliers and digital comparison tools in regulated markets. This is a fantastic first step in promoting good performance and creating competition on quality.
Regulators might understand which suppliers are high performing and which are not, but this information is not currently easily accessible to consumers. Publication of this data will allow the Government, regulators and consumer groups to monitor performance and hold suppliers and digital comparison tools to account for outcomes such as differences in price, consumer engagement, service quality and complaints.
In markets where consumer dissatisfaction is high and quality of service is variable, scorecards will let consumers choose a supplier based on quality as well as price — allowing good performers to signal excellence, and driving poor performers to improve.
Behavioural insights and experimentation in evolving markets
As well as announcing our collaboration with BEIS on simpler terms and conditions, the Green Paper highlights the work we have done in partnership with the Money Advice Service to improve consumer understanding of complex credit card features, helping consumers choose credit cards that are well suited to their needs. The full results of the Financial Capability Lab will be published later this month and we are looking for partners to test the most successful ideas in the field with their customers. If you’d like to be the first to hear more get in touch.
We have also been considering the role of behavioural insights in evolving markets, looking at the challenges ahead as digital markets become increasingly central to consumers’ lives — something we will be writing more on in coming months.
For now, we are hopeful that the Green paper will spark a fresh and lively debate about the new frontiers of modern markets, and how government and regulators can keep pace with evolving markets to promote competition and ensure good outcomes for consumers.
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