Monday 7 July 2008


Loyal customers seem to have become disposable items for our banks and telcos.

Imagine you've been a loyal customer at your local pub for years. One day, you grab your schooner and pass over your $3.50. The barman thanks you politely for your years of patronage and moves to serve the next customer. You overhear the next customer referencing the new drinker's special- for new customers only. Right before your eyes, the barman offers the new customer a fifty percent discount on all beer for the next three months.

For being a new customer, he pays half the price that you, a longstanding and loyal customer pays.

After years of loyal patronage, would you feel a little neglected? I know I would.

I've never studied business, but in my years of working in business, I have always operated on the principle that the cultivation and retention of long term customers is the most important of all commercial objectives. What better measure is there of a company's success in its customer relationships than a portfolio of long term customers?

It seems many large corporations have moved on from this simple and seemingly obvious commercial principle.

Over the past year, I've watched phone companies and banks release product after product to woo new customers that effectively punish long standing customers. Optus, the Commonwealth Bank, HSBC Bank - are some that I've noticed.

I have been an Optus home phone, mobile, TV and internet customer for most of the past 10 years. When my home phone contract recently lapsed, I took a look at my Optus options and selected a new plan. I then became aware that Optus provided a very significant additional discount new customers on a new plan that an old customer (me) with a raft of current Optus contracts (my homephone was out of contract) was not entitled to.

I pointed out my disappointment and the seeming lack of commercial sense in this approach to Optus personnel to no avail. It made me ponder my relationship with Optus and the company's non existent recognition of my years of loyalty.

I moved my mobile phone contract to Three (I've had my issues there too - I'll cover these at another time) and took up a house phone contract with Skype (more issues....). I stayed on Optus for broadband and TV.

I've seen both the Commonwealth Bank (I've been a customer for nearly 40 years) and HSBC (I've been a customer around 10 years) do the same thing with high interest offers for new deposits in recent months.

In these cases, new customers have been offered a generous additional 0.5 per cent on their savings above the interest rate paid to existing customers.

The commercial principle in all these cases is that the loyal customer can be neglected while the new customer (likely a swinging customer) is to be courted.

You really have to wonder what they're teaching in business schools. It's a reversal of the commercial rationale behind the loyalty schemes that are run by airlines, hotel groups and other businesses.

I'm guessing there must be some special MBA marketing courses covering industry sectors like banking and telephony. These industries are defined by two features - they lock customers into long term accounts or plans, and they can reasonably assume that customers will require their services, or those of their competitors for life.

It seems that the two lessons being taught in these classes are -
* Expend all marketing and customer service resources on new client conversion.
* Once signed up, allocate minimal resources to the ongoing management or functioning of the customer relationship.

Presumably there is some study out there in the land of corporate academe that posits that clinching the initial deal with a new customer is more commercially valuable than a relationship of long term loyalty. Promiscuity pays!

And it seems to me that the students of this MBA course unit are heading up marketing strategy in major banks and telephone companies across Australia. I suppose the best way to counter this is for customers to offer no loyalty to any company and constantly switch mobile phone service providors and banks - but who has the time for that? - or is that the whole point?

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