Lower your cost by switching to us (really?)
Well, you must have heard or received the following promotional line which goes like this “80% of our customers reported that they save an average of 20% or more by switching to us”. From my memory, companies that use this line of advertisement include Geico and State Farm insurance.
More recently, I also received a similar line from Chase’s Home Equity loan: “in a recent survery, two of every three Chase home equity refinance customers reported that they lowered their rate by 1% or more.”
On first look, many people would be led to think that the company must really be charging less than its competitors. But on closer scrutiny, this might not necessarily be the case.
The fact is that many companies price their products such that some products are cheaper for a select group of customers (loss-leaders if you wish) and some products are more expensive for another group than their competitors. So, assuming that the customers do shop around, the savvy customers will end up with the company that charge them the least. When that happens, these customers will certainly report cost savings when they switch to this company.
Let me put it in an example with Geico: the customers who switch to Geico have certainly only done so because they find that they have cost savings by switching to Geico, i.e. the statistics that Geico reports are only for those customers who have switched to Geico and do not include those who did not make the switch.
Consider this. Maybe 100 people have requested quotes from Geico, but it is cheaper for only 10 persons. These 10 persons would switch to Geico. Of these 10 persons, 8 persons find that they saved $500 or more. Here’s what Geico would report:
8 out of 10 customers who switched to us report a savings of $500 or more.
Notice that the statement is completely truthful; yet it does not convey much information about whether Geico will really be cheaper for you or not. Therefore, I think it always pays to shop around and not be misled by any advertisement that claims that a certain company has the best rate.
As for myself, Geico certainly does not provide the lowest insurance quote. In fact, I don’t think it even belongs to the top three spots.
Stumble it!
