Customer loyalty is great, but not for customers

Friday, September 7th, 2012 By

Set top box

Cable companies and insurance companies are among many service providers that don’t always reward customer loyalty. Photo Credit: Khx023/Wikimedia Commons/CC-BY-SA

The business propaganda industry, otherwise known as television and the business press, will often preen and spout a whole lot of abominably trite anecdotes and homilies about “customer loyalty.” It’s a nice concept, but customer loyalty isn’t always a bargain for the actual customer.

Insurance one of the ways customer loyalty is a loser for customers

Words like “customer loyalty,” or “brand loyalty” or similar buzzwords are a great idea. A person finds a service provider they like and decides to stick with them. It’s also assumed that loyalty might bring better prices as a reward.

As it turns out, loyalty might not be good for the actual customer and long-term customers might be getting ripped off.  According to Time magazine, a study by the Texas Office of Public Insurance Counsel found 60 percent of subjects didn’t ever shop around for better rates on car insurance.

The study also found the typical person who had the same insurer for 8 years would save 19 percent on their premiums by switching to a different insurer, or $194 per year.

Cable companies terrible too

Cable and internet companies are some of the worst at customer loyalty. Try to decipher what rates will be after the 12-month introductory rate lapses. It gives aspirin a headache. The notion of introductory rates, in fact, nullifies the notion of loyalty; the longer one stays, they more one pays.

For instance, Forbes contributor Timothy Lee recounted in June of this year about his struggles with  Comcast. After signing up in 2009 for Comcast broadband at $38 per month, it went up to $50 in March of 2010, when the introductory discount lapsed, then to $65 in October. He called to cancel the service, but they upgraded him to the faster “Blast” package for $45 per month, which got him an additional 10 megabytes per second.

The rate was raised in again in March 2011, to $47 and then to $52 in May 2011. He negotiated them back down to $47, but the rate got raised back to $52 in December and then in June of this year, shot up to $80. After he wrote about it, on Forbes, an international publication, Comcast called him and reduced it to $48 per month for 12 months.

Called price discrimination

It’s called price discrimination, where a good or service provider tailors prices charged to customers for identical goods and services depending on various factors. When it comes to customer loyalty, as Time magazine points out, long-time customers are more likely to get stung with a higher price for a few reasons.

First, cable companies, banks and other businesses know how much a hassle it would be to switch to another service provider. They also bank on the increase being a small enough increment that it’s still acceptable. The best thing to do is to shop around and find a better offer. Let an overcharging service provider know that you’re about to cancel the service unless they are willing to work with you. There is no reason one should pay more than they absolutely have to, for anything.

Sources

Time

Forbes

Time

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