Loyalty penalty exposed: Companies hiking prices most for loyal customers

Loyalty penalty exposed: Companies hiking prices most for loyal customers

Loyalty pays in Britain, but the rewards go not to long-standing customers but to the companies who cash in on them. The gulf between the prices charged to loyal broadband, mobile, breakdown cover and energy customers and to newcomers has been laid bare in a new report, showing how customers are stung for hundreds of


Loyalty pays in Britain, but the rewards go not to long-standing customers but to the companies who cash in on them.

The gulf between the prices charged to loyal broadband, mobile, breakdown cover and energy customers and to newcomers has been laid bare in a new report, showing how customers are stung for hundreds of pounds each year.

The loyalty penalty comes as charges for existing customers are ratcheted up each year, while companies offer better deals to compete for new customers.

BT was named as the broadband provider with the biggest loyalty penalty in a new report

BT was named as the broadband provider with the biggest loyalty penalty in a new report

Today, This is Money can reveal the worst offenders in each sector, thanks to research from check and challenge site Ismybillfair.com, so that readers can see how the providers they use stack up. 

And in a new campaign to stop companies profiteering on our loyalty, we are calling on people to take action and Check Your Bill.

We want to help our readers take three simple steps:

  • Check what you are paying
  • Compare this to what new customers get and rival firms’ prices
  • Demand a better deal or switch

And because we know that the loyalty penalty tends to hit older customers and the less internet-savvy hardest, This is Money is also calling on our readers to help their friends and relatives.

It will only take a little bit of time to help ensure that they are not being ripped off by insurers, telecoms firms, breakdown providers, energy firms and other providers – and you could give them the Christmas gift or saving hundreds of pounds on their bills.

The research from Ismybillfair compared costs from the bills of more than 100,000 people who used the check and challenge website to the prices new customers were paying. 

It claims customers are paying up to £273 too much for broadband each year, at BT which was named as having the greatest loyalty penalty.

The site said the AA customers paid a breakdown cover loyalty penalty of £133, while RAC customers paid £110 more on average than the best price for new joiners.

For mobile, it measured sim-only deals owing to the complexity of comparing costs of packages that include different phones. Here the greatest loyalty penalty was £124  at EE.

It also suggested energy customers were paying too much, although the methodology for this was different and energy firms we spoke to dispute the figures.

Nonetheless, figures from comparison website Energy Helpline show that a tenth of customers could save £458 from switching gas and electricity.

An energy price cap means that an average users should now pay no more than £1,136 annually for gas and electricity, according to Which? However, its research in October found 98 deals that cost less than the cap and said people could save up to £258 switching to the cheapest deal instead.

I was being charged £246 more than a new customer by BT 

When we challenged retired headteacher Ben Beavan's bills, BT cut them

When we challenged retired headteacher Ben Beavan's bills, BT cut them

When we challenged retired headteacher Ben Beavan’s bills, BT cut them

Retired headteacher Ben Beavan has been a loyal BT customer since he bought his first flat in Winchester 35 years ago, writes Amelia Murray.

But he has since discovered he was being charged £246 more a year more than a new customer for his BT package, which includes unlimited weekend calls, broadband, and line rental.

Mr Beavan, 63, who lives with his wife Liz, 62, had believed that as a loyal customer he would be getting a good deal.

But while he was paying £45.49 a month, a new customer could get the same deal for just £24.99 a month for the first 18 months, and £32.99 thereafter.

He said: ‘I was shocked to discover my loyalty had gone completely unrewarded. I felt like I had been taken advantage of. BT is using me like a cash cow to fund the deals it offers to new customers which is not fair.’

He said: ‘We were confident we were getting the best deal as we had been customers for so long. The problem is I do not want to change my service but I am paying massively over the odds. I wish BT would charge its loyal customers fairly.’

After we intervened BT reduced the price of Mr Beavan’s package to £32.99.

A BT spokesman said: ‘We fully agree that customers shouldn’t overpay for the service they receive. We’re working harder than ever to be even clearer with our customers about their options.’ 

The Ismybillfair research comes ahead of a Competition and Markets Authority response to a loyalty penalty super complaint made by Citizens Advice, which the watchdog is obliged to consider.

Citizens Advice said that longstanding customers are widely overcharged and that it believed British consumers were being overcharged by a total of £4.1billion a year. The charity said the cost falls disproportionately on the elderly and vulnerable.

A super complaint can only be made by a select group of consumer organisations and the CMA or relevant watchdog must publicly respond within 90 days to say if they believe it is and issue – and if not, why not – and what they intend to do about it.

Ismybillfair has submitted its findings to the CMA to consider alongside the Citizens Advice super complaint. 

Alex Perrin, CEO of Ismybillfair.com said: ‘For one in five customers that move providers regularly, it’s fine, they’re generally on the better deals.

‘For everyone else, especially the most loyal, and the vulnerable, they’re simply being charged more every year for exactly the same service as the next customer.

‘This simply can’t continue. These people need some sort of intervention to make it fair.’

I saved £444 a year by challenging my bill 

Donna Robinson challenged her bill

Donna Robinson challenged her bill

Donna Robinson challenged her bill

Mother-of-four Donna Robinson was paying Virgin Media £54 per month but got that down to  £17.64 when she asked for a better deal.

That means she will now save £444 over the next year of her broadband and TV bills. 

Customers of broabband, TV and phone companies have been hit by a succession of small price rises in recent years. 

She had used Ismybillfair to challenge her costs and said they had risen as it felt like the firm ‘added £3, then added £3, then added £3.’

She said: It isn’t right. Loyalty should pay’. 

 

Charging longstanding customers a higher price is a tactic companies use to make money while keeping their prices keen for new customers.

It can be highly profitable and is recognised as a part of many providers’ business strategies. 

Just how important such pricing can be was exposed last month after This is Money revealed that the AA had a secret half-price breakdown insurance deal it was offering to those who only drive within a certain distance of their home.

A reader told us they had been offered this special cover for £45 a year that is not advertised by the AA when they called to cancel their policy. Standard AA breakdown cover is £99 per year.

Analysts at brokers Credit Suisse put out a note on the secret cover saying that only 27,000 of these £45 policies have been taken out, but this could soar as more of the AA’s 3.3m customers found out about it or tried to leave.

AA shares fell 7.5 per cent that day as investors absorbed the broker’s suggestion that this could be ‘’cannibalistic to the personal membership revenue base’.

How you can help your friends and family 

Bob Frost's daughter Georgie helped him save more than £160 on his RAC bill

Bob Frost's daughter Georgie helped him save more than £160 on his RAC bill

Bob Frost’s daughter Georgie helped him save more than £160 on his RAC bill

In an illustration of how it’s possible to help your friends and family, This is Money’s podcast host Georgie Frost saved her father hundreds of pounds recently by going through his bills.

One of the biggest surprises for her dad Bob Frost, 68, a geophysicist who lives in Sussex, was the saving on his RAC bill.

His automatic renewal letter said his payment would go up from £279.99 to £293.99. A bit of negotiating brought that down to £132 – a saving of £161.99 for the year.

Bob said: ‘While I do expect bills to go up a little, I was assuming that because we have comparison websites, big companies like RAC would monitor the prices and offer competitive prices to their loyal customers to keep them.

‘It is criminal that they are not, because they have the resources to do it, their business model seems to be screwing loyal customers. It’s utterly disgraceful.’

Check Your Bill campaign: What you can do 

That loyal customers are charged more will not be a surprise to many people, however, we still let companies get away with it.

At the root of this lies people not realising how much they are being overcharged and inertia, as many cannot be bothered to check their bills, challenge providers and switch if need be.

The CMA could decide to do something about this, but any action is likely to take a long time to kick in.

This is Money is therefore calling on readers to fight back against the loyalty penalty and take matters into their own hands: check your bills, demand a better deal and switch if you need to.

We also want out readers to help out their friends and relatives who are unlikely to do this themselves, perhaps because they are elderly or not internet-savvy.

To do this get your latest bills together and see how much you are paying, then check the prices offered to new customers.

Contact your provider and tell them you want a better deal or you will leave – if they won’t give it to you switch.

You can do this yourself and use the links below to compare rivals’ prices, or you could use the ismybillfair.com check and challenge service.

> Compare energy bills with our tool

> Compare broadband bills with our tool 

Companies named in the Ismybillfair report hit back at its findings.  

An AA spokesman said: ‘We don’t recognise these figures but believe they are skewed by the industry norm of introductory offers being lower than annual subscriptions. 

‘As the market leader in breakdown services, we provide an excellent service valued by our customers, which is reflected in the significant number of times we have won Which? recommended provider status.’ 

Meanwhile, BT claimed that it offered a wide range of broadband packages that were ‘good value’.

A spokesman said: ‘We work closely with Ofcom and its accredited sites, but as far as we are aware ismybillfair.com is not Ofcom accredited. As such, we cannot verify that what they are saying is accurate.

‘Across the industry there are many reasons the price of broadband package prices may vary, including loyalty and other discounts applied, promotional offers at the time of purchase or due to any add-ons purchased such as access to BT TV or BT Sport.’ 

How providers stacked up

Ismybillfair’s research aimed to show the companies charging the biggest loyalty penalties. It worked out the numbers using data submitted by more than 100,000 customers over six months to its site.

This was done by taking what people said they were actually paying, then comparing it to the prices providers offered to new customers for the same service.

The average overcharge figure shows how much the typical customer was paying above the best price.

The percentage of customers overcharged shows how many of those who checked their bills were paying more than the lowest price offered to new customers.

The overcharge as a percentage of the average bill figure shows what percentage of the average bill was made up of extra costs  compared to the lowest price offered to new customers. 

In theory, this gives a good guide as to how much people may be able to shave off their bills if they challenge them. 

THE BROADBAND LOYALTY PENALTY 
Broadband providers Average overcharge per month % of customers overcharged Overcharge as a % of average bill
BT £22.75 77% 40%
Sky £21.94 80% 41%
Virgin Media £18.18 83% 30%
EE £14.45 60% 35%
TalkTalk £13.84 67% 34%
Plusnet £11.08 82% 32%
Source: ismybillfair.com crowd sourced customer records, correct as at 5th December 2018 
THE BREAKDOWN LOYALTY PENALTY 
Breakdown cover providers Average overcharge per month % of customers overcharged Overcharge as a % of average bill
AA £11.07 59% 47%
RAC £9.17 39% 41%
Source: ismybillfair.com crowd sourced customer records, correct as at 5th December 2018 
SIM-ONLY MOBILE LOYALTY PENALTY
SIM only providers Average overcharge per month % of customers overcharged Overcharge as a % of average bill
EE £10.32 46% 36%
Vodafone £9.54 62% 38%
O2 £9.27 65% 37%
BT Mobile £7.66 23% 35%
Tesco £7.52 25% 39%
Three £7.18 33% 30%
GiffGaff £6.60 7% 30%
iD £5.44 21% 40%
Virgin Mobile £5.33 17% 35%
Plusnet Mobile £3.33 25% 28%
Source: ismybillfair.com crowd sourced customer records, correct as at 5th December 2018 

THIS IS MONEY’S FIVE OF THE BEST BROADBAND DEALS

 



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