Archive for December 2013

customer loyaltyMy credit card & wallet have had a busy few week lately. Some of this expenditure was planned, but the majority of it wasn’t. Some of these recent interactions with suppliers have got me thinking about the price / cost of loyalty. Here’s some background context on just a couple of my transactions:

Broadband. I moved from BT Business Broadband to BT Residential Broadband. A few years ago I moved in the other direction as I was having some technical issues that – according to BT – would be easier to resolve as a business customer. They weren’t, and as the contract period has now ended, I decided to move back. Why? The price decreased from £25 / month to £16 / month. BT even have a special department to help you do this (BT Migrations). When I asked what differences there would be if I moved back, I got the answer “Nothing, the only difference will be the department that sends you the bill”.  Oh and as a ‘new’ customer to BT Residential Broadband the first 6 months are free.

It seems that BT are charging their regular customer more than their new customers. The regular, loyal, customers are subsidising their acquisitions of new customers.

Car Insurance. I changed car recently (and that’s another – very – long story) so had to get insurance for my new vehicle. I’ve been insured with one company for over 10 years (and with an equally as long ‘no claims bonus’) and it was always easier to stay with the devil you know, rather than look around. I know the folks in the office that handle my insurance as they are based in my local high street. But, in this instance, I decided to look around and happened to land on one of many price comparison web-sites. I was doing this more to make sure I was paying the market rate and would be happy to stay with my current supplier even if it was a few quid more. But, I was amazed that I could save over £250 / year my by moving supplier. I also moved up from 3rd party cover to fully comprehensive as well to another one.

It seems that my insurance company is offering special deals to new customers as well. Deals that are not available to me. Weird.

There are other examples here and I am sure you will have some of your own as well.

So is loyalty being penalised these days? I can only conclude that: yes it is. This is mainly true in commodity markets (phones, banks, insurance, utilities etc.) where it appears that the main differentiator is price. If price is the main motivator – it comes at a cost. The cost of penalising current customers for their loyalty. Something feels wrong to me about this. Surely, a business model is not sustainable if you penalise the loyal customer?

Businesses that offer a commodity product are teaching the market place to be disloyal, to shop-around and to be motivated by the ‘deals’ on offer to new / switching customers. Even the government is encouraging you to switch your energy supplier and that it should be as easy as switching banks.

Much as I appreciate the open market and competition I am not a fan of what it is teaching us as consumers or the negative effect it has on the value of loyalty. That’s because the price fixation spills over into other – non commodity – markets. Here the value of a unique service or a differentiated product is rarely appreciated and the discussion often seems to focus on ‘how much?” I see this in the sales training workshops that I run, which are attended by business professionals, wanting help in explaining, justifying and defending their price.

So what to do? In a market that encourages disloyalty how do you build a long term relationship with a new client? One answer, from ‘Red’ Adair in the oil industry immediately comes to mind:

“If you think working with a professional is costly, try working with an amateur.”