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Consumer attitudes towards switching supplier in three deregulated markets
The Journal of Socio-Economics 38 (2009) 814–819
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The Journal of Socio-Economics journal homepage: www.elsevier.com/locate/soceco
Consumer attitudes towards switching supplier in three deregulated markets Amelie Gamble ∗ , E. Asgeir Juliusson 1 , Tommy Gärling 2 Department of Psychology, University of Gothenburg, P.O. Box 500, SE-40530 Göteborg, Sweden
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Article history: Received 30 July 2008 Received in revised form 26 April 2009 Accepted 3 May 2009 JEL classification: D03/D12/D40 Keywords: Deregulated markets Switching supplier Consumer attitudes
a b s t r a c t The efficiency of deregulated markets is jeopardized by consumers failing to switch supplier to the extent that would be beneficial to them. In order to disentangle the determinants of failures to switch, the present study investigates consumers’ motives for negative attitudes towards switching in the deregulated Swedish markets for electricity, landline telecom, and home insurance. Based on the results of a mail survey of a random sample of 458 household consumers, reliable measures were constructed of attitude towards switching supplier, loyalty to the incumbent, information search costs to compare suppliers, and expected economic benefits from switching. A negative attitude towards switching supplier was shown to increase with loyalty, increase with information search costs and decrease with expected economic benefits. Attitude towards switching was more negative in the electricity market than in the other markets and more negative in the landline telecom market than in the home insurance market. The differences between markets were accounted for by differences in loyalty, information search costs, and expected economic benefits. © 2009 Elsevier Inc. All rights reserved.
1. Introduction In recent years many former state-ruled markets have been deregulated. In Sweden the electricity market is the most recent deregulated market. Since the deregulation in 1996 a number of suppliers compete on a free market. These suppliers buy electric power at the Nord Pool Spot Market, an exchange market for electricity, and resell it to their customers, about half of which are households who use the electricity in their homes. Despite the deregulation the former monopolists dominate the market (Swedish Competition Authority, 2004). The aim of the deregulations is to bring about competition among suppliers in order to increase efficiency of the market and reduce retail prices (Swedish Consumer Agency, 2002). However, in Sweden retail prices have gone up ever since the deregulation of the electricity market (Statistics Sweden, 2009a). This is partly due to inflation and raised taxes, but perhaps partly also due to household consumers’ reluctance to choose suppliers who offer the lowest prices. Thus, households tend not to switch to new suppliers (an average annual switching rate of 11.2% was recorded in 2007, Statistics Sweden, 2009b) and neither do they prefer variable price agreements (Juliusson et al., 2007).
∗ Corresponding author. Tel.: +46 0 31 786 1677; fax: +46 0 31 786 4628. E-mail addresses: [email protected] (A. Gamble), [email protected] (E.A. Juliusson), [email protected] (T. Gärling). 1 Tel.: +46 0 31 786 1840; fax: +46 0 31 786 4628. 2 Tel.: +46 0 31 786 1881; fax: +46 0 31 786 4628. 1053-5357/$ – see front matter © 2009 Elsevier Inc. All rights reserved. doi:10.1016/j.socec.2009.05.002
In research on consumer behavior, it has been proposed that consumers trade-off value of a retailed product against how much effort they want to invest in the purchase decision (e.g., Bettman et al., 1998, 2008). Choices among products may require much effort when they vary on many attributes. In contrast, electricity is a homogenous product with little variation between suppliers at the service level. Price per unit constitutes the major or only difference. Thus, a choice of the cheapest supplier should require little effort. Dissatisfaction with the incumbent should be an impetus to switch. A recent report indicates that Swedish electricity consumers are dissatisfied with their incumbents (Swedish Quality Index, 2009). However, this does not seem to affect their switching. The purpose of the present study is to attempt to disentangle other determinants of the negative attitude towards switching. A mail survey is conducted of a representative sample of Swedish household consumers to investigate their motives for negative attitudes towards switching supplier in the electricity market compared to two other deregulated markets, the landline telecom market and the home insurance market, where satisfaction with the incumbent is higher at the same time as, and possibly results from, that switching is more frequent (Swedish Quality Index, 2009; see also Table 1). The hypotheses that are tested in the survey are derived in the next section. 2. Hypotheses Gamble et al. (2007) identified four factors that affect consumers’ switching intentions in the Swedish electricity market.
A. Gamble et al. / The Journal of Socio-Economics 38 (2009) 814–819 Table 1 Description of sample. Variable
n
Descriptive value
Sex (% men) Age (years) (M/SD)
487 487
48.3 48.8/13.1
Education High-school (% degree) College (% degree) University (% degree)
484
Married/cohabiting (%) Households with children (%)
487 484
Annual household income (103 SEK)a 200 or less (%) 201–300 (%) 301–400 (%) 401–500 (%) 501–600 (%) More than 600 (%)
480
Rate of switchingb , c Electricity market (%) Landline telecom market (%) Home insurances market (%)
458
Satisfaction with incumbent supplierd , e Electricity market (M/SD) Landline telecom market (M/SD) Home insurances market (M/SD)
458
30.6 33.5 36.0 74.9 87.9 12.7 19.3 18.3 19.3 16.2 14.1 36.4a (11.2) 72.7b (32.0) 55.0c (32.0) 3.4a /0.8 3.6b /0.9 3.7c /0.8
a
1 SEK was approximately 0.20 US$ at the time of study. Percentage of respondents who indicated that they switched at least once. Annual switching rates in 2007 are reported in parentheses (Statistics Sweden, 2009b). c Different subscripts indicate that the mean differences were significant in 2 tests at p < 0.05. d Rated on a five-point scale from “very dissatisfied” to “very satisfied”. e Different subscripts indicate that the mean differences were significant in paired t-tests at p < 0.05. b
Loyalty to the incumbent supplier was one, constituting a barrier to forming a switching intention. In consumer research loyalty to a brand or supplier has been conceptualized as being closely related to satisfaction (Oliver, 1999). Whereas satisfaction has both a cognitive and emotional component, in the present context loyalty is hypothesized to be dominated by an emotional attachment to the incumbent (Gärling et al., 2008), closely related to the endowment effect (Kahneman et al., 1990; Strahilevitz and Loewenstein, 1998), status quo bias (Samuelson and Zeckhausen, 1988), or sunk cost effect (e.g., Karlsson et al., 2005). This would possibly result in feelings of failing the incumbent when considering switching to another supplier. It is hypothesized that: H1. Loyalty to the incumbent is a motive for a negative attitude towards switching. Consumers must acquire information in order to be able to compare the incumbent to other suppliers. In general, availability of information about different alternatives and consumers’ willingness and ability to acquire and process the information plays an important role in consumer decision-making (Johnson et al., 2003). If consumers believe that the products retailed by different suppliers are similar, they may consider information search costs to be too high and therefore refrain from making comparisons between suppliers (Waterson, 2003). Electricity consumers may furthermore find it difficult to retrieve information about prices and to understand the various types of agreements and tariffs offered by suppliers. Taken together these arguments justify the hypothesis that: H2. Information search costs are a motive for a negative attitude towards switching.
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Competition in a deregulated market is assumed to cut prices for consumers. However, when consumers fail to switch, prices will not differ substantially among suppliers (Klemperer, 1987). This situation is further augmented for homogenous products such as electricity. In Pennsylvania in the US, when entrants in the electricity market offered large discounts, switching rate rose by as much as 20%. In contrast, in California and Massachusetts where no discounts were offered, switching rate remained low (Goett et al., 2000). As demonstrated, larger price differences may thus make consumers active in the market. A third hypothesis states that: H3. Small expected economic benefits are a motive for a negative attitude towards switching. The insurance and banking markets were deregulated in 1991, the telecom market in 1993. Thus, in Sweden these markets have a slightly longer history of deregulation than the electricity market. In other respects the three markets are similar in that the core products are relatively homogenous, the monthly costs constitute a minor proportion of the household budget, and switching is difficult because of longer-term agreements and obstacles to comparing different suppliers. A difference is that in the landline telecom and home insurance markets, suppliers retail add-on products, thus making their products more differentiated. Thus, the landline telecom and home insurance markets do not seem to differ importantly from the electricity market except that the products offered on these markets are more differentiated. Perhaps it has triggered the higher switching rate. Even though consumers’ attitudes towards switching are determined by the same motives (loyalty, high information search costs, and small expected economic benefits), the higher switching rate should have led to less loyalty to the incumbents. Furthermore, acquired skills in information search as a result of frequent switching should have reduced the costs of searching information. As a result of a higher switching frequency, the price differences between suppliers should have increased and thus raised expectations of economic benefits from switching. Based on this reasoning it is hypothesized that: H4. In the landline telecom and home insurance markets, consumers have a less negative attitude towards switching because they feel less loyal to the incumbent, perceive that information search costs are lower, and expect larger economic benefits from switching. 3. Method 3.1. Respondents and procedure A random sample of 1965 Swedish residents between 18 and 69 years of age was obtained from the national register of tax payers. A survey questionnaire was mailed to them including a free-ofcharge return envelope. After mailing a combined thank you and reminder card a week later, a total of 488 (24.8%) usable questionnaires were received. Internally missing values reduced the sample to 458 respondents who answered the questions that were analyzed to compare the markets. A description of the sample is given in Table 1 based on data from the survey questionnaire, including also questions about current satisfaction with the incumbents and recalled and registered past switching rates. The sample had on average a lower education (36.0% with a university degree compared to 42.0%) than the population but differed marginally with respect to sex, age and income (Statistics Sweden, 2009b). 3.2. Questionnaire On the first page of the questionnaire the aim of the research was explained to be to gain knowledge about consumers’ atti-
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Table 2 Means (M) and standard deviations (SD) of ratings on five-point scales (1–5) of positive attitude towards switching, loyalty to incumbent supplier, information search costs and economic benefits from switching in the Swedish markets for electricity, landline telecom and home insurances. (percent variance accounted for in single-factor principal component analyses and Cronbach’s ˛s are given for each index constructed by averaging across three questions). Index/question
Electricity
Landline telecom
Home insurance
M
SD
%
˛
M
SD
%
˛
M
SD
%
˛
Attitude towards switching supplier Switching supplier is attractive Switching supplier is an opportunity not to be forgone Switching supplier is imperative
3.5 3.2 3.6 3.8
0.8 1.1 0.9 1.0
66.1
.74
3.6 3.3 3.6 3.7
0.9 1.2 1.0 1.0
70.7
.79
3.7 3.5 3.8 4.0
0.8 1.1 0.8 0.8
68.8
.76
Loyalty to incumbent Cancelling an agreement with my supplier is unpleasant Switching supplier feels like being disloyal Remaining loyal towards my supplier is important
2.1 2.5 1.7 1.9
0.9 1.2 0.9 1.1
66.7
.73
1.9 2.2 1.7 1.9
0.9 1.4 0.9
67.0
.71
1.9 2.1 1.7 1.1
0.9 1.1 1.0
70.7
.79
Information search costs to compare suppliers Price information from different suppliers is easily obtained Comparisons between suppliers are straightforward Information provided by suppliers is easily understood
2.5 2.4 2.8 2.2
0.8 1.1 1.1 1.0
60.4
.66
2.7 2.6 3.0 2.4
0.9 1.1 1.2 1.0
68.6
.77
2.8 2.7 3.1 2.5
0.9 1.1 1.1 1.0
66.1
.74
Expected economic benefits from switching supplier Switching supplier is economically beneficial Switching supplier entails cutting my electricity bills Switching supplier will save me money
2.9 3.0 2.6 3.1
0.9 1.1 1.0 1.1
71.9
.80
3.0 3.1 3.0 3.0
1.1 1.1 1.8 1.0
67.7
.69
3.0 3.1 2.9 3.1
1.1 1.1 1.1 1.7
67.3
.71
tudes towards the Swedish electricity market. It was further stated that the research team was affiliated with the School of Business, Economics and Law at University of Gothenburg, that commercial interests did not motivate the research, and that the research was financially supported by a private non-profit research foundation. The time to answer the questionnaire was approximately 30 min. The questionnaire consisted of several modules with (i) questions about socio-demographic factors including age, sex, education, household type, housing conditions, and household economy; (ii) questions about current consumption of electricity including satisfaction with the incumbent as well as similar questions about landline telecom and home insurance; (iii) questions about attitudes towards switching supplier in the electricity, landline telecom, and home insurance markets; (iv) questions about attitudes toward household spending and economic risk taking, and; (v) questions about beliefs, attitudes, and values related to sustainability. Only answers to some of the questions in modules (i), (ii), (iii), and (v) are reported and analyzed here. Table 2 presents the questions assessing attitude towards switching and motives for switching in the electricity, landline telecom, and home insurance markets. Responses were recorded on Likert-type rating scales with the steps “does not apply” (1), “applies badly” (2), “applies partly” (3), “applies well” (4), and “applies completely” (5). Additional questions were asked about previous rate of switching and current satisfaction with the incumbent suppliers of electricity, landline telecom, and home insurance, respectively. Responses to the satisfaction question were obtained on a rating scale with the verbally defined steps “very dissatisfied” (1), “somewhat dissatisfied” (2), “neither dissatisfied nor satisfied” (3), “somewhat satisfied” (4), and “very satisfied” (5). 3.3. Measures Means and SDs for the attitude and motive questions3 are given in Table 2 for each market. Percent variance accounted for in princi-
3 Additional questions were asked about other motives including anticipated regret, time pressure, cooperation with other consumers, and for the electricity market, sustainability. The results of the analyses of these questions are not reported since the motives did not correlate with attitude towards switching, or in the case of cooperation with other consumers, correlated highly with expected economic benefits.
1.9
2.0
pal component analyses and reliability coefficients (Cronbach’s ˛s) suggest that it was possible to construct reliable indexes of attitude towards switching supplier, loyalty to the incumbent, information search costs to compare suppliers, and expected economic benefits from switching supplier by averaging in each case across three questions. Table 3 shows the correlations between the indexes. 4. Results In order to test hypotheses H1–H3 OLS multiple linear regression analyses were performed for each market with attitude towards switching as dependent variable and the indexes of motives for switching as independent variables. Sex (1 men, 0 women), age, income (1 annual income >400 000 SEK, 0 otherwise), and education (1 university degree, 0 otherwise) were entered as additional independent variables. As Table 4 shows, in support of the hypotheses the standardized regression coefficients (beta weights) associated with the three motives are all significant with the expected signs. The 95% confidence intervals displayed in the table indicate that the differences in beta weights between the markets are not significant, except that the beta weight associated with economic benefits is significantly larger for the electricity market than for the home insurance market. The socio-demographic factors had only marginal impacts that did not differ significantly between the markets. Men tended to be more positive towards switching than women, a higher income tended to make the respondents more positive towards switching, and those having a university degree tended to be more negative towards switching. Hypothesis H4 was tested by means of repeated-measures analyses of variance comparing the mean indexes of attitude towards switching, loyalty, information search costs, and economic benefits for the three deregulated markets. Table 5 shows that the results support the hypothesis. Attitude towards switching is significantly more negative, loyalty to the incumbent significantly higher, information search costs significantly lower, and expected economic benefits from switching significantly smaller in the electricity market than in the other markets. Attitude towards switching is also significantly more negative and information search costs to compare suppliers significantly higher in the landline telecom market than in the home insurance market. In order to show that the differences in attitude towards switching in the different markets are related to the differences in motives, two additional OLS multiple linear regression analyses were per-
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Table 3 Product moment correlations between indexes of positive attitude towards switching, loyalty to incumbent supplier, information search costs and economic benefits from switching in the markets for electricity, landline telecom and home insurances. Index
Electricity
Landline telecom
Attitude Loyalty Information Economic benefits * **
Loyalty
−0.21** 0.21** 0.52**
0.12** −0.10*
Information
Attitude
0.13*
−0.22** 0.31** 0.51**
Home insurance
Loyalty 0.02 −0.12*
Information
Attitude
Loyalty
Information
0.31**
−0.21** 0.17** 0.42**
0.07 −0.12**
0.08
p < 0.05. p < 0.01.
Table 4 Standardized regression coefficients (beta), 95% confidence intervals (CI), and t statistics with associated p values from OLS multiple linear regression analyses of positive attitude towards switching in the markets for electricity, landline telecom and home insurances. Electricity
Sex (1 men, 0 women) Age Income (1 >, 0 ≤ 400 103 SEK) University degree Loyalty Information Economic benefits
Landline telecom
Home insurance
ˇ
CI
t
p
ˇ
CI
t
p
ˇ
CI
t
p
0.05 0.05 0.08 −0.07 −0.19 0.16 0.49
±0.07 ±0.07 ±0.07 ±0.07 ±0.07 ±0.07 ±0.07
1.19 1.21 2.07 −1.75 −4.64 4.02 12.33
0.236 0.228 0.039 0.080 <0.001 <0.001 <0.001
0.07 −0.04 0.05 −0.10 −0.17 0.17 0.44
±0.07 ±0.07 ±0.07 ±0.07 ±0.07 ±0.07 ±0.07
1.75 −0.99 1.15 −2.44 −4.15 4.10 10.52
0.081 0.321 0.250 0.015 <0.001 <0.001 <0.001
0.11 −0.04 0.06 −0.06 −0.15 0.14 0.39
±0.07 ±0.08 ±0.08 ±0.08 ±0.08 ±0.07 ±0.07
2.57 –0.81 1.52 –1.32 −3.58 3.46 9.32
0.011 0.416 0.130 0.186 <0.001 0.001 <0.001
Adj R2
0.33, F(7, 450) = 32.98, p < 0.001
0.33, F(7, 450) = 31.22, p < 0.001
0.23, F(7,450) = 20.77, p < 0.001
Table 5 Comparisons between the electricity, landline telecom and home insurance markets on measures of positive attitude towards switching, loyalty to incumbent, information search costs to compare suppliers and expected economic benefits from switching. Index
Electricity
Landline telecom
Home insurance
Statistical test
Attitude Loyalty Information Economic benefits
3.5a 2.1a 2.5a 2.9a
3.6b 1.9b 2.7b 3.0b
3.7c 1.9b 2.8c 3.0b
r2 = 0.04, F(2, 916) = 18.60, p < 0.001 r2 = 0.02, F(2, 916) = 11.10, p < 0.001 r2 = 0.04, F(2, 916) = 21.90, p < 0.001 r2 = 0.01, F(2, 916) = 4.29, p = 0.014
Note: Different subscripts indicate that the mean differences were significant in Bonferroni-adjusted post-hoc t tests at p < 0.017.
formed. In these the differences in attitude towards switching between the electricity market and the landline telecom market and between the electricity market and the home insurance market are regressed on the differences in loyalty, information search costs and economic benefits. Table 6 shows that the beta weights associated with the motive differences are all statistically significant except for loyalty in the second analysis. Furthermore, the beta weighs do not differ significantly between the markets, have the same signs and are comparable in magnitude to those obtained in the regression analyses with attitude towards switching as dependent variable. 5. Discussion The present results showed that attitudes towards switching supplier in the electricity, landline telecom, and home insurance markets are related to the hypothesized motives for switching or not switching, that is loyalty to the incumbent, information search costs to compare suppliers, and expected economic benefits from
switching. With one exception the regression coefficients associated with the motives did not differ significantly between the different markets. Suggesting that expected economic benefits is a less important motive for attitudes towards switching in the home insurance than in the electricity market, a significant difference in regression coefficients between these markets was observed. Still, both regression coefficients had the same sign and approximately the same magnitude. It should further be noted that the largest standardized regression coefficients were observed for expected economic benefits, followed by equally large regression coefficients for loyalty to the incumbent (with a reverse sign) and information search costs to compare suppliers. The motives accounted for substantially more of the variance in attitudes towards switching than did the socio-demographic variables (sex, age, education and income). Actually, repeating the regression analyses excluding the socio-demographic variables resulted in virtually the same regression coefficients for the motives. If sampling biases caused overor under-representation of some consumer segments related to the socio-demographic variables, this would not be serious given
Table 6 Standardized regression coefficients (beta), 95% confidence intervals (CI), and t statistics with associated p values from OLS multiple linear regression analyses of differences in positive attitude towards switching between the market for electricity and landline telecom and between the market for electricity and home insurance. Electricity vs. landline telecom
Loyalty Information Economic benefits Adj R2
Electricity vs. home insurance
ˇ
CI
t
p
ˇ
CI
t
p
−0.11 0.13 0.37
±0.08 ±0.08 ±0.09
−3.70 3.39 8.38
0.008 0.003 <0.001
−0.07 0.16 0.37
±0.08 ±0.08 ±0.08
−1.51 5.01 7.62
0.131 <0.001 <0.001
0.20, F(3, 454) = 39.28, p < 0.001
0.17, F(3, 454) = 35.44, p < 0.001
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A. Gamble et al. / The Journal of Socio-Economics 38 (2009) 814–819
Fig. 1. A conceptualization of the consumer switching process.
that the socio-demographic variables only marginally affected the relationship between attitude towards switching and the motives. Furthermore, the comparisons between the markets were made for the same respondents. The contribution of the present study is to show what motives determine negative attitudes towards switching in deregulated markets and that these motives are the same in three different deregulated markets. Gamble et al. (2007) found that in the Swedish electricity market the importance of these motives varied in different consumer segments based on whether the consumers had formed an intention to switch, whether the switching intention was weak or whether the process of switching had already started. In the first segment loyalty was a stronger motive than the other motives, in the second information search costs, and in the third expected economic benefits. This is consistent with the process of forming a switching intention illustrated in Fig. 1. A switching intention is hypothesized to be triggered by dissatisfaction with the incumbent, augmented by expected economic benefits from switching and influences from sales promotions. Information search starts if these factors offset the loyalty barrier. The switching intention is implemented if the information search shows that it is economically beneficial to switch. As already noted, the differences in attitudes towards switching between the electricity market and the other markets were shown to depend on differences in loyalty, information search costs and expected economic benefits. A limitation in the present study is that no records are available to document that the differences in reported motives correspond to actual differences. In the following we discuss possible reasons for why actual differences may or may not exist. First, the electricity market was deregulated more recently than the landline telecom and the home insurance markets. The electricity consumers have furthermore frequently been locked-in by long-term contracts to a larger extent than in the other markets (Swedish Competition Authority, 2004). Because of their lack of opportunities to switch supplier, the electricity consumers should have relatively less experience with switching. Consequently, the benefits of switching would probably be less salient in the electricity market than in the other markets. This may thus have contributed to the more negative perceptions of information search costs and expected economic benefits. Second, more than 10 years after the deregulation of the electricity market, the former monopoly suppliers are still dominant (Statistics Sweden, 2009b). Many of them have kept their company name, often referring to the city or region in which they operate. Neither home insurance companies nor the former state landline telecom company have had a corresponding dominant position after the deregulation. It may be speculated that consumers feel that the electricity suppliers are “their” suppliers to a larger extent than the suppliers of landline telecom and home insurances, which might have contributed to the difference in loyalty between the markets. An efficient deregulated electricity market is the goal of the Swedish authorities (Swedish Competition Authority, 2004). The question should be raised what policy implications the present study has. First, it seems as if existing policy measures restricting the incumbents’ ability to offer long-term contracts are not sufficient. More severe restrictions on loyalty programs as well
as facilitating measures to negotiate contracts are called for. Second, if a more differentiated supply makes consumers more likely to switch and that they in the prolongation form a more positive attitude towards switching, as the present results show, it would be important to incentivize electricity suppliers to become more competitive in other respects than price. As the need to conserve energy becomes increasingly urgent to citizens due to the perceived threats of the climate change, they want to be able to reduce their electricity consumption and also to be able to choose green electricity. The implementation in homes of devices to measure the electricity consumption as well as offers of green electricity are therefore promising areas in which electricity suppliers may start to compete more than they do. In a recent experimental study in the context of another survey (Gärling et al., 2008), offering choices of green electricity was one factor that made respondents less reluctant to switch to a new supplier. Price differences and improved information to the customers were other factors. Acknowledgements This research was financially supported by grant #P2005-0125:1 from Handelsbanken research foundations to the Center for Consumption Science at the School of Business, Economics and Law, University of Gothenburg, Göteborg, Sweden. We thank Phillip Gamble and Boel Siljebråt for assistance in collecting and entering the data. References Bettman, J.R., Luce, M.F., Payne, J.W., 1998. Constructive consumer choice processes. Journal of Consumer Research 25, 187–217. Bettman, J.R., Luce, M.F., Payne, J.W., 2008. Consumer decision making: a choice goals approach. In: Haugtvedt, C.P., Herr, P.M., Kardes, F.R. (Eds.), Handbook of Consumer Psychology. Erlbaum, New York, pp. 589–610. Gamble, A., Juliusson, E.A., Gärling, T., 2007. Barriers to consumer switching in the Swedish electricity market. In: Proceedings of the Nordic consumer policy conference, Helsinki, Finland (Available to retrieve at www.consumer2007.info). Gärling, T., Gamble, A., Juliusson, E.A., 2008. Consumers’ switching inertia in a fictitious electricity market. International Journal of Consumer Studies 22, 613–618. Goett, A., Hudson, K., Train, K.E., 2000. Consumers’ choice among retail energy suppliers: the willingness-to-pay for service attributes. The Energy Journal 21, 1–28. Johnson, E.J., Bellman, S., Lohse, G.L., 2003. Cognitive lock-in and the power law of practice. Journal of Marketing 67, 62–75. Juliusson, E.A., Gamble, A., Gärling, T., 2007. Loss aversion and price volatility as determinants of attitude towards variable price agreements in the Swedish electricity market. Energy Policy 35, 5953–5957. Kahneman, D., Knetsch, J.L., Thaler, R.H., 1990. Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy 98, 1325–1348. Karlsson, N., Juliusson, E.A., Gärling, T., 2005. A conceptualization of task dimensions affecting escalation of commitment. European Journal of Cognitive Psychology 17, 835–858. Klemperer, P., 1987. Markets with consumer switching costs. Quarterly Journal of Economics 102, 375–394. Oliver, R.O., 1999. Whence consumer loyalty? Journal of Marketing 63, 33–44. Samuelson, W., Zeckhausen, R., 1988. Status quo bias in decision making. Journal of Risk and Uncertainty 1, 7–59. Statistics Sweden, 2009a. Energy prices for household consumers. www.scb.se www.scb.se/Pages/TableAndChart 85467.aspx. Retrieved April 24, 2009. Statistics Sweden, 2009b. Omförhandling och byten av elavtal 2007. www.scb.se/ Pages/PublishingCalendarViewInfo 259923.aspx?PublObjId=8895. Retrieved April 24, 2009. Strahilevitz, M.A., Loewenstein, G., 1998. The effect of ownership history on the valuation on objects. Journal of Consumer Research 25, 276–289. Swedish Quality Index, 2009. Pressinformation 15/12 2008. Press release in Swedish from www.kvalitetsindex.se/index.php?option=com content&task= view&id=135. Retrieved April 24, 2009. Swedish Competition Authority, 2004. The pros and cons of antitrust in deregulated markets. Swedish Competition Authority, Stockholm. Swedish Consumer Agency, 2002. Konsekvenser av nyligen konkurrensutsatta marknader – elmarknaden [Consequences for consumers in recently deregulated markets – the electricity market]. Swedish Consumer Agency, Karlstad, Sweden.
A. Gamble et al. / The Journal of Socio-Economics 38 (2009) 814–819 Waterson, M., 2003. The role of consumer in competition and competition policy. International Journal of Industrial Organization 21, 129–150. Amelie Gamble received a Ph.D. in psychology from University of Gothenburg. She is now an Assistant Professor at this university and affiliated with the Center for Consumption Research where she conducts research focusing on consumer behavior.
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E. Asgeir Juliusson received a Ph.D. in psychology from University of Gothenburg. He is now a postgraduate researcher at City University of London. His research interests include judgement and decision-making. Tommy Gärling received a Ph.D. in psychology from Stockholm University. He is currently Professor of Psychology at University of Gothenburg. His research interests include applications of research in judgment and decision-making.
Contents lists available at ScienceDirect
The Journal of Socio-Economics journal homepage: www.elsevier.com/locate/soceco
Consumer attitudes towards switching supplier in three deregulated markets Amelie Gamble ∗ , E. Asgeir Juliusson 1 , Tommy Gärling 2 Department of Psychology, University of Gothenburg, P.O. Box 500, SE-40530 Göteborg, Sweden
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Article history: Received 30 July 2008 Received in revised form 26 April 2009 Accepted 3 May 2009 JEL classification: D03/D12/D40 Keywords: Deregulated markets Switching supplier Consumer attitudes
a b s t r a c t The efficiency of deregulated markets is jeopardized by consumers failing to switch supplier to the extent that would be beneficial to them. In order to disentangle the determinants of failures to switch, the present study investigates consumers’ motives for negative attitudes towards switching in the deregulated Swedish markets for electricity, landline telecom, and home insurance. Based on the results of a mail survey of a random sample of 458 household consumers, reliable measures were constructed of attitude towards switching supplier, loyalty to the incumbent, information search costs to compare suppliers, and expected economic benefits from switching. A negative attitude towards switching supplier was shown to increase with loyalty, increase with information search costs and decrease with expected economic benefits. Attitude towards switching was more negative in the electricity market than in the other markets and more negative in the landline telecom market than in the home insurance market. The differences between markets were accounted for by differences in loyalty, information search costs, and expected economic benefits. © 2009 Elsevier Inc. All rights reserved.
1. Introduction In recent years many former state-ruled markets have been deregulated. In Sweden the electricity market is the most recent deregulated market. Since the deregulation in 1996 a number of suppliers compete on a free market. These suppliers buy electric power at the Nord Pool Spot Market, an exchange market for electricity, and resell it to their customers, about half of which are households who use the electricity in their homes. Despite the deregulation the former monopolists dominate the market (Swedish Competition Authority, 2004). The aim of the deregulations is to bring about competition among suppliers in order to increase efficiency of the market and reduce retail prices (Swedish Consumer Agency, 2002). However, in Sweden retail prices have gone up ever since the deregulation of the electricity market (Statistics Sweden, 2009a). This is partly due to inflation and raised taxes, but perhaps partly also due to household consumers’ reluctance to choose suppliers who offer the lowest prices. Thus, households tend not to switch to new suppliers (an average annual switching rate of 11.2% was recorded in 2007, Statistics Sweden, 2009b) and neither do they prefer variable price agreements (Juliusson et al., 2007).
∗ Corresponding author. Tel.: +46 0 31 786 1677; fax: +46 0 31 786 4628. E-mail addresses: [email protected] (A. Gamble), [email protected] (E.A. Juliusson), [email protected] (T. Gärling). 1 Tel.: +46 0 31 786 1840; fax: +46 0 31 786 4628. 2 Tel.: +46 0 31 786 1881; fax: +46 0 31 786 4628. 1053-5357/$ – see front matter © 2009 Elsevier Inc. All rights reserved. doi:10.1016/j.socec.2009.05.002
In research on consumer behavior, it has been proposed that consumers trade-off value of a retailed product against how much effort they want to invest in the purchase decision (e.g., Bettman et al., 1998, 2008). Choices among products may require much effort when they vary on many attributes. In contrast, electricity is a homogenous product with little variation between suppliers at the service level. Price per unit constitutes the major or only difference. Thus, a choice of the cheapest supplier should require little effort. Dissatisfaction with the incumbent should be an impetus to switch. A recent report indicates that Swedish electricity consumers are dissatisfied with their incumbents (Swedish Quality Index, 2009). However, this does not seem to affect their switching. The purpose of the present study is to attempt to disentangle other determinants of the negative attitude towards switching. A mail survey is conducted of a representative sample of Swedish household consumers to investigate their motives for negative attitudes towards switching supplier in the electricity market compared to two other deregulated markets, the landline telecom market and the home insurance market, where satisfaction with the incumbent is higher at the same time as, and possibly results from, that switching is more frequent (Swedish Quality Index, 2009; see also Table 1). The hypotheses that are tested in the survey are derived in the next section. 2. Hypotheses Gamble et al. (2007) identified four factors that affect consumers’ switching intentions in the Swedish electricity market.
A. Gamble et al. / The Journal of Socio-Economics 38 (2009) 814–819 Table 1 Description of sample. Variable
n
Descriptive value
Sex (% men) Age (years) (M/SD)
487 487
48.3 48.8/13.1
Education High-school (% degree) College (% degree) University (% degree)
484
Married/cohabiting (%) Households with children (%)
487 484
Annual household income (103 SEK)a 200 or less (%) 201–300 (%) 301–400 (%) 401–500 (%) 501–600 (%) More than 600 (%)
480
Rate of switchingb , c Electricity market (%) Landline telecom market (%) Home insurances market (%)
458
Satisfaction with incumbent supplierd , e Electricity market (M/SD) Landline telecom market (M/SD) Home insurances market (M/SD)
458
30.6 33.5 36.0 74.9 87.9 12.7 19.3 18.3 19.3 16.2 14.1 36.4a (11.2) 72.7b (32.0) 55.0c (32.0) 3.4a /0.8 3.6b /0.9 3.7c /0.8
a
1 SEK was approximately 0.20 US$ at the time of study. Percentage of respondents who indicated that they switched at least once. Annual switching rates in 2007 are reported in parentheses (Statistics Sweden, 2009b). c Different subscripts indicate that the mean differences were significant in 2 tests at p < 0.05. d Rated on a five-point scale from “very dissatisfied” to “very satisfied”. e Different subscripts indicate that the mean differences were significant in paired t-tests at p < 0.05. b
Loyalty to the incumbent supplier was one, constituting a barrier to forming a switching intention. In consumer research loyalty to a brand or supplier has been conceptualized as being closely related to satisfaction (Oliver, 1999). Whereas satisfaction has both a cognitive and emotional component, in the present context loyalty is hypothesized to be dominated by an emotional attachment to the incumbent (Gärling et al., 2008), closely related to the endowment effect (Kahneman et al., 1990; Strahilevitz and Loewenstein, 1998), status quo bias (Samuelson and Zeckhausen, 1988), or sunk cost effect (e.g., Karlsson et al., 2005). This would possibly result in feelings of failing the incumbent when considering switching to another supplier. It is hypothesized that: H1. Loyalty to the incumbent is a motive for a negative attitude towards switching. Consumers must acquire information in order to be able to compare the incumbent to other suppliers. In general, availability of information about different alternatives and consumers’ willingness and ability to acquire and process the information plays an important role in consumer decision-making (Johnson et al., 2003). If consumers believe that the products retailed by different suppliers are similar, they may consider information search costs to be too high and therefore refrain from making comparisons between suppliers (Waterson, 2003). Electricity consumers may furthermore find it difficult to retrieve information about prices and to understand the various types of agreements and tariffs offered by suppliers. Taken together these arguments justify the hypothesis that: H2. Information search costs are a motive for a negative attitude towards switching.
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Competition in a deregulated market is assumed to cut prices for consumers. However, when consumers fail to switch, prices will not differ substantially among suppliers (Klemperer, 1987). This situation is further augmented for homogenous products such as electricity. In Pennsylvania in the US, when entrants in the electricity market offered large discounts, switching rate rose by as much as 20%. In contrast, in California and Massachusetts where no discounts were offered, switching rate remained low (Goett et al., 2000). As demonstrated, larger price differences may thus make consumers active in the market. A third hypothesis states that: H3. Small expected economic benefits are a motive for a negative attitude towards switching. The insurance and banking markets were deregulated in 1991, the telecom market in 1993. Thus, in Sweden these markets have a slightly longer history of deregulation than the electricity market. In other respects the three markets are similar in that the core products are relatively homogenous, the monthly costs constitute a minor proportion of the household budget, and switching is difficult because of longer-term agreements and obstacles to comparing different suppliers. A difference is that in the landline telecom and home insurance markets, suppliers retail add-on products, thus making their products more differentiated. Thus, the landline telecom and home insurance markets do not seem to differ importantly from the electricity market except that the products offered on these markets are more differentiated. Perhaps it has triggered the higher switching rate. Even though consumers’ attitudes towards switching are determined by the same motives (loyalty, high information search costs, and small expected economic benefits), the higher switching rate should have led to less loyalty to the incumbents. Furthermore, acquired skills in information search as a result of frequent switching should have reduced the costs of searching information. As a result of a higher switching frequency, the price differences between suppliers should have increased and thus raised expectations of economic benefits from switching. Based on this reasoning it is hypothesized that: H4. In the landline telecom and home insurance markets, consumers have a less negative attitude towards switching because they feel less loyal to the incumbent, perceive that information search costs are lower, and expect larger economic benefits from switching. 3. Method 3.1. Respondents and procedure A random sample of 1965 Swedish residents between 18 and 69 years of age was obtained from the national register of tax payers. A survey questionnaire was mailed to them including a free-ofcharge return envelope. After mailing a combined thank you and reminder card a week later, a total of 488 (24.8%) usable questionnaires were received. Internally missing values reduced the sample to 458 respondents who answered the questions that were analyzed to compare the markets. A description of the sample is given in Table 1 based on data from the survey questionnaire, including also questions about current satisfaction with the incumbents and recalled and registered past switching rates. The sample had on average a lower education (36.0% with a university degree compared to 42.0%) than the population but differed marginally with respect to sex, age and income (Statistics Sweden, 2009b). 3.2. Questionnaire On the first page of the questionnaire the aim of the research was explained to be to gain knowledge about consumers’ atti-
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Table 2 Means (M) and standard deviations (SD) of ratings on five-point scales (1–5) of positive attitude towards switching, loyalty to incumbent supplier, information search costs and economic benefits from switching in the Swedish markets for electricity, landline telecom and home insurances. (percent variance accounted for in single-factor principal component analyses and Cronbach’s ˛s are given for each index constructed by averaging across three questions). Index/question
Electricity
Landline telecom
Home insurance
M
SD
%
˛
M
SD
%
˛
M
SD
%
˛
Attitude towards switching supplier Switching supplier is attractive Switching supplier is an opportunity not to be forgone Switching supplier is imperative
3.5 3.2 3.6 3.8
0.8 1.1 0.9 1.0
66.1
.74
3.6 3.3 3.6 3.7
0.9 1.2 1.0 1.0
70.7
.79
3.7 3.5 3.8 4.0
0.8 1.1 0.8 0.8
68.8
.76
Loyalty to incumbent Cancelling an agreement with my supplier is unpleasant Switching supplier feels like being disloyal Remaining loyal towards my supplier is important
2.1 2.5 1.7 1.9
0.9 1.2 0.9 1.1
66.7
.73
1.9 2.2 1.7 1.9
0.9 1.4 0.9
67.0
.71
1.9 2.1 1.7 1.1
0.9 1.1 1.0
70.7
.79
Information search costs to compare suppliers Price information from different suppliers is easily obtained Comparisons between suppliers are straightforward Information provided by suppliers is easily understood
2.5 2.4 2.8 2.2
0.8 1.1 1.1 1.0
60.4
.66
2.7 2.6 3.0 2.4
0.9 1.1 1.2 1.0
68.6
.77
2.8 2.7 3.1 2.5
0.9 1.1 1.1 1.0
66.1
.74
Expected economic benefits from switching supplier Switching supplier is economically beneficial Switching supplier entails cutting my electricity bills Switching supplier will save me money
2.9 3.0 2.6 3.1
0.9 1.1 1.0 1.1
71.9
.80
3.0 3.1 3.0 3.0
1.1 1.1 1.8 1.0
67.7
.69
3.0 3.1 2.9 3.1
1.1 1.1 1.1 1.7
67.3
.71
tudes towards the Swedish electricity market. It was further stated that the research team was affiliated with the School of Business, Economics and Law at University of Gothenburg, that commercial interests did not motivate the research, and that the research was financially supported by a private non-profit research foundation. The time to answer the questionnaire was approximately 30 min. The questionnaire consisted of several modules with (i) questions about socio-demographic factors including age, sex, education, household type, housing conditions, and household economy; (ii) questions about current consumption of electricity including satisfaction with the incumbent as well as similar questions about landline telecom and home insurance; (iii) questions about attitudes towards switching supplier in the electricity, landline telecom, and home insurance markets; (iv) questions about attitudes toward household spending and economic risk taking, and; (v) questions about beliefs, attitudes, and values related to sustainability. Only answers to some of the questions in modules (i), (ii), (iii), and (v) are reported and analyzed here. Table 2 presents the questions assessing attitude towards switching and motives for switching in the electricity, landline telecom, and home insurance markets. Responses were recorded on Likert-type rating scales with the steps “does not apply” (1), “applies badly” (2), “applies partly” (3), “applies well” (4), and “applies completely” (5). Additional questions were asked about previous rate of switching and current satisfaction with the incumbent suppliers of electricity, landline telecom, and home insurance, respectively. Responses to the satisfaction question were obtained on a rating scale with the verbally defined steps “very dissatisfied” (1), “somewhat dissatisfied” (2), “neither dissatisfied nor satisfied” (3), “somewhat satisfied” (4), and “very satisfied” (5). 3.3. Measures Means and SDs for the attitude and motive questions3 are given in Table 2 for each market. Percent variance accounted for in princi-
3 Additional questions were asked about other motives including anticipated regret, time pressure, cooperation with other consumers, and for the electricity market, sustainability. The results of the analyses of these questions are not reported since the motives did not correlate with attitude towards switching, or in the case of cooperation with other consumers, correlated highly with expected economic benefits.
1.9
2.0
pal component analyses and reliability coefficients (Cronbach’s ˛s) suggest that it was possible to construct reliable indexes of attitude towards switching supplier, loyalty to the incumbent, information search costs to compare suppliers, and expected economic benefits from switching supplier by averaging in each case across three questions. Table 3 shows the correlations between the indexes. 4. Results In order to test hypotheses H1–H3 OLS multiple linear regression analyses were performed for each market with attitude towards switching as dependent variable and the indexes of motives for switching as independent variables. Sex (1 men, 0 women), age, income (1 annual income >400 000 SEK, 0 otherwise), and education (1 university degree, 0 otherwise) were entered as additional independent variables. As Table 4 shows, in support of the hypotheses the standardized regression coefficients (beta weights) associated with the three motives are all significant with the expected signs. The 95% confidence intervals displayed in the table indicate that the differences in beta weights between the markets are not significant, except that the beta weight associated with economic benefits is significantly larger for the electricity market than for the home insurance market. The socio-demographic factors had only marginal impacts that did not differ significantly between the markets. Men tended to be more positive towards switching than women, a higher income tended to make the respondents more positive towards switching, and those having a university degree tended to be more negative towards switching. Hypothesis H4 was tested by means of repeated-measures analyses of variance comparing the mean indexes of attitude towards switching, loyalty, information search costs, and economic benefits for the three deregulated markets. Table 5 shows that the results support the hypothesis. Attitude towards switching is significantly more negative, loyalty to the incumbent significantly higher, information search costs significantly lower, and expected economic benefits from switching significantly smaller in the electricity market than in the other markets. Attitude towards switching is also significantly more negative and information search costs to compare suppliers significantly higher in the landline telecom market than in the home insurance market. In order to show that the differences in attitude towards switching in the different markets are related to the differences in motives, two additional OLS multiple linear regression analyses were per-
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Table 3 Product moment correlations between indexes of positive attitude towards switching, loyalty to incumbent supplier, information search costs and economic benefits from switching in the markets for electricity, landline telecom and home insurances. Index
Electricity
Landline telecom
Attitude Loyalty Information Economic benefits * **
Loyalty
−0.21** 0.21** 0.52**
0.12** −0.10*
Information
Attitude
0.13*
−0.22** 0.31** 0.51**
Home insurance
Loyalty 0.02 −0.12*
Information
Attitude
Loyalty
Information
0.31**
−0.21** 0.17** 0.42**
0.07 −0.12**
0.08
p < 0.05. p < 0.01.
Table 4 Standardized regression coefficients (beta), 95% confidence intervals (CI), and t statistics with associated p values from OLS multiple linear regression analyses of positive attitude towards switching in the markets for electricity, landline telecom and home insurances. Electricity
Sex (1 men, 0 women) Age Income (1 >, 0 ≤ 400 103 SEK) University degree Loyalty Information Economic benefits
Landline telecom
Home insurance
ˇ
CI
t
p
ˇ
CI
t
p
ˇ
CI
t
p
0.05 0.05 0.08 −0.07 −0.19 0.16 0.49
±0.07 ±0.07 ±0.07 ±0.07 ±0.07 ±0.07 ±0.07
1.19 1.21 2.07 −1.75 −4.64 4.02 12.33
0.236 0.228 0.039 0.080 <0.001 <0.001 <0.001
0.07 −0.04 0.05 −0.10 −0.17 0.17 0.44
±0.07 ±0.07 ±0.07 ±0.07 ±0.07 ±0.07 ±0.07
1.75 −0.99 1.15 −2.44 −4.15 4.10 10.52
0.081 0.321 0.250 0.015 <0.001 <0.001 <0.001
0.11 −0.04 0.06 −0.06 −0.15 0.14 0.39
±0.07 ±0.08 ±0.08 ±0.08 ±0.08 ±0.07 ±0.07
2.57 –0.81 1.52 –1.32 −3.58 3.46 9.32
0.011 0.416 0.130 0.186 <0.001 0.001 <0.001
Adj R2
0.33, F(7, 450) = 32.98, p < 0.001
0.33, F(7, 450) = 31.22, p < 0.001
0.23, F(7,450) = 20.77, p < 0.001
Table 5 Comparisons between the electricity, landline telecom and home insurance markets on measures of positive attitude towards switching, loyalty to incumbent, information search costs to compare suppliers and expected economic benefits from switching. Index
Electricity
Landline telecom
Home insurance
Statistical test
Attitude Loyalty Information Economic benefits
3.5a 2.1a 2.5a 2.9a
3.6b 1.9b 2.7b 3.0b
3.7c 1.9b 2.8c 3.0b
r2 = 0.04, F(2, 916) = 18.60, p < 0.001 r2 = 0.02, F(2, 916) = 11.10, p < 0.001 r2 = 0.04, F(2, 916) = 21.90, p < 0.001 r2 = 0.01, F(2, 916) = 4.29, p = 0.014
Note: Different subscripts indicate that the mean differences were significant in Bonferroni-adjusted post-hoc t tests at p < 0.017.
formed. In these the differences in attitude towards switching between the electricity market and the landline telecom market and between the electricity market and the home insurance market are regressed on the differences in loyalty, information search costs and economic benefits. Table 6 shows that the beta weights associated with the motive differences are all statistically significant except for loyalty in the second analysis. Furthermore, the beta weighs do not differ significantly between the markets, have the same signs and are comparable in magnitude to those obtained in the regression analyses with attitude towards switching as dependent variable. 5. Discussion The present results showed that attitudes towards switching supplier in the electricity, landline telecom, and home insurance markets are related to the hypothesized motives for switching or not switching, that is loyalty to the incumbent, information search costs to compare suppliers, and expected economic benefits from
switching. With one exception the regression coefficients associated with the motives did not differ significantly between the different markets. Suggesting that expected economic benefits is a less important motive for attitudes towards switching in the home insurance than in the electricity market, a significant difference in regression coefficients between these markets was observed. Still, both regression coefficients had the same sign and approximately the same magnitude. It should further be noted that the largest standardized regression coefficients were observed for expected economic benefits, followed by equally large regression coefficients for loyalty to the incumbent (with a reverse sign) and information search costs to compare suppliers. The motives accounted for substantially more of the variance in attitudes towards switching than did the socio-demographic variables (sex, age, education and income). Actually, repeating the regression analyses excluding the socio-demographic variables resulted in virtually the same regression coefficients for the motives. If sampling biases caused overor under-representation of some consumer segments related to the socio-demographic variables, this would not be serious given
Table 6 Standardized regression coefficients (beta), 95% confidence intervals (CI), and t statistics with associated p values from OLS multiple linear regression analyses of differences in positive attitude towards switching between the market for electricity and landline telecom and between the market for electricity and home insurance. Electricity vs. landline telecom
Loyalty Information Economic benefits Adj R2
Electricity vs. home insurance
ˇ
CI
t
p
ˇ
CI
t
p
−0.11 0.13 0.37
±0.08 ±0.08 ±0.09
−3.70 3.39 8.38
0.008 0.003 <0.001
−0.07 0.16 0.37
±0.08 ±0.08 ±0.08
−1.51 5.01 7.62
0.131 <0.001 <0.001
0.20, F(3, 454) = 39.28, p < 0.001
0.17, F(3, 454) = 35.44, p < 0.001
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Fig. 1. A conceptualization of the consumer switching process.
that the socio-demographic variables only marginally affected the relationship between attitude towards switching and the motives. Furthermore, the comparisons between the markets were made for the same respondents. The contribution of the present study is to show what motives determine negative attitudes towards switching in deregulated markets and that these motives are the same in three different deregulated markets. Gamble et al. (2007) found that in the Swedish electricity market the importance of these motives varied in different consumer segments based on whether the consumers had formed an intention to switch, whether the switching intention was weak or whether the process of switching had already started. In the first segment loyalty was a stronger motive than the other motives, in the second information search costs, and in the third expected economic benefits. This is consistent with the process of forming a switching intention illustrated in Fig. 1. A switching intention is hypothesized to be triggered by dissatisfaction with the incumbent, augmented by expected economic benefits from switching and influences from sales promotions. Information search starts if these factors offset the loyalty barrier. The switching intention is implemented if the information search shows that it is economically beneficial to switch. As already noted, the differences in attitudes towards switching between the electricity market and the other markets were shown to depend on differences in loyalty, information search costs and expected economic benefits. A limitation in the present study is that no records are available to document that the differences in reported motives correspond to actual differences. In the following we discuss possible reasons for why actual differences may or may not exist. First, the electricity market was deregulated more recently than the landline telecom and the home insurance markets. The electricity consumers have furthermore frequently been locked-in by long-term contracts to a larger extent than in the other markets (Swedish Competition Authority, 2004). Because of their lack of opportunities to switch supplier, the electricity consumers should have relatively less experience with switching. Consequently, the benefits of switching would probably be less salient in the electricity market than in the other markets. This may thus have contributed to the more negative perceptions of information search costs and expected economic benefits. Second, more than 10 years after the deregulation of the electricity market, the former monopoly suppliers are still dominant (Statistics Sweden, 2009b). Many of them have kept their company name, often referring to the city or region in which they operate. Neither home insurance companies nor the former state landline telecom company have had a corresponding dominant position after the deregulation. It may be speculated that consumers feel that the electricity suppliers are “their” suppliers to a larger extent than the suppliers of landline telecom and home insurances, which might have contributed to the difference in loyalty between the markets. An efficient deregulated electricity market is the goal of the Swedish authorities (Swedish Competition Authority, 2004). The question should be raised what policy implications the present study has. First, it seems as if existing policy measures restricting the incumbents’ ability to offer long-term contracts are not sufficient. More severe restrictions on loyalty programs as well
as facilitating measures to negotiate contracts are called for. Second, if a more differentiated supply makes consumers more likely to switch and that they in the prolongation form a more positive attitude towards switching, as the present results show, it would be important to incentivize electricity suppliers to become more competitive in other respects than price. As the need to conserve energy becomes increasingly urgent to citizens due to the perceived threats of the climate change, they want to be able to reduce their electricity consumption and also to be able to choose green electricity. The implementation in homes of devices to measure the electricity consumption as well as offers of green electricity are therefore promising areas in which electricity suppliers may start to compete more than they do. In a recent experimental study in the context of another survey (Gärling et al., 2008), offering choices of green electricity was one factor that made respondents less reluctant to switch to a new supplier. Price differences and improved information to the customers were other factors. Acknowledgements This research was financially supported by grant #P2005-0125:1 from Handelsbanken research foundations to the Center for Consumption Science at the School of Business, Economics and Law, University of Gothenburg, Göteborg, Sweden. We thank Phillip Gamble and Boel Siljebråt for assistance in collecting and entering the data. References Bettman, J.R., Luce, M.F., Payne, J.W., 1998. Constructive consumer choice processes. Journal of Consumer Research 25, 187–217. Bettman, J.R., Luce, M.F., Payne, J.W., 2008. Consumer decision making: a choice goals approach. In: Haugtvedt, C.P., Herr, P.M., Kardes, F.R. (Eds.), Handbook of Consumer Psychology. Erlbaum, New York, pp. 589–610. Gamble, A., Juliusson, E.A., Gärling, T., 2007. Barriers to consumer switching in the Swedish electricity market. In: Proceedings of the Nordic consumer policy conference, Helsinki, Finland (Available to retrieve at www.consumer2007.info). Gärling, T., Gamble, A., Juliusson, E.A., 2008. Consumers’ switching inertia in a fictitious electricity market. International Journal of Consumer Studies 22, 613–618. Goett, A., Hudson, K., Train, K.E., 2000. Consumers’ choice among retail energy suppliers: the willingness-to-pay for service attributes. The Energy Journal 21, 1–28. Johnson, E.J., Bellman, S., Lohse, G.L., 2003. Cognitive lock-in and the power law of practice. Journal of Marketing 67, 62–75. Juliusson, E.A., Gamble, A., Gärling, T., 2007. Loss aversion and price volatility as determinants of attitude towards variable price agreements in the Swedish electricity market. Energy Policy 35, 5953–5957. Kahneman, D., Knetsch, J.L., Thaler, R.H., 1990. Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy 98, 1325–1348. Karlsson, N., Juliusson, E.A., Gärling, T., 2005. A conceptualization of task dimensions affecting escalation of commitment. European Journal of Cognitive Psychology 17, 835–858. Klemperer, P., 1987. Markets with consumer switching costs. Quarterly Journal of Economics 102, 375–394. Oliver, R.O., 1999. Whence consumer loyalty? Journal of Marketing 63, 33–44. Samuelson, W., Zeckhausen, R., 1988. Status quo bias in decision making. Journal of Risk and Uncertainty 1, 7–59. Statistics Sweden, 2009a. Energy prices for household consumers. www.scb.se www.scb.se/Pages/TableAndChart 85467.aspx. Retrieved April 24, 2009. Statistics Sweden, 2009b. Omförhandling och byten av elavtal 2007. www.scb.se/ Pages/PublishingCalendarViewInfo 259923.aspx?PublObjId=8895. Retrieved April 24, 2009. Strahilevitz, M.A., Loewenstein, G., 1998. The effect of ownership history on the valuation on objects. Journal of Consumer Research 25, 276–289. Swedish Quality Index, 2009. Pressinformation 15/12 2008. Press release in Swedish from www.kvalitetsindex.se/index.php?option=com content&task= view&id=135. Retrieved April 24, 2009. Swedish Competition Authority, 2004. The pros and cons of antitrust in deregulated markets. Swedish Competition Authority, Stockholm. Swedish Consumer Agency, 2002. Konsekvenser av nyligen konkurrensutsatta marknader – elmarknaden [Consequences for consumers in recently deregulated markets – the electricity market]. Swedish Consumer Agency, Karlstad, Sweden.
A. Gamble et al. / The Journal of Socio-Economics 38 (2009) 814–819 Waterson, M., 2003. The role of consumer in competition and competition policy. International Journal of Industrial Organization 21, 129–150. Amelie Gamble received a Ph.D. in psychology from University of Gothenburg. She is now an Assistant Professor at this university and affiliated with the Center for Consumption Research where she conducts research focusing on consumer behavior.
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E. Asgeir Juliusson received a Ph.D. in psychology from University of Gothenburg. He is now a postgraduate researcher at City University of London. His research interests include judgement and decision-making. Tommy Gärling received a Ph.D. in psychology from Stockholm University. He is currently Professor of Psychology at University of Gothenburg. His research interests include applications of research in judgment and decision-making.