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 Punishing loyalty    
 Dated:  Thursday, January 08 2009 @ 11:17 AM PST
 Viewed:  1,089 times  
ThoughtsOn the curious practice of forcing loyal customers to pay the highest prices

Recently we bought the FIOS tv/phone/internet package, which allowed us to drop the satellite TV subscription and dump the elderly second generation satellite receivers. (But I'll leave the dish up for a month or so just in case...)

The new FIOS receiver is better technology and has a much better picture, but she misses having the east coast feeds on the satellite, which gave her the opportunity to watch a 9:00 PM show at 6:00. But the new set top box has DVR, so I guess she could watch Monday's 9:00 show at 6:00 on Tuesday.

Although the old service was extremely reliable technically, the billing was a continuous, grinding nightmare which required wife to fight regularly with the satellite company's billing department. I tried not to get involved, (I don't watch broadcast TV) but the problem as I understand it was that they would debit her account, fail to apply the amount to her bill and then shut down the service. Once a month.

Price comparison was a no-brainer. I remember the satellite service was $29.95 when we first signed up in the early nineties, and even factoring in the cost of the receivers, it was still cheaper that first year than the horrible TCI cable which was our only other choice at the time. But over time the price increased regularly (about twice a year, according to my wife) and was, as of December 2008, just under $70 a month, far above the cost of the FIOS basic package.

So it was generally with relief and excitement that we changed over and got brand shiny new set-top boxes and new remotes.

So, wife called billing at the satellite company and after a 20 minute wait, told them she was quitting for good.

As she tells it, you should have heard the hue and cry! But we've been such good customers since 2003! (Actually 1993. I guess their records don't go back that far.)

The Offer

The salescreature offered us an immediate $10 reduction on our monthly bill if we kept the satellite. (We already had FIOS TV installed by then.) My wife said no, we would just like to cancel.

Sweeten the deal

The salescreature then said, how about if we reduce the bill, *and* throw in free premium channels? Wife said no, we really want to just cancel.

The FUD (fear, uncertainty, and doubt)

But, the salescreature said, why would you tie all your services to one connection? If your fiber goes out, you'll lose your telephone and tv and internet. Wife repeated, we just want to cancel.

Finally they put through the transactions and canceled the service. They said they'd pro-rate the final days on the next bill. A few days later, wife got debited... for a full month. She's looking forward to calling the billing department to get that straightened out.

What is interesting to me is that with media companies and cellular phone companies (and probably other industries), the best deals are for the customers just starting (introductory rates) and the people just leaving (panic discount offers), and the people paying the highest rates for the fewest services are the ones who have been with the company the longest.

This seems backwards. It's like us loyal customers are subsidizing new customers and the ones who want to leave.

As responsible consumers, we should look for the best deal when switching vendors, which usually includes free installation and a discount for a certain amount of time, anywhere from 3 months to as much as 1 year. We know that the introductory offer is designed to be better than what we're currently paying, and it's natural for the leave-ee to want to retain our business by making a counter-offer.

What this practice does is beat any consumer loyalty right out of us. It trains consumers to switch often, or call up and pretend to cancel when we think we can wring out a better deal. The companies are stuck in a constant string of free installations and panic offers.

And... C'mon now. What's with the FUD? So if our internet and telephone goes out, we also lose TV? Who the heck cares? It's TV, for Fudd's Sake. It's not a physiological need. You won't die from it's absence. You might even start noticing that those people you see coming and going sort-of look like you.

An online media company I once dealt with handled this issue in a different fashion. You were allowed to sign up for any amount of time and quit whenever you wanted, but the longer you stayed, the lower the price got, until after a year, the recurring cost approached a very attractive price with which no competitor's introductory offer could compete. The higher starting cost may have turned away a few prospective customers, but the price structure made it an investment to stick with the service once you started.

If the media providers and the cellular companies adopted this technique, they wouldn't need contracts and wouldn't have to offer "free" equipment. You'd make your decision, sign up, and then, for most people, never change, unless there was a jolly good reason, because changing meant you had to start over again at the expensive part of the curve. And companies who tried to play the "introdutory price" game would be competing against their competitor's lowest price instead of their highest.

But I guess that would make too much sense.

Update 8/11/2009

I recently ran into another example of loyal customers paying the highest prices. We recently replaced my daughter's cell phone, a Curve 8300 series, which had a worn-out keyboard (she a manic texter) with a brand new Curve 8900 from the same carrier. We were not under contract at the time, which I think the carrier calls "available for upgrade" or something like that. (Means the contract you signed when you bought your phone has run out.)

The sign at the store had the phone for an attractive price. Let's say it was $79.95, because that is what it was. We decided to buy that phone, and were charged a price just short of twice that. I asked why the discrepancy?

Well, the salescreature said, that price is only for new customers for that particular carrier. Since we were already customers, we did not qualify for the discount.

Now, I know why carriers do this. It's a cut-throat market, and every carrier is trying to find a deal that will get you away from your current carrier and over to them. It's perfectly understandable.

But do these companies understand what this looks like to existing customers? Other things being equal, the best price for the device we are considering will always be with the other company. There is no motivation to stick with my current carrier other than inertia, and significant (almost $80 in this case) motivation to switch to the other guy. What kind of sense does this make?

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