Friday, 2 September 2016

There's always one...

Earlier this week the Commerce Commission came out with the second of its reviews of the sorts of contracts you and I get asked to sign when we sign up for our utilities. The latest one is a review of the electricity retailers (media release, full report as pdf); in February the Commission had gone over the typical telco contracts (media release, full report as pdf).

The Fair Trading Act, and the new bits in it on unfair contract terms which triggered these reviews, aren't usually my thing: to be honest, I knew nothing about the new provisions before the Commission's Ben Hamlin took us through them at last weekend's CLPINZ workshop. But now that I've looked at these reviews, I was struck by an unusual pattern which emerged from the pair of them. Here is the distribution of the number of potentially unfair contract terms found in each sector, by company.

Which is why I've called this post, "There's always one...". Because there is: in both sectors there is one company that's gone way beyond the others when packing its contracts with consumer-unfriendly terms. Equally there's one at the other end of the scale (in electricity it's more like a closely-bunched group of three) with remarkably few of the small print gotchas.

A good slab of these contract terms were not objectively necessary - as the Commission said on both occasions, "In some instances the companies were able to provide information to the Commission to show that the term was necessary to protect the legitimate business interests of the company. In all other cases, the companies accepted the Commission view and have amended or agreed to amend the terms concerned" - so it looks as if these patterns are telling us more about companies' culture than anything else.

At the greener end, while it's possible that some companies haven't thought hard enough about all the things that might go wrong, it's plausible that we've got companies that are more consumer-focussed, perhaps out of conviction, perhaps because they reckon that consumers may be relatively flighty and will leave if pushed too hard. At the redder end, we've got - well, I'm not sure. It could be just hard-nosed business, shifting as much risk as possible onto someone else, possibly on a view that most customers are relatively sticky. It could be that the company is being run by the lawyers. Or it could be that a company views consumers as "them versus us".

So it'll be an interesting market experiment to see which approach works best over the next few years. If I was currently down the redder end, I think I'd be minded to change course: competition is a multi-dimensional beast, and in competitive markets I don't think I'd like to get into the fray lagging badly on non-price dimensions like contract fairness.

As an aside, if you'd like a fascinating example of corporate culture losing sight of the customer, try this excellent article from Bloomberg earlier this year, 'United's quest to be less awful'. I especially liked this anecdote:
On Nov. 19 the airline announced it was changing the coffee it serves on its planes and in its lounges from a brand called Fresh Brew to the Italian premium roaster Illy. It was welcome news to customers and to the flight crews used to fielding complaints. It was also a tacit admission that the choice of coffee after the merger, a decision that consumed thousands of man-hours, took nearly a year, and involved everyone from [then CEO] Smisek to the airline’s head chef to the flight attendants, hadn’t worked out.

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