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Article Loyalty Execution

Are Your Customers Hating How You Profit From Them?

A recent Capgemini study should rattle the banking industry to its core. Here's an excerpt from the press release:

The percentage of customers who said they were likely to leave their primary bank in the next six months rose into double-digits in every region except Western Europe. Globally, less than 50% of Gen Y customers are likely to continue with their primary bank in the next six months. Reasons cited include an increase in non-bank competition, growth of start-up banks which offer attractive digital products, and the ease in logistically switching banks.

What’s driving such a remarkable lack of loyalty, particularly when the switch is being made for negative (fees) rather than positive (features) reasons? It’s pricing related unhappiness with how companies are profiting from their customers. And it’s a big problem for brands that have less that pure business tactics.

Do your customers hate your revenues?

Many companies are making money by using confusing, tricky or downright dishonest pricing models. If they’re making money and growing, does it matter whether customer like it? The answer is yes if it’s leading customers to hate how profits are being generated from them. Ultimately, it is a short sighted strategy that hurts long term profitability of a business by driving up sales and retention costs.

Customer relationships that last

Business history is full of examples of companies that made extraordinary profits by ‘screwing’ their customers. But it rarely lasts — because that type of approach inspires the creation of new competitive alternatives that ultimately knocked them off. Customers that are highly motivated by negative emotions can be easier targets because they are more willing to overlook the risks of a new type of offering (unlike satisfied customers).

Trickery can make you lazy

There might be an even worse problem for businesses that use predatory pricing (that’s what we call it): internal complacency. Shifty business practices can stifle the innovation and collaborative creativity that long term industry leaders are built on. Apple has shown that high prices and margins can be maintained, as long as there’s strong customer engagement and powerful customer experience to go with it. There’s very little that’s unclear about their pricing and yet 50 million people bought iPhone last quarter for an average price of $800. A big chunk of Apple fans are almost fanatic in defending the margins that Apple makes — remarkable right?

The Banks and Telcos Have It Wrong

Both these industries just aren’t learning the lesson. They continue to have at best overly complex pricing structures and at worst dishonest fee structures. Either way, customers hate the profits that banks and telcos generate — because they feel like they’re getting screwed by them. It’s not hard to understand why 50% of bank customers are looking to switch. Customers may not love your revenue model (although you should aim for that), but at a minimum they should be okay with it.

Millenials Aren’t Going to Take It

Before Gen Y, companies with this old school adversarial approach to customers still thrived because they were the ‘standard’ way to get things done. But Gen Y and even to some extent Gen X are rapidly adopting new technology driven platforms that smash the norm.

That means, for example, rejecting credit cards outright because the terms are universally anti customers (even the best of the lot). That’s a stunning turnaround for banks that depended on the remarkably high revenues they collected via anti-customer credit card fee structures.  At a broader level, no business model is safe in the face of new technology driven innovations.

The Big Question (and Our Answer)

If they’re available, should your company take advantage of customer vulnerabilities (ignorance, lack of time or focus, language issues) to make higher profits?

Our answer is unequivocal: NO.

The goal of any business is sustainable growth and profitability. The key ingredient is loyal customers who grow their own spend as well as referring other customers. Predatory pricing practices directly undermine customer loyalty and referral behavior as many industries are finding.  The result is a direct hit to the long term sustainability of the business model -- the death knell of any business.

Jun 4, 2015  
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