The ESRI's Price Lab Report has everyone talking! Here are 6 things we learned.
“If you can’t convince them confuse them” was famously said by the 33rd President of the United States, Harry S. Truman.
But after reading today’s fascinating ESRI report on consumers’ ability to accurately compare complex products, you might be forgiven for wondering if the quote is plastered on the walls of product designers’ offices up and down the country.
And who could blame them?
It turns out that consumers get very confused when comparing complex products, leading to inaccurate decisions and, in many cases, overpaying.
Here are six key findings from today’s Price Lab Report.
1 – Consumers can’t tell good deals from bad deals very well
The ESRI’s report has found that Irish people have a very difficult time accurately matching value to price, leading to bad spending decisions.
In fact, for consumers to actually be able to notice that an offer is good value, the deal needs to be 16-26% better than the average deal for the exact same product.
2 – Consumers are really bad at accurately comparing products with multiple features
When a product has just two or three features, we are “strikingly imprecise” at determining whether or not the price represents good value.
Products have become increasingly detailed and complex over the last 10 years across many industries.
Take broadband for example.
As consumers, we now have the option of adding TV subscriptions, landlines and even mobile plans to our broadband packages. As products like this swell to include more features, we’re more likely to sign up for something we don’t actually want, or overpay for something we do want.
3 – Big companies might be tempted to add complexity to products in order to confuse consumers
The ESRI’s report suggests that consumers may be missing out on the benefits of competition due to the increased complexity of products on offer these days.
The dominant players in different industries have an incentive to purposely complicate their products so that consumers can’t really tell whether there’s a better alternative option out there.
In cases like this, consumers will probably just settle for a recognisable brand name or choose to renew a contract they’re on, even though it may not be in their best interests to do so.
4 – Consumers overestimate the value of expensive products the most
If it wasn’t bad enough that we’re not very good at telling a good deal from a bad one, we’re more likely to overestimate the value of a product, the more expensive it is.
In other words, we are more prone to overpaying for a pricey product than we are for a cheap one.
The ESRI found that in many cases, consumers overestimate the value of expensive products by 10-15%.
5 – Good education, practice and familiarity with the product doesn’t really help
Researchers at the Price Lab considered a few factors that might make consumers perform better when comparing complex products.
They tested whether or not very well educated people performed better than the original test group…and the answer was ‘no’.
They then tried to find out if participants performed better on comparison tasks if they were given a few tries at it…and the answer was ‘no’.
Finally, the research team looked into whether or not consumers performed better when they were particularly familiar with the product in question (they used broadband plans and house prices in this test)…and, you guessed it, the answer was ‘no’.
6 – Independent comparison sites are one of the solutions to consumer confusion
The Price Lab report features some suggestions as to what might be the best way for consumers to get around the confusion and make better spending decisions.
It suggested that “independent, transparent price comparison websites” such as bonkers.ie are a good place for consumers to go to avoid being bamboozled by complex products.
End the confusion
The ESRI’s report has confirmed something that consumer advocates and big companies have known for some time. If consumers are to benefit from choice in the market, then the confusion caused by excessive complexity in everything from insurance policies to mobile phone plans must be minimised.
We might see the regulators, many of which are stakeholders in the Price Lab report, take action but until then, bonkers.ie can certainly help protect consumers from making bad decisions by showing products in a simple manner, based on each user’s personal preferences.