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The real reason why companies offer ‘a month’s free trial’

The real reason why companies offer ‘a month’s free trial’

The real reason why companies offer ‘a month’s free trial’

These days a very common method to build a customer base for service industries, whether it’s Netflix, credit monitoring services or even Graze food boxes, is the ‘month’s free subscription’.  

The obvious reason why companies do this is the apathy dividend – in other words, the hope that they’ll gain as people simply forget to cancel for a month or two. But this is a short-term contributor to profits as there’s actually a more powerful psychology at play here, which I suspect is a bigger win – let’s call it the ‘inertia dividend’.

We human beings are naturally pre-disposed to not liking to lose something that we have. Many people wouldn’t sign up for a movie service that they don’t really need if they had to pay for it, but would for a free month’s trial. They go in with a view to cancelling it when it ends, but at that point they become accustomed to it and now getting rid of it means a loss – and we don’t like loss.

The lust for such things doesn’t bounce back like elastic. We tend to feel the loss of a service far more potently than the joy at its gain in the first place.

An easy example is a salary rise (or cut in mortgage rate). At first you feel happy at the increased disposable income, yet soon that cash is normalised and we’re used to it. Take it away after we’ve adjusted to the new amount and the pain is high.

Just think of the number of people with gym memberships who don’t use them. The idea of losing the opportunity to go to the gym even though they rarely attend keeps them paying month after month. 

This is a dangerous sub-philosophy when it comes to MoneySaving. We have to be clinical and recognise our own biases. It’s important to try and revert your mindset back to where you were when you got it. Ask yourself: "If I didn’t have it, would I pay for it?" If the answer is no then be clinical and ditch it.

After all, if you’re paying for it by the month and you can cancel if you don’t use it, stop using it and then you can choose to sign up again.

I’d love to hear your experiences as to whether you feel you’re tough enough and hard enough to avoid this temptation or whether you’ve been caught by firms’ ‘inertia dividend’ and how much it has cost you.

Is it age or a different generation that makes older people more trusting?

Is it age or a different generation that makes older people more trusting?

Is it age or a different generation that makes older people more trusting?

I was mulling today about my grandmother who is now in her early 90s. A few years ago, before her dementia sadly progressed so far as to make this issue redundant, she would constantly call me after a salesman had come to her door, asking me if she should switch to their product.

When I asked her why, the answer was always the same, "because the salesman told me it was cheaper". I always replied, "Grandma, you know what I do for a job, I promise I have made sure you are on the very cheapest possible tariff."

Yet, for her, the simple fact someone had told her it was cheaper meant they had to be telling the truth. She spoke of coming from a trusting world – my explaining this was just a commission-based seller using it as an opening line didn’t cut any mustard.

I hear similar tales repeated by many people about their parents as they delve further into old age. 

Now, of course there is no universality here. There are many extremely savvy people out there far older than my grandmother. Yet, it certainly does seem, anecdotally at least, that there is a trend of our older generation being more trusting.

What I am interested to know is, is this an age thing or a generational thing? 

Do we tend to become more trusting as we get older or is this about the ‘war generation’? This generation lived through a time when everyone in the country had to pull together and look after each other to enable them to survive, a better mannered time – is it because of this they have a greater belief that most people are honest and trustworthy? My suspicion is that it probably is. 

That’s not to say that younger generations aren’t trusting, but in a different way. In general I am a great believer that most people are good. 

If you ask somebody to do something for you they will generally do it well, even a stranger, without stealing your stuff or letting you down.  I’ve written before of my joy at seeing the person ahead of me in an ATM queue chase after the person in front of them as they’d walked away with their card but left the cash dangling.

However, when it comes to business and the corporate world I believe we live in an adversarial consumer society. A company’s job is to make money, our job is to stop them. Companies will tweak every possible profit-making nipple and at the sales end of it, if that includes manipulating the facts and using sales techniques to create openings, then they will.

I’d love your thoughts – are the older generation usually more trusting? And if so, why do you think that is… (and to know your age too would be interesting in this).

Cancelling the 55% tax on unused pension pots could be a disaster for many older people

Cancelling the tax on unused pension pots could be a disaster for many older people

Cancelling the 55% tax on unused pension pots could be a disaster for many older people

In the last Budget, Chancellor George Osborne announced he was freeing up much of the pension market so people could take their  money when they wanted – 25% of it tax free and the rest at their income tax rate.

Today, at the Conservative Conference, he has said  that if over 75s do that and die, and there’s money that hasn’t been touched in their pension pot yet, instead of their estate paying the current 55% tax when its passed on; they’ll pay it at their marginal rate (full info in the death tax news story).

This is a big pre-election giveaway to older voters, likely on the back of the scares about UKIP defectors. At a first glance, both these proposals seem wonderful, giving people more choice in the pension market and a greater ability to leave it to their dependants. (I shall ignore the wider  philosophical debate over cuts in inheritance tax – which is a tax to stop perpetuating inherited privilege and wealth – that’s a discussion for another day).   
Yet I have some real concerns over unintended consequences – so I’m quickly bashing out this blog as a stream of consciousness. I’d love to know your opinion on it.

The issue isn’t people overspending, it’s people underspending

When the pension liberalisation policy was first launched, one big headline concerned the risk that people would  simply cash in their pension, buy a Porsche and the state would have to look after them in their old age.

Of course this can happen, but I suspect only with a trivial number of people. In fact as I explained in my The Chancellor’s pension changes are wonderful and horrid blog, the real worry for me is the opposite of this.

I am concerned that someone who has a pension – be it  £20,000 or  £200,000 – when they retire at say 67 knows it must last them the rest of their life, and a natural fear means they will be very reticent to touch it.
It will be left sitting there and that worry that if they spend it now they will have no money later on  in life, means they will leave it there growing but unused, not helping them in their life in the way that a pension is designed to.

That was the one  benefit of an annuity: you cashed your money in and you got a payment each year for the rest of your life – a real genuine income. The big problem with annuities of course, was that the amount that you got wasn’t big enough.

Under the new system of pension  freedom, the only way to really decide how much you should be spending each year is to know when you will die. Now that isn’t that easy, although actuarial charts and your health and situation can you give you a rough indication of when this will be.

Of course you could get it wrong, so as a rule of thumb I would assume you are going to die 10 years later  than the prediction and spend your money accordingly. But I simply don’t believe people will do that. Take these examples…

If you look at people who saved up for retirement planning to live off their savings in the bank (as opposed to pension savings). With interest rates lower than inflation, effectively the money is shrinking. Therefore it makes logical sense to spend some of the capital to live off, as the income isn’t enough. 

Yet the psychology of it means people are, albeit understandably, simply are unwilling to spend the capital that they have; they only want to live off the interest.

This situation I suspect will be mirrored for many in not using the cash in their pension pot too quickly.

The cutting of tax could make that worse

The idea is that the money can be just as efficiently left to your inheritors as it is for you to spend it. I think this will perpetuate this psychological problem. Of course, there are some more affluent people who will see it as a great way to be able to leave money to their dependants by not touching their pension and using other funds.

Yet many on lower incomes already have guilty old ages, worried they’re "spending my child’s inheritance", even though sometimes their children are more affluent and have better lives. Pension money is meant to be there for you, not your dependants, to give you a decent standard of living in your old age.

Yesterday when I was filming for my  television roadshow, I spoke to the son of a woman who had a decent but not huge of  amount in savings who was desperate to give it away to her children to avoid  inheritance tax. She was 78 and in decent health, but what was she going to live on for the rest of her life?

So indeed my great fear with this change is more people will restrain and constrain their spending far too much on money that is supposed to support them – knowing it could go in an efficient way to their kids.

Would guidance and education alleviate the worry?

The Chancellor has said he wants people to take guidance when they take their pension so they will understand these issues. The amount of money initially put into the pot to fund this -  up to £20m for the first two years – is actually relatively small for giving guidance to all pensioners; certainly if advising them the way I would prefer, at a proper level where people will take liability for the advice that is coming across, rather than what could just be generic twaddle if not done right.  

So my great concern is not that I have a principled objection to the freedoms of the pension market, nor even  necessarily to allowing people to inherit with lower tax. What I do worry about  is that we do have a primarily financially underskilled population who are not equipped to deal with these issues.

We already know that from the fact that when  people retired in the annuity market, even though there was an open market  choice where they were able to go right across the market to get the best  annuity rate, the majority of people (60%, according to a 2012 study by the Association of British Insurers) didn’t do that. Instead they just kept with their pension provider’s annuity so losing income every year for the rest of their life.

I don’t think that enough of the current generation retiring population (especially those with smaller pension pots) are well equipped enough to deal with the freedoms. You may call me paternalistic, but I think we need more protections in place to help people manage their finances well when they retire.

I’d love your thoughts?

Try the new mobile friendly

Try the new mobile friendly

Try the new mobile friendly

We’re in the midst of a huge exercise to make the main site more mobile friendly guide by guide (this blog hasn’t been made more mobile friendly yet, so don’t judge the project on this). In fact, what we’re actually doing is making the site responsive. In other words, the page will scale and change depending on how big your screen is.

So while the content will always be the same (we decided not to cut it down for mobile – if it’s important enough to say, we should say it regardless of the format), it will look different on a smartphone, tablet, laptop or desktop monitor.

This isn’t the first time I’ve mentioned it. I wrote last December that we were starting the project in my Making MSE work better on mobiles blog post and I wanted to update you today on where we are.

It’s actually been a much bigger challenge than we first thought. To make it work, we’ve had to effectively redo each guide for desktops too. We’ve now got a great team working full time just on this though so you should start to notice a difference quickly.

Here’s one we prepared earlier…

Take a look at our 35 ways to boost your credit rating guide on your desktop and on a mobile to see the type of thing we’re doing (note the change to 35 tips isn’t part of this, that was a deliberate style change just for this guide – and not part of the ‘mobilisation’).

I hope it renders well for you and is much easier to read now it fits well on the page. However, it’s not fully finished. In the next couple of weeks we’ll be adding an ‘In This Guide’ hamburger menu icon to all the mobile-optimised guides. You will then be able to click on this to see (and easily navigate to) all the chapter headings and sub-headings of a guide.

PS. The forum is in the midst of a redesign too. Logged-in users will be able to try the new version and many have been using it for months.

What’s the rollout plan?

There are already a good number of articles and guides on the site that have been updated in this format and over the next couple of months, a big chunk of the rest of the content will also be done.

Once that’s done, it’s time to work on the taxonomy of the site – in other words, the navigation structure of the sections – and then once that’s done, we can redesign the home pages and section pages to be more responsive too. After that, we’ll tackle some of the big site tools.

Do let me know what you think of the mobile friendly articles, are they doing it for you?

If a company makes a mistake, that doesn’t make it a monster…

If a company makes a mistake, that doesn't make it a monster…

If a company makes a mistake, that doesn't make it a monster…

If a company makes a mistake, that doesn’t make it a monster…

As it says at the top of the page, is here to cut your bills and fight your corner, and we do our best to live up to that promise. As part of that, our forum, Twitter, Facebook and News pages are often filled with individuals who feel they have been horribly mistreated by companies both big and small.

I wanted to take a few minutes to explain my view on these issues. I often hear people who mistakenly believe that we’re here to ‘take down’ companies at any occurrence (sometimes this is said as a compliment, other times by businesses as an insult). Yet that simply isn’t true. I’ve always explained my stance as ‘the adversarial consumer society’ – in other words, a company’s job is to make money, as consumers, our job is to stop them. Yet I don’t believe companies are wrong to do so.

The best analogy I have for this is that as a Man City fan, when we play Man United, I desperately don’t want them to score, but I don’t believe they are wrong for trying to do so.

Looking at what happens when companies have mistreated a consumer is a subset of this. Things fall roughly into one of two bags…

  • When we’re all guns a blazing. If you look through the reclaims section of the site you will see articles about when businesses have systemically, deliberately and occasionally, maliciously mistreated customers. Here they’ve overstepped the line as to what is acceptable, and often the law.

    When that happens we are ‘all guns a blazing’, using all the firepower of our 15 million unique users, combined with media appearances to help people help themselves to get redress from those companies and the money they should never have had to pay out, back into their pocket.

  • When it’s just human error. Most problems with businesses actually tend to happen due to simple human error, or unexpected consequences. When people contact us about those, provided the firm says: "Oh, we are very sorry that was the individual operator" (and we can’t see any systemic problems). Or they say: "We didn’t realise that happened but we will put it right immediately, sorry about that". For me, that is usually it.

    I instruct my editorial and news teams that the latter isn’t really a story (with the odd exception of something that’s genuinely interesting in its own right). Providing the company puts it right, stops it happening again, and puts the individual back into the position they should’ve been in, we don’t cover it. You’d be amazed at how many stories like this we drop.

    I do occasionally note stories in broadcast or print media where you can see it was just an error but they go to town on it anyway, and I always find it uncomfortable so I don’t particularly want MSE to follow that line.

PS. Just to say, this isn’t a blog requesting you to send us your individual complaints. I’m afraid if you do we are nowhere near resourced enough to deal with them from millions of users, so most remain untouched. The main job of MSE is to aim to try and help you do it right in the first place. We aim at prevention more than cure.