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You're our customer. We Hate You

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59 pointscschanck39 comments

The point of offering a discount is to increase conversion rates or decrease churn.

The churn among 9 year customers is miniscule and, to the extent it happens, is largely out of your control.

(They've successfully resisted all temptation to quit for NINE YEARS. Crikey, your commercial relationship is already more stable than many marriages . Typical events precipitating a cancellation sound less like "Found a better deal" and more like "I'm moving outside your service area" or "Dear Comcast: Dad died, please cancel his subscription.")

Thus, offering 100% of 9-year customers a discount to influence a fraction of a sliver of those customers (the number who are seriously considering cancellation who could be motivated to not cancel if they were offered a better price) is just throwing money away.

Incidentally, the corollary: if you want a better deal, threaten to quit. You'll find Retention has many options for rewarding you for your loyalty.

(Sidenote: you know you have been in Japan too long when you spell it colorrary and wonder why the spellchecker flags it. sigh)

My parents did that for years with The Boston Globe. Every August, they'd quit, and every September, they'd pick up a new 1-year introductory subscription at about 1/3 of the price.

I've been trying to get them to do the same with phone/Internet service - my Comcast is about half as much as their Verizon because I'm on a promotional 1 year subscription. Hell, just quitting FIOS, using dialup for a month, and then buying the exact same subscription they already have would save them $10-15/month.

Similar perverse incentives are at work in the job market (you usually get much better offers by changing jobs) and the housing market (apartments tend to jack up the rents as much as possible on existing tenants while offering move-in specials to new tenants). And people wonder why there's no loyalty in America anymore...

A good tactic when possible, but Comcast requires a 3-month away period to qualify as a new customer. I think the best tactic is threaten to quit, if that doesn't work then phone back another day and try your luck again with the call center lottery.

Though you can do like I did. Call to cancel cable, and they reduce it by half bringing your total package of cable/internet to a more reasonable price. I guess they have a greater fear of showing declining subscribers than sticking to their (outrageous) price.

Precisely. I guarantee you that there is north of a billion dollars worth of research into _precisely_ how to manage customer loyalty. If there was a profit advantage to rewarding customer loyalty, you'd see it. There isn't, so you don't. The parent has it nailed - Why incent people not to leave _when they aren't going to leave anyways_.

Because even if there isn't an incentive, it's the right thing to do.

It's been one of my gripes about business for a long time that they offer more attractive options to people who aren't their customers than they do for people who have been their customers for a while.

So, now that I'm running my first bits of advertising for my consulting/I.T. business, I put a "10% off your next invoice" coupon in the flyer -- for my existing clients.

After all, if it weren't for my existing clients, I couldn't afford to be advertising for new ones.

On the other hand, you're not a publically held company. The telecom can't justify decisions on the basis that they are right. Cooperate law in america is messed up.

I've literally just been considering this same question yesterday. I decided against giving a discount - I'm already pretty cheap though. If you keep discounting your clients you end up doing more work for them to make the same amount of money; if you've cut your cost of doing business and you're seeing some clients leaving for other businesses (and not coming back) then it seems right to reduce your costs to incentivise repeat custom.

Remember that [regular business] customers [with opportunity to go elsewhere] who get things cheaper will always want them at that rate though - we paid you £360 last time, why should we pay £400 now?

I agree with you. I don't plan on offering the discounts very often -- my rates are already pretty cheap. It's more of a "thank you" discount, and it's intended to show potential new clients that we treat our existing clients pretty well.

I don't think most of my existing clients will expect me to continue offering a discounted rate. I've had several of them even tell me that I really ought to be charging a lot more.

You're forgetting they'd have a bunch more 9 year customers with this discount structure.

Edit: Sorry for being direct? Let me be more cautious:

It's plausible that, under the proposed pricing regime, the 9 year retention rate for customers would rise more than enough to offset the higher margins enjoyed today at the current retention rate.

Yes but very few public companies care about 9 year perspective.

I have previously argued with people who couldn't figure out why car insurance companies would ever raise someone's rates for being in an accident that was not their fault. Clearly, if it's not my fault, then I don't deserve to be punished!

Is there a word for this? Is it simply an inability to empathize (i.e., to see the world from the company's point-of-view) or is there a larger fallacy at work (e.g., a belief that the world operates according to some standard of fairness)?

It is properly a mix of the two things, that said it does seem strange to increase the rate since the other guy would have to pay.

If you drive defensively (if you've ever been a motorcyclist you'll know what I mean) then you can avoid accidents which nonetheless would not of been your fault. Thus, any accident is an _indicator_ (but not a perfect one) that you may not be the best of drivers.

An example might be the very common rear-end shunt at a roundabout (or "circle" in South Africa, not sure if you have 'em in the US) - an experienced driver will [usually] pull away confidently without hesitating. A less experienced driver can misjudge more often and set off only to suddenly stop, leaving the car behind to crash into them. Strictly road-lore says the rear driver should have observed better, they are liable as they crashed into a [near] stationary vehicle - but the foremost driver is hardly without blame. Yes, the rear vehicles insurance pays out for all damage; but the insurer of the front vehicle would be right in judging them a greater insurance _risk_.

It doesn't always work (some good drivers will just get unlucky and be hit by cars they can't avoid) but that's a rough version of a rationale.

Well if it wasn't their fault, and the company cuts them a break, then they have much more customer loyalty. The trick is how much effort you're willing to devote to figuring out he said she said debates which I'm guessing is not much.

The company doesn't care about punishing you, it's statistics. The insurance company is taking a gamble, and the odds of being in another accident, given that you've already been in an accident, are much higher than they were before. The odds have tipped against the insurance company, so they charge you more to keep it worth their while.

If you are not at fault, you are not at fault. If they could get away with pinning the blame on the other guy they surely would. So they have 0 legitimate reason to assume that your chances of being in another accident are higher than before, let alone 'much' higher.

The legal--or even common--definition of "fault" isn't at stake here. The fact of the matter is that they've got mountains of data that say that if some "random crazy fluke thing" happened to you, then you're more likely to have it happen again. Because that's what the data tells them. Heck, it could be that you just live in an area where people drive like crap.

Look at it this way: let's pretend an accident (regardless of fault) actually lowered the chances of a subsequent accident (maybe you're scared into good driving), and the longer you drove without an accident, the more likely you are to have one (maybe you become complacent or something). In this situation, your rates would go down when you got in an accident. Because it's not that they're trying to punish you, but rather they're trying to just charge based on the X% chance you're going to be in an accident, plus Y% overhead/profit.

Not being at fault legally does not mean your actions (or lack thereof) were not contributory to the accident occurring. There are a heck of a lot of ways you can increase the risk of being involved in an accident while avoiding legal fault; by contrast "defensive driving" exists as a discipline for doing the opposite.

This is how frequent-flyer programs work. Once you are invested in one carrier, you are stuck with them. Am I going to give up pre-boarding, special security lines, free upgrades to first class, lounge access, and double mileage earning just to save $50 by flying the competitor? No.

When you give loyal customers free stuff, they stay loyal. It's too bad other industries don't get this.

Without all those advantages you listed, the price to pick a competitor for your next flight would likely be close to zero though. So they have to provide those running incentives. The cost of switching the phone provider for my next call... way higher.

Even without frequent flyer programs, airlines still control markets. Most people prefer non-stop to connecting flights, and not every airline flies between every possible city pair. So people are locked in to the carrier that happens to fly to the destination of their choice. Taking a connecting flight to save money might be as inconvenient as switching phone companies to save money.

Funny thing. I have had DirecTV for about 6 years. Over the years, I've gotten a few upgrades in equipment (HD), but didn't really take advantage of an initial deal. Overall, I've been pretty happy with them.

All of the sudden, this summer, out of the blue, they give me Showtime for free for 3 months. They just sent me a letter to let me know. They even sent me an email, just to make sure I knew. I don't know how many people got this bonus, or how I was chosen, but it worked out great for me, since the 5th season of "Weeds" had just started :)

Then while I'm setting up an older TV, I need to redo some setup. I found I could do it on their website, and sent customer service an email to thank their devs for making it ridiculously simple to do. Boom... Starz/Encore free for 3 months.

Now, DirecTV tends to run at a bit of a premium to some other providers, but I like their HD a lot. I've looked at switching to cable or AT&T's Uverse, but ultimately just stuck with DirecTV. I suspect that a lot of people these days have been re-evaluating if that premium was worth it.

These little bonuses this summer made me like my decision more. Sure, it was a pretty cheap thing for them to do, and free premium channels is a common lure for new subscribers, and I really appreciated it.

apples and oranges. The 3 months of Showtime is just an incentive, they'll get you hooked on a show, at which point many people will get the actual subscription when the free trial runs out

Well, true... but it's still an incentive that is normally reserved for new customers. My point being that customer retention is something that companies take seriously.

It worked out well for me, since I had watched 4 seasons of a show via Netflix over the summer, and season 5 had just started (and is now over) on Showtime. When it expires, I won't miss it, but I thought it was a nice gesture.

Companies aren't concerned about churn, they're concerned about next quarter's posted results. (Churn is just one of many things that can be tweaked to produce better results).

Once you realize that the issue with pretty much every larger - public - corporation is that it is subject to the demands of short term results, you can see that the way they act is entirely rational and expected.

On the other hand... I recently called Speakeasy for some reason or another and they gave me a $25/mo discount on my service. I've been a Speakeasy fanboy as long as I've been a customer, but WOW.

Yeah, Speakeasy costs more than most DSL and the setup process blows, but their customer service easily makes the cost worth it. Internet should be like water and air: guaranteed and zero hassle.

If the writer of this blog post got his way and stirred the masses to complain over not getting the new 'customer deals', then the service providers would simply take away the new customer deals. That'd be 'fair', right?

He was a new customer once. He got one of those deals himself. Now he's pissed that someone, somewhere else in the world is paying less than him for cable.

The only other outcome would be contracts - like with cell phone providers, you'd sign a 3-year contract or somesuch for cable, and they'd offer you another 'new customer promotion' if you resign a new contract when your existing one is up.

Attempting to make things 'fair' just makes things worse for everyone.

The simple answer to this post is that while services companies are concerned about churn, they aren't that concerned.

That's not quite how I read it. Agree with it or not, this guy seems to be a fan of Comcast. The complaint is that these companies often treat new customers better than loyal customers... which is a huge and short sighted mistake - but also one a lot of companies make.

He isn't real. Nobody is a fan of Comcast.

Hey, I was careful to say that my experience of Comcast has been good, and it is clearly an atypical experience. Still, in the vacuum of my experiences, Comcast has been good.

I'm a fan of Comcast -- namely their total lack of countermeasures aimed at cable modem modification.

Unlike some of the Cable ISPs in Europe, they don't:

  * Make any attempt to fingerprint / forcibly upgrade your firmware
  * Restrict routing to unauthenticated modem MAC addresses
    * All they do is give you a walledgarden config
    * The MAC address database is global and lock-free
      * The only real authentication is locally in Layer 2
  * Ever change the locations/names of their config files

I have no idea why everyone hates Comcast so much. I've lived in SF for more than three years and had Comcast the whole time. I have had exactly zero issues, from reliability to speed to torrenting to customer service. It could be a bit cheaper and a bit faster, I guess, but I never really think about it, which is 95% of what I want from my internet provider.

Interestingly, doing the alternative (as suggested in the post) never seems to get tried in large. Tivo, for example, curtailed their beloved lifetime subscriptions, which was a bit like a reward for long term customers.

I agree it is a huge and short-sighted mistake, but I can't come up with an example to show it. It jsut seems to be conventional corporate wisdom with little to base it on.

You might be interested in reading up on the Loyalty Effect by Fredrick Reichheld (and associated books Loyalty Rules and other). He used to be a partner at Bain consulting but the premise of his books is that consumer loyalty has value and it's worth the time of organizations to measure and maximize that value...

He makes similar points you have that it doesn't make sense to charge new customers more than existing clients because existing clients add more value through things like referrals, they buy more services at lower cost, they no longer incur acquisition costs, etc. An example of trying the alternative would be places like my gym which happens to be a national chain - whose membership services I hate but I bought a while back and they don't up membership costs for old clients but they do for new ones. My membership costs probably about half that of new members because I joined a good 6-7 years ago which makes it rather unlikely that I'll ever give it up.

Personally I think the reliance and dependence of a lot of service companies like Comcast on the value of their infrastructure is a dangerous game given how much the cost of infrastructure has fallen and continues to fall.

The economics indicate that giving discounts to new customers is more NPV positive than just repricing the whole portfolio. Every portfolio has sleepy customers who don't get maximum value or the maximum perceived value. However, every active and vocal customer should be provided with all benefits. That's the perfect marriage of economics and customers service.

Why is it a huge and short sighted mistake? Without data, this statement is unsupportable. As a numbers guy, I'm inclined to believe it's a smart decision. In most jurisdictions, the cable operator has a monopoly. That's why cities offer franchises. If your current customers can't easily switch, then why on earth would you give them a break?

Now, as we start seeing competition from telcos, these "for new customers only" deals go away - everyone becomes a free agent when their contracts are up. We see this in the relatively competitive cell phone market: once your contact is up, you can get a new, fully subsidized phone from your current carrier.

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