2007 was the year of the price comparison site. uSwitch had been operating on the utilities space for quite a while and product price comparison has been available for quite some time as well through i.e. Google Shopping. Yet it’s been the arrival of Insurance price comparison and the deep pockets of Confused.com, MoneySupermarket and recently Tesco that have taken price comparison mainstream via a winning combination of real convenience, massive marketing budgets and the ultimate distress purchase.
The success of aggregators has been fueled by the huge commissions on offer from insurance companies. Price comparison sites can be paid anywhere between £30 to over £100 a sale, making them highly profitable. This profitability is easy to sustain as they make the insurance shopping process orders of magnitude faster and easier, providing real customer value and generating lots of loyalty.
Their success has spawned a whole new set of internet intermediaries keen to put their hand in the money pot. Unable to replicate the aggregators’ business model of adding value to the customers, these new intermediaries have looked for alternative ways to get customers’ attention. A first generation of specialist information sites is now on the way out. MoneySavingExpert is the only strong survivor, having been able to play the personality game as a differentiator and extended to TV and other channels. 1st generation sites’ typical technique -amassing loads of useful, original content and making it available free- has proven too easy to repeat and not very successful commercially, as it is all too easy to soak up information on those sites and defect to the price comparison sites for the actual purchase.
The new generation have a much stronger formula. Rather than trying to add value to a user experience with content or convenience tools, this new generation cuts straight to the ultimate customer motivator: hard cash. Sites like Casback Kings and Quidco promise to pass their commision (all or in part) back to customers in exchange for their email address. Surely enough, they have proven popular with the public and may be starting to take transactions away from the price comparison sites.
Cashback sites are winning propositions for consumers, who see their prices drop by what can be a significant amount. They are much worse news for retailers, experiencing the opposite effect: having their costs skyrocket by paying a commission on top of every sale. Where price comparison sites offer retailers extended distribution reach, Cashback sites are purely parasitical, feeding on retailers’ margins while adding no real value to the chain. Yet in a very competitive market -retailers’ favourite mantra these days- they seem happy to keep feeding the beast and allow it to take hold in their business space. Price comparison sites commoditise, lower retention and increase churn to a point where most insider would recognise they’d be glad to see them fade away. Cashback sites add to the value-destruction spiral. Yet the lessons have not been learned. And we happily feed our business’ Brutus.