Why you shouldn't get 3 quotes

Why don't we recommend getting 3 quotes?



There's a common saying when you want to engage a business to provide a service:
Make sure you get three quotes
When starting on your Energy Freedom journey, you may very well lack knowledge about services and services, and as such the three quotes approach appears logical and inviting.
 
However, at Energy Freedom Homes we push back against this because when we started to examine it, we found that relying on three quotes can hinder rather than assists clients with getting what they need1.
 
In this article we discuss the problems with this approach, which we hope will support decision making on your journey to an Energy Freedom Home.
 
Our focus, in particular, is the online marketplace who offer a "three quotes" service to customers, generally free of charge.

The marketplace 

First up, a definition to make sure we're on the same page.
 
When we talk about "the marketplace", we're describing a space where buyers can meet sellers who are supplying products or services. Sellers typically compete to get a commitment from buyers and receive a payment for their product or service if the buyer chooses them.
 
Marketplaces have been a physical space for thousands of years, but it's now more common to think of them as websites or apps.

 "Going out to market"

Almost as long as buyers have been looking for people to do things on their behalf, they've been advised to go and get costings from more people than they need, or "go out to market". The rationale for doing this is that it lets the customer:
  1. Compare costs and services provided;
  2. Be able to negotiate by playing sellers off against each other;
  3. Identify overcharging for products or services.
Often, buyers use the process of quoting to get a feel for the market. They can gather information about a range of different companies offering variations on the service or products they require at different price points. This is particularly important when buyers are doing something for the first time.

Why is the marketplace problematic?  

Unfamiliar marketplaces take time to understand

When we enter any new space, we have to become accustomed to the conventions, rules and people within the space. All of this takes time and happens through trial and error. Interacting with a marketplace is no different.
 
Many of us are time poor and are unwilling to put the effort in to understand marketplaces. We look for ways to spend less time acclimatising to the requirements of the market and seek to get what we need as quickly as possible.
 
To fill this need, companies have emerged that provide comparison services between different service providers. They give an executive summary of suppliers in a way that allows for easy comparison. This, in theory, leads to a quicker and easier purchasing decision and a good outcome.
 
Unfortunately, these comparison services are a marketplace of their own that require time to be understood.

In some instances, they can be misleading and ineffectual.
 
For example, in 2020 iSelect Limited was ordered by the Federal Court to pay "$8.5 million in penalties for making false or misleading representations about its electricity comparison service"2.
 
The penalties included not being transparent with the commissions they were making from promoting businesses, not sharing all available plans (especially cheaper plans) and under-quoting. This impacted hundreds of thousands of people who visited the site over a three-year period.
 
This example demonstrates the importance of being cautious when connecting with unfamiliar marketplaces and seeking quick fixes when interacting with them.

Marketplaces offer minimal protections for buyers and sellers  

Online marketplaces generally have disclaimers that shift liability to the buyers and sellers who decide to do business.

They  take no responsibility for the outcomes of transactions.

This means that they will not assist you when things go wrong; as a buyer, you'll take on the risk if you commit to engaging a supplier.

Marketplaces are incentivised by the volume rather than the quality of transactions  

The business model of a marketplace revolves around volume and growth.

They will typically get paid by providing access to the marketplace for buyers and sellers, taking a cut of each transaction.
 
This type of business model (especially when combined with the lack of liability for outcomes) dis-incentivises a focus on the quality of individual transactions (like yours) and instead taking the bigger picture view.
 
To them, buyers like you are just a data point.

 Why is the "three quotes" approach problematic?

Cheapest is not always the best

Quotes are focussed mainly on the cost of the product or service. This generally defines the objective as finding the best price.
 
Quotes often don't describe other important factors, like the level of customer service and ability to support long term warranties. This can get you trapped in the idea that the best option is the cheapest.

However, reducing price may mean compromises are required on things like service, warranties and quality.
An easy way to avoid this is to ask: What is being sacrificed to reduce the cost?

It's time consuming 

As mentioned, if you're committed to avoiding risky shortcuts, you need time to ease into the market.
 
You may not consider the hours that go into choosing a supplier, but they can be enormous. Each conversation with a different supplier adds up. Then you've got the additional task of finding a way to compare all the different offerings and options proposed by the suppliers.
 
The more quotes you get, the more time you spend on gathering information and developing an effective comparison process.

Three quotes is no guarantee of finding the right supplier 

Unless you're exactly sure of the details of the service, the quality and standards of the outcome you require and a fair price to meet those requirements, you'll probably need to get a lot more than three quotes to build your understanding enough to know you're in the right ball-park.
 
Also, the right supplier may not be the one that presents well, or is easy to find. It is the quality of service that is ultimately important, not marketing.

It raises the cost of services 

For every business who you contact that doesn't win a bid, they take time and resources helping you achieve your goals for no financial benefit.
 
All the wasted resource for unconverted bids adds up, forcing suppliers to increase their pricing to cover operational costs.
 
On the flip side, business that consistently come in under other quotes generally work to very narrow margins and operate in a very risky way.
 
Businesses operating on narrow margins are more likely to go bankrupt, which means they won't be honouring any guarantees on products they have sold or services they have provided once they don't exist.  

Who do marketplaces benefit?  

People with a lot of time 

If you're retired or researching this stuff is a hobby you enjoy, digging around in a marketplace can be a lot of fun and very rewarding.
 
However, if you're time-poor or more interested in the result than the journey, engaging with the market can be painful.

Marketplace providers

Naturally, the owners of spaces that bring people together to transact are huge advocates of marketplaces!
 
They generate income through various means, including; commissions, partnerships, selling of customer data and selling advertising space. 

Businesses who can navigate the market effectively 

The ability to stand out in the market is not related to the ability to deliver a quality service!
 
There will be businesses that can do both, but as a new buyer in the market it'll be difficult for you to distinguish.
 
Unfortunately, businesses such as comparison websites are aware of this.
Remember when considering any "quick-win" or time-saving solutions that the business providing that service may have a vested interest in developing a relationship with uninformed customers.

Long-term stakeholders 

If you're a business or individual looking to buy from the same supplier or sell to the same customer repeatedly, a marketplace will let you check if you're getting a fair deal.
 
It helps mediate your ongoing relationship and make sure it works for both parties.

In summary 

Marketplaces and getting three quotes are not necessarily bad. For many people, the process can work well.
 
But marketplaces can be difficult to navigate, particularly as a first time buyer or for jobs that occur once every ten to twenty years, like home energy upgrades.
 
If you choose to engage with comparison sites or get three quotes, it is important to ensure you have the right expertise.
 
To filter useful information from marketplaces and understand what businesses are offering and how they compare, you'll need these things:
  1. An understanding of the conventions, rules and people within a specific marketplace;
  2. An understanding of tried and tested research processes;
  3. An effective comparison process;
  4. Time.
If you do not have these things, alternatively you can work with a trusted expert with marketplace experience and connections. Expert brokers with a proven marketplace track record and have trustworthy, established connections. 

Brokers should stand by any company that they recommend and be committed to them delivering the outcomes that you require. In this regard, they are different from marketplace providers who only go as far as facilitating the initial transaction.

Next steps

If you're committed to investing time and understanding in the home energy upgrades market, we salute you! To get a headstart, we've consolidated all our knowledge in one place that you can browse. We'd recommend you start by getting to grips with your objective using our article, "What is an Energy Freedom Home?".
 
You can also start evaluating the trustworthiness of suppliers and move beyond only considering the cost of their services by using the same our checklist we use to approve our supplier partners here.

Want to fast-track home electrification? Join an Energy Freedom Homes Masterclass and learn to identify your needs, gain expert installation advice, and meet trustworthy tradespeople. Check your Masterclass readiness now!

References

1 Lee, R. (2021). Why online insurance comparison tools aren't always the best option, even though they're quick and easy. Business Insider. Retrieved  2023, from  https://www.businessinsider.com/personal-finance/what-is-an-online-insurance-marketplace-provider
2 ADF Financial Services Consumer Centre. (2020). Follow the money - beware of online comparison websites. Retrieved  2023, from  https://adfconsumer.gov.au/beware-comparison-websites/
 
Other references used to inform this article:
Kwarteng, M.A., Jibril, A.B., Botha, E., Osakwe, C.N. (2020). The Influence of Price Comparison Websites on Online Switching Behavior: A Consumer Empowerment Perspective. In: Hattingh, M., Matthee, M., Smuts, H., Pappas, I., Dwivedi, Y., Mäntymäki, M. (eds) Responsible Design, Implementation and Use of Information and Communication Technology. 2020. Lecture Notes in Computer Science, vol 12066. Springer, Cham. https://doi.org/10.1007/978-3-030-44999-5_18
Laffey, D., & Gandy, A. (2009). Comparison websites in UK retail financial services. Journal of Financial Services Marketing, 14(2), 173–186. https://doi.org/10.1057/fsm.2009.15
Laffey, D. (2010). Comparison websites: evidence from the service sector. Service Industries Journal, 30(12), 1939–1954. https://doi.org/10.1080/02642060802627558