Sunday, 25 January 2009

Price Rises Cost Customer Loyalty

Sky TV - have they picked the wrong time to test customer loyalty?

As the news about the economy gets worse, companies are struggling to maintain customer spending. Some of the big boys act as though they hope to keep our business how ever much they test our loyalty.

Three examples of companies testing our loyalty this week.

They all lost.
..

British Airways has cancelled my partner's Silver Executive Club membership. For the first time since 2002 she can no longer use the BA lounge during her weekly business flights. Last year she switched to flying BMI during the terminal 5 fiasco when many domestic BA flights were cancelled, so she didn't earn sufficient loyalty points. BA has saved the cost of providing free coffee and newspapers while she waits to board, but lost her loyalty and their share of an annual four figure sum spent on business travel because now she'll prefer to fly BMI - where she can use the Silver lounge.

Norwich Union upped our annual home insurance quotes by a few more pounds this month and lost both our polices. My quote from Churchill is over £120 less, my partner's £80 lower. We're £200 better off, Norwich Union has lost £550 worth of business because it made the mistake of believing we'd keep stumping up for their annual price hikes. When my partner called to cancel NU immediately offered a 15% reduction. If they could do that when the business was heading out the door why didn't they hold the price increase when they quoted - which may have saved a customer?

Sky Television. Just over a year ago Sky feared its customers might jump to a rival TV and Broadband Phone package so it decided to give existing customers their basic broadband package free. This year it has decided to start charging £5 a month. Customers can avoid the price increase if they opt to take Sky Talk. We don't want to buy phone calls from sky - or pay to use 1471. To get this and other BT type services free we need to switch to Sky telephone line rental. Dealing with Sky is troublesome enough, without giving them more of our money.

So we decide to switch my partner's Sky basic broadband to o2. It's faster, gives unlimited downloads, free wireless router, no connection fee, free UK based customer service and its only £2.34 a month more than Sky's new charge (£7.34 to O2 customers). Even better sign up via a cashback site like Topcashback and you get paid £25 to buy which is effectively 3 months free.

Phoning Sky for a MAC - the code you need to transfer the line from one broadband supplier to another is less easy. Sky seems to have moved some of its call handling off-shore. After 22 minutes the call is put through to an officious customer services representative who decides to cancel the broadband rather than issue a MAC. When asked why he has done this he becomes defensive, and then quite hostile. When I ask him to transfer my call he terminates it. Again we call back and then after 20 more minutes on hold the call is terminated.

My partner and I have a quick chat about how much we hate phoning Sky. Then we hit on an idea. What if we only ever have to phone Sky once more? Let's cancel the subscription. How good would that feel? This would not have crossed our mind if Sky hadn't decided to start charging £60 a year (12 x £5) for its slow, rubbish broadband, had spent some more money training its staff and decided not to outsource its call centre. Sky is going to discover the true cost of these three cost-cutting actions - because they're about to lose £258 of existing annual subscriptions and £60 of future broadband fees.

Norwich Union loss = £550
Sky loss = £318.

Savings to annual budget.
Sky £318 (less o2 broadband £63.56 after cashback) = £254.44
Norwich Union £550 (less Churchill policies £335) = £215.00

Total saving = £469.44

Of course wherever there are losers there are winners. BMI for its punctuality, o2 Broadband for its UK call centres, uncapped service and customer discount and Churchill Insurance for its introductory discounts and market leading rates.

When companies test our loyalty make sure to add up the real cost.

2 comments:

Zoomerang Blog said...

Thanks for sharing your recent customer loyalty experiences.
Studies have shown that loyal customers:
Purchase your products and services again and again over time
Increase the volume of their purchases
Buy beyond traditional purchases, across product lines
Refer your company's products and services to others
Become immune to the pull of the competition
Give your company the benefit of the doubt when something goes wrong
More comapnies should keep in mind:
It costs 7-10 times more to recruit a new customer than to keep an existing one
A gain in customer loyalty of only 5% can lift lifetime profits per customer by as much as 95%
An increase in loyalty of just 2% is, in some sectors, equivalent to a 10% cost reduction
One thing I really enjoy is when I am transferred to the "Customer Loyalty Dept", that is where their customer loyalty concerns are truly proven.

The Chief Executive said...

I've seen data like this before, so it amazes me when companies like Norwich Union (customer for 12 years) British Airways (Silver member for 6 years) and Sky (subscriber for 6 years) wave good customers goodbye so readily.

Last year I brought travel insurance with Churchill, this year I tried them for household insurance. Their representative called me back twice, as requested at times to suit me, to make sure their policy exactly matched my needs.

o2's UK based customer service is exemplary and I have recommended and bought more of their products.

BMI has made mistakes, but it always rectifies them quickly and more than satisfactorily.

That's what loyalty means to me.