Price comparison websites: Friend or foe

This is actually a post I've been meaning to write for a while. Everyone has probably noticed the proliferation of price comparison websites on the Internet. They deal with a wide variety of products and services including:

• Insurance: Car, home, life, travel insurance


• Interest rates: home loans, savings account rates


• Airfares


• Retail energy prices


• Web hosting


• Beer (in case you think I'm joking check this site out: http://www.boozle.com.au/)

Why is it worth being cautious about price comparison websites?

While price comparison sites should theoretically be impartial regarding their outcomes there is often the suspicion (and I have heard as much from several insiders) that many sites are incentivised to promote certain companies and products. Moreso some will not list companies who do not pay them. The worst examples I have seen of this are web hosting comparison sites - have a look at a few and you can tell who their main advertisers are from their search results. While I am not suggesting that all or even most sites are like this, the fact that you will rarely know is sufficient enough cause for the consumer to be wary.

How should I use the sites?

Where the sites really do become useful is as a starting point for further investigation. For example for flights between two locations it is worth using an airfare comparison website to find out which airlines fly between these two points (especially for international flights) and then go to the airline website to book through there. Most often you will no longer need to pay the booking fee charged by the price comparison website.

What type of products are best suited to these sites?

Price comparison websites are best used for homogeneous products (i.e. the product does not differ greatly from supplier to supplier). I would argue that interest rates are the best example of this while insurance (as I have mentioned several times before) should rarely be bought on price alone as the reputation of the company regarding claims is almost as important.

Conclusion

While there may be trustworthy price comparison sites out there it is always worth having a certain level of scepticism / distrust so that you do not get caught out by the dodgy ones. I suggest always looking at the main companies websites and make your own price comparison list (which you will often find yields you better outcomes than the original price - it also avoids the fee that many of these sites charge when you book through them).