New Report Shows Consumers Underestimate the Value of Comparison Shopping
--Income and Race Affect Attitudes Toward Benefits of Shopping Around --
FOR RELEASE, EMBARGOED:
April 16, 2003
Jack Gillis, 202-737-0766
Washington, D.C. -- Most consumers underestimate the value of
comparison-shopping, according to research released today by the
Consumer Literacy Consortium, a group of consumer education leaders
from government, non-profit, consumer and business organizations. The
CLC has concluded that consumers often do not realize that, for most
products, a wide range of prices are available and, therefore,
consumers often pay too much for the items they buy.
To assist consumers in their comparison-shopping, the CLC is releasing a revised and updated version of its popular brochure, "66 Ways to Save Money" and introducing a new website. Consumers have requested 1.4 million copies of earlier editions of the brochure, which offers simple, straightforward, money-saving tips on 28 types of products. CLC estimates that, by acting on these simple tips, the typical American household can cut its expenses by more than $1,000 a year.
According to a recent Opinion Research Corporation International survey of a representative sample of 1012 American adults conducted for the CLC, the typical consumer needs about a 10% price savings to persuade them to comparison shop for most products. For gasoline, auto insurance, color TVs, long distance phone service, new, and used cars, consumers said they need savings of 10% or more to make shopping around worthwhile. For car rentals, plane tickets, and life insurance-the price difference required to motivate shopping around was substantially higher at 25%.
These results show that most consumers need a far lower price savings to persuade them to comparison shop than can actually be obtained from shopping around. These findings are particularly significant, since the available consumer behavior research indicates that, on the average, only about 50% of people shop around. An important reason as to why consumers do not shop around is the perception that it is not worth the effort. They rationalize that the savings potential will not be greater than the desired 10% savings needed to motivate action.
"The fact is that shopping around for most products will yield savings far greater than 10%," said Jack Gillis, Director of Public Affairs, CFA. "The fifty percent of consumers who don't shop around are losing out on thousands of dollars of potential savings. By luck some of these people will stumble onto the best priced item, but more than likely half of them will pay far more than they should."
TIME SPENT SHOPPING AROUND RESULTS IN HUNDREDS OF DOLLARS OF SAVINGS
In a related finding, CLC researchers also found that the payoff in time spent comparison-shopping yields a savings of hundreds of dollars.
In the fall of 2002, students at Virginia Tech University participated in a comparison-shopping study to determine typical price savings gained by shopping around and the time it took to discover these savings. For each of four products listed below, 37 students called three sellers. The median price savings for each of these products represented the median price difference for all 37 sets of price differences.
SEARCH TIME AND SAVINGS FOR SELECTED PRODUCTS
|Product||Median Savings||Search Time|
|RT, DC-Chicago Flight||$125||21 mins|
|RT, Houston-LA Flight||$139||15 mins|
|Car rental, two-day||$26||21 mins|
|Color TV||$100||16 mins|
In analyzing the results of shopping for 4 common products, the range of prices available for the same product far exceeds the price savings consumers say they need to shop around. For a color TV, the actual savings was double the amount consumers said they needed to motivate them to shop around. For plane tickets, the actual savings exceeded 50%. However, for a two-day car rental, the price difference was only slightly higher than what consumers said they needed in savings to shop around.
"Shopping-especially by phone or on the Internet-is easier than most consumers realize," said Robert Krughoff, President of Consumers' CHECKBOOK. "For many products and services, consumers can save themselves between $1 and $9 for every minute they devote to shopping. That is a much higher rate of return than most of us get on the job-and of course you don't have to pay taxes on money you save."
LITTLE PRICE DIFFERENCES ARE NEEDED TO MOTIVATE SHOPPING AROUND
The CLC survey identified the needed price savings to motivate comparison-shopping on a product-by-product basis. The results range from a median of $2 for a ten-gallon tank of regular gasoline to $2,000 for a $20,000 new car. For most products, consumers needed a price savings in the range of 10-25 percent to persuade them to comparison shop among at least three sellers.
|PRICE SAVINGS NEEDED TO COMPARISON SHOP|
|Product||Median Savings Needed to Shop Around|
|Car rental, 2-day
Gasoline, 10 gals. Regular unleaded
Plane ticket, roundtrip
Auto insurance, annual premium
Term life insurance, annual premium
Color TV, 27-inch
Long-distance phone service, 1 year
New car priced at $20,000
New car loan, interest and fees
Used car priced at $5,000
OTHER FACTORS ASSOCIATED WITH SHOPPING BEHAVIORS
In certain product categories, income, education, and age also make a
difference-with lower income, less educated, and younger as well as
older adults saying they need a greater savings potential to
comparison-shop than do, respectively, the well-educated, baby boomers,
The fact that those who would benefit the most from comparison-shopping demand the highest savings potential, reflects our belief that lower-income consumers are less knowledgeable about comparison-shopping than the more affluent. They may be less aware of price differences, and ways to research and purchase products at these prices. The differences in needed price savings among less- and well-educated consumers, and young and older consumers, suggest logical explanations for the knowledge gap. Typically, young adults have had fewer opportunities to learn from marketplace experiences compared with older adults and, thus, do not understand the potential economic benefits of shopping around. Schools need to teach skills-not only basic literacy but also the ability to analyze problems-that facilitate comparison-shopping.
SIMPLE WAYS TO SAVE THOUSANDS OF DOLLARS
Because of product price variations, the single most important thing
consumers can do to save money is to shop around. The Consumer Literacy
Consortium offers the following advice on how to comparison shop.
- Use the Internet to get an idea of price ranges when available. For those without Internet access, visit your local library to use their computers. Beware, however, that there are very few complete sources of price information on the Internet. For example, major travel sites rarely include discount air carriers. Also, to access some websites requires personal information that could be kept in databases and used to market products to you.
- Use the phone. Use the Yellow Pages to identify sellers then call for prices. (Don't be afraid to ask for a lower price-some sellers will offer a discount on request.) Comparison-shopping by phone can work well for all surveyed products except gasoline and used cars.
- Use magazines to compare product ratings, which can be found at your local library. Consortium Announces Revised Brochure and New Website to Assist Consumer Comparison Shopping
The new version can be obtained by sending a self-addressed, stamped
envelope to: 66 Ways to Save Money, c/o CFA, P.O. Box 12099,
Washington, DC 20005. It can also be found on the new
www.66waystosavemoney.org website which contains an easy-to-use
overview of money-saving tips and links to unbiased web pages that
supplement the information in the brochure.
The Consumer Literacy Consortium is a working group of representatives from federal and state government agencies, consumer groups, business organizations, and educational institutions that seeks to develop and disseminate essential messages to inform and educate consumers.