Tariffs: How to Con the 21st Century Pubilc

Tariffs in a nutshell

Con artistry is more prevalent in society than ever before. But unlike the way things were in the past, with scammers easily recognised and permanently on the run, most cons today are legal, and perpetrated by supposedly legitimate businesses. The line between scammers and “legal businesses with a modern approach” is often incredibly difficult to draw here in 2014.

Conning the public without breaking the law involves many sophisticated tactics, but the most successful is the principle of over-complication. The methods vary. The business may, for instance, play one customer off against the next with deliberately limited quantities and time-pressure. The customer gets so absorbed with the task of ‘winning’ the purchase, that he or she overlooks key drawbacks, and frequently ends up with an unsuitable or useless item. Alternatively, the business might make its pricing system so difficult for the public to understand, that virtually no one can see what sort of value they’re getting, as compared with the rest of the market.

This latter system has been instrumental in one of the biggest and most serious rip-offs in British history. Everyone can see it’s daylight robbery. No one can do anything about it. I’m talking, of course, about the UK energy industry. ‘Policed’ by a useless sloth of a regulator, the UK energy business is riddled with collusion which has pushed up prices into the realm of extortion and put unthinkable numbers of citizens into fuel poverty. Public anger is suitably high.

But the price collusion which has allowed the energy companies to perpetrate this extortion is not a simple matter of everyone setting their prices exactly the same and changing them all at exactly the same time. That would make it easy to prove that price fixing had occurred, and land the companies in big trouble. So what they do, is use a classic con tactic which over-complicates the picture to such an extent that almost no one outside the industry can clearly see who’s charging what. Welcome to the world of tariffs…

TARIFFS

A PR department would assure you that tariffs are a way of offering different people, with different needs, a deal that’s right for them. But what tariffs really are is an unnecessary smokescreen.

For example, if I price six chicken drumsticks at £1.99, and my competitor prices them at £2.20, everyone can easily see that I’m the cheapest, and with everything else like for like, the public will buy from me. If my competitor persists in charging more than I charge across the board, with no added value in the goods or service, then I’ll get all the trade, and he or she will eventually go out of business. It’s that simple.

If my competitor reduces prices in line with mine, I’m going to want to gain an advantage and keep all my trade. I might therefore reduce my price further, or, if that’s impractical, I might try to offer extra value – better service, or an easier shopping experience. But whatever happens, the public can see the picture very clearly, and their ability to make an informed choice forces me and my competitor to keep our deals attractive.

But let’s say that instead of just selling my drumsticks for £1.99, I create a series of tariffs. If you eat two of the drumsticks before 10am, two between 10am and 6pm, and the other two between 6pm and midnight, you get the first two for 65p, the second two for 67p, and the final two for 69p. Alternatively, you can eat one before 10am (35p), three at lunch time (34p per drumstick), and the other two after 5pm (33p per drumstick). Or you can choose one of eight other tariffs I’ve dreamed up.

With every single one of my tariffs, you’ll be paying more than you were before. The tariffs don’t work in anyone’s favour other than mine. It might look like I’m helping out people who want to eat at different times, but all I’m really doing is charging a premium and shrouding it in complexity.

At a set price of £1.99, EVERYONE got my best deal. But with my new tariffs, it’s extremely difficult for anyone to see at a glance how much I’m charging, let alone what my best deal is. And more importantly, if my competitor also starts using tariffs, it’s difficult, bordering on impossible, for the public to define which of us is the cheapest. I might be cheaper for someone who wants to eat most of their drumsticks in the evening, but my competitor may be cheaper for someone who wants to eat four drumsticks for breakfast and two for supper. Therefore, NO ONE – not even experts – can say outright which of us is the better option on price.

What happens, is that actual prices become insignificant, and sales can be driven much more easily with clever marketing, meaningless slogans and hype.

And this is exactly what you see with real businesses who use tariffs – especially the UK energy companies. Even with price comparison sites involved, there’s still no way anyone can see which company is the outright cheapest and which is the outright most expensive, because prices change according to each customer’s needs and circumstances.

Dangerously, that means the company which on average actually is the most expensive, is never officially called out, and even more dangerously, there’s very little impetus for any company to be, on average, the cheapest. If price averages no longer in themselves determine each company’s reputation, what’s the point in being cheaper than the rest? And if raising price averages no longer singles out any individual supplier as a villain, where’s the commercial harm in doing it?

As I said, it’s not just tariffs that over-complicate business. They’re just a very common and very effective system. But never underestimate them. Never forget that tariffs are not there to help you. They’re there to blind you with science. Killing them off instantly restores transparency to a market and puts the public back in control, and in the case of the UK energy market, outlawing tariffs would stem the companies’ licence to collude on price and circumvent competition laws.

  Author: Bob Leggitt

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