Fleece existing customers, best prices for new, links in the same chain

Dictionary definition of growth

Sustainable growth is good

I read an article in the Herald Sun this week while waiting for a coffee. (Yes, I’m a newspaper snob and only read the Herald Sun when someone else has paid for it).

The subject of the article: How existing customers are being ripped off by power companies who favour new customers with enticing deals, has been covered on TV and radio since then. In some ways it’s not a new story. You could even say that the marketing tactics used (by energy, phone, insurance companies, banks and even newspapers) to entice new customers is a staple of current affairs programs.

The article recommends customers regularly check for best deals and be prepared to switch.

That’s also not new. It’s the usual recommendation, some form of buyer beware. While it addresses the symptom, paying higher fees, it doesn’t address the cause. It may even contribute to the problem. Because switching, always chasing the lowest prices, has to contribute to the subsequent high prices someone  pays. And eventually that someone will be you again.

I’m not an economist, but to me the deep discounts for new customers and high prices for existing customers must be linked.

There is a cost to provide services. Using using deep discounts to entice new customers has to be paid for by someone. That someone isn’t the company shareholders or executives. It maybe the workers. But often it’s existing customers who pay.

Having worked in corporate marketing environments I know that the cost of every marketing campaign is calculated to the last cent.

Companies know how much it costs to provide services to a customer. They know how much it costs to acquire a customer and what it costs to keep one.

Research shows that it costs much more to get a new customer than to keep an existing one, somewhere between 5 and 10 times more.  Social media may be driving that ratio down. But the cost differential still exists.

So why would a company fleece their known’ profitable customers in favour of the unknown. I don’t claim to have an answer to that question.  I think it’s short term thinking which focuses on growth rather than sustainable growth.

I do know that any responsible decision maker knew how they were going to pay for the customer acquisition before the campaigns started.

You can read the original Herald Sun article that started this train of thought here.

(I’ll leave for another day a rant about how many ‘service innovations’ are actually just shifting responsibility, effort and cost on to the customer).

 

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