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written by
Oliver Jones

Cost of loyalty: how sticking with a big corporate provider could cost you in the long run.

LOYALTY.

 

Big brands often make a lot of noise about valuing their customers, but new data from Citizens Advice shows that many who stick with a provider end up paying an extra £1000 a year.

They've called for a CMA (Competition and Markets Authority) investigation into what they've labelled "the extra price of loyalty" or the “loyalty penalty”.

How is this happening?

Customers on contracts with big companies are being switched onto default tariffs once the contract expires - often without adequately warning the customer beforehand.

This means that long-time customers are often charged more than new customers for the same products.

Utility services across the board are affected. Energy, mobile, broadband, insurance policies and bank accounts all followed a similar pattern: new customers are brought on with sweetened deals, then moved onto expensive tariffs once their contracts expire.

 “Loyalty penalty”

It is normal for utility providers to raise prices gradually to cover their costs: Citizens Advice note that their aim is not to totally eliminate the ‘loyalty penalty’, as this can form part of healthy competition between providers.

But the scale of some of these long-term price increases is worrying. Citizen's Advice are especially concerned about impact on older and low-income customers, who are both least likely to switch and least able to afford the added expense.

The solution? Switch.

We've said it before and we'll say it again. The best way to avoid getting caught out by price rises is to make sure you switch providers when your contract expires.

This holds true no matter what utility we're talking about - but is especially important when it comes to energy. Our own research has found that default tariff prices can be up to 80% more expensive than  negotiated contracts.

In the case of small businesses, especially those which are, by nature, high energy users (we're thinking of our chippie and restaurateur customers), it’s not an expense they can afford.

More needs to be done make sure both small businesses and consumers know how and when to switch their utility providers. Watch our switching mythbuster video for some free tips on how to switch providers, and why it’ll save you money in the long run.

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