For years experts (us included) have written about the value of customer retention. The idea is that retaining customers is more profitable than creating new ones and that profitable growth comes from keeping your existing customers while working to add new ones as well. Seems logical and reasonable … but maybe not.
We have noticed a confusing trend among some very large, and supposedly smart companies, that belie the idea that customer retention is critical. Two specific examples come to mind to share: Cell phone companies and banks.
As you probably know, now that cell phone #s are portable, customer turnover is fairly high since “new customers” are given the best possible deal from a cell phone company. If you are an existing customer it is up to you to figure out if you could save money by changing your plan with them. The latest statistic we have seen is 2%/month in customer turnover.
Recently, we found that banks appear to be doing the same thing. (The statistics we have seen indicate bank customer turnover is approaching 20%/year). One of my CDs was coming to the end of its period. The bank sent a notification that I could take the money out, move it, change it, or simply let it roll over to a new CD period. They gave me my window of opportunity to do this based on the maturity date of the CD. I called the bank to inquire about the new interest rate, which they could not quote but indicated that it would be similar to the current rate.
I then went on-line and found that I could get an “on-line” promotional rate that was 2x the interest rate I was likely to get if I did nothing. I called back and asked the customer service rep if he could help me and he said no that is an online rate only and that I would need to call during the maturity window and get them to move the money to the promotional rate. I pointed out that the effort to do that was similar (or less) to moving the money to another institution. That didn’t seem to matter.
In reviewing these and similar situations, I had to ask myself, “Why is it ok to run customers off, while working so hard to attract new customers?” Then I understood the reason (at least I think so). Once you become a customer the company can abuse or overcharge you for as long as you let them, that is where the profit is. Keeping you appears to only be profitable if they can overcharge you compared to new customers.
Odd business model, but I guess it works … until somebody figures out a better way.