How Companies Exploit Customer Loyalty & Inertia (& How to Stop Them)

One of the most dispiriting feelings as a consumer in a capitalistic economy inevitably hits when a company raises its price on you. You’ve stuck with a company despite their product flaws, despite their poor service, despite alternatives being readily available – and what’s the reward you get for your loyalty? A big, fat, disloyal, insulting price increase.

To add insult to injury, often times the very same company that just raised its prices on you is offering unfaithful vagrant new customers super sexy prices and offers that you haven’t seen in years, if ever. Even if you ask nicely, you won’t get the same offers – not even on your birthday. I’ve got some stark news for you: that company just ain’t that into you.

The bad news is that this is going to happen to you again and again, repeatedly on your consumer journey, and it’s not likely to feel any better the next time. The good news is that you can take action to flip the script and beat them at their own game.

companies exploit customer loyalty

Why Customer Loyalty Doesn’t Go Both Ways

Having worked in marketing and advertising for over a decade, consulting with some of the largest companies in the world, while also simultaneously closely following consumer, business, and investing trends, I’ve noticed a number of trends that are working against today’s loyal consumer:

Customer acquisition is prioritized over customer loyalty: companies often build out massive customer acquisition channels through their marketing and advertising departments, affiliate partners, and external agencies – and all are incentivized to acquire new customers, often with a target “cost per acquisition” or “CPA” in mind. Customer loyalty and retention is not given nearly the same amount of attention or value, and rarely is there a monetary value or incentive placed on retaining a customer.

Investors reward customer count and revenue growth: active customer count and revenue growth (via new customers and raising prices on existing customers) are typically valued more than any other metrics by investors.

More and more companies have deliberately moved away from a 1-time purchase pricing model to subscription based models. They are doing this because, as I described in my ‘how to cut video streaming subscription costs‘ article,

Recurring subscriptions are easy to subscribe to and even easier to forget. If we don’t have a routine habit of cancelling them, we often just stay subscribed.

That is called “inertia”. Companies prey on it. We live busy lives and we hate change. It’s far easier for a company to get us to give them our credit card one time and stay in place than it is to have us make the decision to choose them again and again, every time we go to market.

Customers switch with price on their mind: perhaps because they are tired of 1-way loyalty and price increases, when consumers are in the market for something new, price is often the lead determining purchasing consideration factor. This is why companies offer lower rates to new customers than they do to existing customers.

Just think about how often you are directly offered a discounted or promotional rate as a new customer, only to see your rate go up after time. Some of the most prevalent examples of this happen in the following business categories:

  • Phone service
  • Insurance (home, auto, umbrella, renter)
  • Cable TV service
  • Banking services
  • Digital/print media subscriptions
  • Video and audio streaming services
  • Software subscriptions
  • Video game subscription services
  • Internet service
  • Credit cards
  • Discount club memberships
  • Subscription delivery box services
  • Just about every other subscription-based service these days

All of this leads to new customers getting offered enticing promotional rates and existing customers seeing their prices go up. The boardroom theory is “get them in the door with promotional pricing, then let loyalty and inertia do their thing”.

How can companies afford to offer those low rates to new customers? Because loyal customers subsidize new customers. Bolded for emphasis, because I want you to really let that soak in. If you are a loyal customer that has seen your rates go up while new customers to that same company are getting much better rates, you are subsidizing the lower rates for those new customers with your higher rates. Maybe you’re OK with that. I am not. So, what can you do about it?

We’ve established that consumer loyalty and inertia are hurting you, so it stands to reason that the opposite (disloyalty and action) can benefit you and help you flip the script. How can you do that?

You have 2 options:

  1. negotiate a better price
  2. switch to get better pricing

Granted, these are not “groundbreaking” new strategies in the personal finance game, but hopefully you now see how essential these tried and true tactics are in order to beat back recent business monetization trends, if you want to keep your expenses in check.

Negotiate or Switch to Beat Inertia & Loyal Customer Exploitation

The Negotiation Route: if you’re good with the company that you are currently with, you can start with the negotiation route, particularly if you think their offering is better than the alternatives (aside from your current price). Over the years, I’ve done this a number of times with ISPs, insurance companies, and media subscription services. I shared a Comcast negotiation script with readers a number of years ago, but in general, you’ll want to prep by researching the following going in to one of these interactions:

  • Are there competitor alternatives and how much do they cost?
  • Could you leave and come back later at a better rate? What rates are available to new customers?

Your best course of action is to simply start the interaction by saying “I’d like to cancel my service” and see where things go from there. When asked why, “I’m not getting enough value for the price” is my go-to response. Many companies will have customer service reps dedicated solely to retaining customers with one foot out the door who can make offers that standard customer service reps cannot.

The Switching Route: if you don’t love the company you are with (and even if you do), periodically switching is usually going to get you the best rates. You could always start with the negotiation route to see what kind of offer you get and if it is not better than the rate you are being offered to switch, then proceed with cancelling and making the switch. I recently did this by switching high speed internet from Comcast to AT&T Fiber and ended up with faster service for a similar rate with $300 in prepaid Visa gift cards added in for switching and no contract to lock me in. I also recently temporarily switched my mobile service for travel and received enough Google Fi referral and promotional credits to pay for months of service (also with no contact to lock me in).

Even if I currently am not in the market to switch, I will periodically check to see what competitors are offering. That way, I will know if I would be getting the best deal if when it comes time to switch.

How Often Should you Negotiate or Switch?

Whenever I sign up for a new service, I usually put a calendar reminder for a date months or years in the future that is the date that I know that my rate will increase. Often times that is expressly stated somewhere in the terms of service (e.g. 1 month, 90 days, after the 1st year) or annually for some companies (e.g. insurance).

I’d also recommend making a spreadsheet of every single recurring expense you have, the rate you are paying (and when it goes up if it’s a promotional rate), and the price of competitive alternatives you could switch to.

The bottom line here is that companies are only increasingly going to lean in to these trends. You have a choice on how to respond as a consumer:

  1. Let the companies win by inertly doing nothing and paying the highest prices
  2. Take action and periodically negotiate or switch to pay the lowest prices, and beat them at their own game

The choice is yours.

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