Jayne Hergott is sick of jumping through hoops to receive the best price for her newspaper, garbage and cable TV. A longtime Chaska resident, Hergott knows that her newer neighbors pay less for garbage service than she does. She also knows that if she calls to complain, the company will probably cut her a deal.
McGuire: The high price of loyalty
October 16, 2011 at 12:21AM
"Why is it that I have to beg to get the best rates for these services?" asked Hergott, 54.
It's a vexing part of being a consumer in America. Companies roll out the hot deals to lure potential customers, leaving existing customers in the cold.
Yet it's a common business practice, especially in industries where success is measured by how many new customers companies can attract.
"New acquisition looks good for investors," explains David VanAmburg, managing director of the American Customer Satisfaction Index, which tracks how happy customers are with everything from TV service to pet food. Unfortunately, shareholders, not customers, rule. In the battle for market share, "it's the loyal customers who are losing the most," VanAmburg said.
Eventually, the discount disappears, the customer is disappointed, the customer disappears, and the discount reappears. And the cycle continues.
Margaret Murphy, a loyalty marketing expert and president of the Minneapolis ad agency Olson, says that if businesses are delivering a good customer experience, they should be able to increase the price over time. "[Consumers] connect with [the business] in a deeper way so they become more an advocate than simply a user," she explained. But even people who love a product or service wants to feel they are being treated fairly, right?
So what's a price-conscious consumer to do?
Ask for a better price. Do your homework first and learn about current deals for new customers and the introductory offer you'd qualify for if you went with a competitor. Don't be surprised if the company tries to offer you more for the same price instead of lowering your bill. Think cable TV offering you Showtime for three months.
The success of this method is somewhat dependent on your negotiating skills and who's on the other end of the phone. If the customer service person you're speaking with won't budge, ask for a manager, or call back and try again later. If your complaining skills need a brush-up, check out "How to Complain," Consumer Action's guide on the subject: www.consumer-action.org.
Calculate the "personal life hassle cost." That's University of St. Thomas business professor David Vang's term for switching costs -- the time, energy and in some cases money that it would take to go from one company to the other. Banks, insurance companies and cellphone providers know how annoying and cumbersome it is to switch from one company to another, so they "know they have some wiggle room to raise rates" before someone is likely to leave, Vang said. Companies also benefit from consumer knowledge that these introductory pricing ploys are common practice. Why go to the hassle of switching when you know the new company will hike your bill in a matter of months?
Before jumping ship, customers should estimate the time it will take to unwind from one company and take up with another. Put a dollar value on that time based loosely on your current wage. Take that number and divide it by the amount of anticipated monthly savings to determine how long it will take before you break even. Vang notes that transitions can be messy, so be sure you have enough money in savings to handle double-billing or other errors that may occur.
Cancel the service. Before you flock to a competitor, ask if you need the service to begin with. There are plenty of alternatives to cable TV today, and many Americans have cut the phone cord at home. Even cellphone plans with long-term contracts can be avoided, instead opting for prepaid, pay-as-you-go plans.
Look for outliers. GarbageMan, a Plymouth-based trash hauler that started three years ago and now has franchises around Minnesota, offers what it calls a fair price from the start. Steve Marik, a founding member, said the company consciously decided not to go with an introductory pricing model because customers complained about having to constantly baby-sit their garbage company or risk losing a competitive rate.
Kara McGuire • 612-673-7293 • kmcguire@startribune.com. Twitter: @Kara_McGuire
Pioneering surgeon has run afoul of Fairview Health Services, though, which suspended his hospital privileges amid an investigation of his patient care.
