Wednesday, August 19

Companies just aren't frugal

I suppose this seems like a no-brainer. How would a huge corporation, with the accompanying bureaucracy, be able to keep up frugality?


The thing is, though, that there is always a way to be frugal no matter what your circumstances. Tim and I are proof enough of that. On the best of days, we operate at maybe 50% the energy/health of the average person. Yet we manage to find ways to make financially prudent decisions, even under our sub-ideal circumstances.


So how can the average corporation be more frugal? Well, one biggie is to offer some decent customer-retention deals!


As I understand it, getting new customers is one of the most expensive propositions in business. Yet, once an initial contract is over, most businesses don't work all that hard to keep you; and it seems like, the bigger the business, the worse the offers get.


Dish Network is especially guilty of this. When we initially signed on, we were offered a 12-month promotional rate on an 18-month contract. Even after the special prices ended, we were paying less than cable. A couple of months after the contract was up, though, I called to see if there were any specials or discounts on our current service. I offered to sign another contract if it meant locking in another good rate. Oh yes, indeed, the operator told me. They were offering current customers three months of Showtime/HBO/Starz for just a penny.


Uh, swell?


First of all, that's not a special on our current service. That's a special on an upgrade.


Second, I would hope everyone knows by now that these "great" deals are just designed to get money from you afterward, just like any introductory price or free-trial scenario. Usually, we forget to cancel -- so the company makes money until we finally remember -- or we're too lazy to bother -- so the company makes money until we stop procrastinating -- or, ideally, we get hooked on having so many movies available and keep the channels indefinitely.


Third, anyone who had gone to the website for Dish's phone number would have seen this is an option offered to all new customers, too. As in, it was blatantly advertised on the home page. Not exactly the best way to make any customer with half a brain feel like they're getting a deal. In fact, it's quite irritating to me personally. I have a strict policy: If you're going to try to pull the wool over my eyes, at least put in the effort to pull it all the way down!


In other words, I hung up from Dish incredibly irritated. Why wasn't this company interested in keeping current customers happy? Even $5 off a month for continued service would probably leave most folks pleased as punch. It would acknowledge that we were valued. Instead, like most corporations, Dish Network was too busy trying to get new customers to focus on the old ones.


But for Dish this was a really bad money decision. By the time I called, Dish had reported customer losses for two quarters straight. Those were the first and only occasions that Dish's numbers went down. Yet, when faced with an opportunity to lock in our patronage for another year, the operators had no cues to sign us up.


Given the constant barrage of introductory rates thrown around by DirecTV and Comcast, this seems like an especially bad choice on Dish's part. Very unfrugal, at least. Let's compare:


  • Getting a new customer includes advertising money (lots of it) and paying a contractor to come out and install the service. (Yes, sometimes the customer pays, but usually this is waived as part of an introductory offer.) New customers also mean lower rates than current ones. And if you lose a customer, you have to pay a contractor again to come and uninstall the service.


  • In contrast, keeping a new customer can be as simple as some mailings offering new, special deals. Perhaps a small loyalty discount, which would still mean customers were paying more than they had for their introductory offers.


Which do you think is a more frugal method?


Yet Dish, like most other companies, wait on discounts until it's a last-ditch effort to keep you. For example, I was finally offered $10 off per month for another 12 months -- and that's without a contract. But that only happened after I called to discontinue service. When I explained we were moving out of state, the operator offered me the deal and reminded me that we are offered one move (ie, uninstalling the current set-up and reinstalling elsewhere) for free.


I told her I would check out the cable companies and get back to her. Mainly, I need to see if the community we're moving to accepts satellites. I got her operator ID, for future reference to the deal.


Once again, I hung up a tad irritated. Why did it take my threatening to leave for Dish to show any kind of interest in me?


To be fair, we have kept Dish this whole time. So perhaps it is merely relying on Americans' inherent laziness for customer retention -- an increasingly dicey proposition in a recession, where suddenly everyone has picked up frugal habits, including shopping around for the best deal.


Or perhaps Dish knows that it offers the best regular rates. Again, though, with everyone shopping around for the best deal, that means a lot of ping-ponging around from company to company for introductory rate deals. That, at best, promises customers who will only stick around until promotional rates/contracts are over.


No matter how you look at it, Dish -- and plenty of other corporations -- are making bad money choices. They're trying to get new customers, which raises their numbers but not necessarily profit, at the expense of current-customer satisfaction. That doesn't matter, though, because they can report increased subscribers in their quarterly reports.


But there's a huge problem with that logic: Sure, new customer numbers look great; but losing current customers looks a lot worse. At least, that's how I would perceive it if I were a stockholder.


It's the corporate equivalent of living paycheck to paycheck. Each time, it gets harder to make ends meet. Each time, you're just squeaking by -- whether it's paying utilities or keeping your subscriber count up. Each time, you get a little closer to the edge of perpetual deficit.


For people, that means a gap between income and expenses. If not credit card debt, then a constant juggling game in which they pay just enough on each bill to keep things current. For companies, it's more a matter of losing more customers than it gains. That's especially bad when you consider that newer customers are necessarily going to pay less for service than anyone with not on a contract.


In short, a company that can't keep its customer base is a company in trouble. Maybe Dish doesn't realize this yet because, as I mentioned, it's new to the negative numbers game -- that is, losing more customers than it gains. But what are other companies' excuse?


This is definitely a game played by every corporation I can think of. Allstate is about the only company I know of that offers any kind of discount to continuing customers, and even that is only if you are able to avoid having accidents.


So corporations, which depend almost exclusively on the bottom line, seem to still care more about getting newer, more expensive customers rather than keeping the cheaper, existing ones who provide a better profit. It seems a little strange, wouldn't you say? Especially when you consider that corporations have to file quarterly and annual reports. They have to break down how they're using money, which is to say how they're working to keep costs down and profits up.


It seems like the best way to do that would be to focus on existing customers. They are the ones who provide more profit, through subscription fees that aren't artificially low promotional rates. They also have a higher likelihood of continued patronage. In comparison, new customers are an unknown. They may be fair-weather clients, only in it for the promotional rate and ready to drop service as soon as another company offers a better deal.


So why can't companies see that they need to put more funds toward keeping existing clients? Why do they fail to notice such obvious financial facts? My guess is that it's the same reason people continue to live paycheck to paycheck (or, worse, in debt) until they have their "aha" moment. They're simply used to the old routine. It's how they've always done things.


But perhaps there's another factor here, too: an added degree of competition. People only have to keep up with Joneses -- if they even bother. For businesses, it's not optional. They have direct competitors. They have to keep profits coming in, which keeps stockholders happy. They also have to crush the competition.


The best way to do that is to lure people away. The corporation gets new business -- always a plus -- but also hurts its competitors' bottom line. Competition, after all, is a zero-sum game: Your loss is my gain and vice versa.


Perhaps, then, companies get so wrapped up in gaining new customers, they don't stop to worry about losing their current ones. Even though they are often losing those customers to their competitors, who are playing the same game.


Still, in a world where everyone is hell-bent on stealing your customer base, it seems like the most prudent course of action would be to ensure your existing clients are happy. That means offering them incentives and generally making sure they feel appreciated. If you do this, you keep more of your customer base, which costs less money and brings you more profit.


At least, that would be the frugal thing to do.

3 Comments:

Anonymous Anonymous said...

Your points on customer retention are valid, but you're overlooking the simple fact that cable and satellite cable companies don’t offer many specials to existing customers simply because they don’t need to in order to retain your business.
First of all, cable is a case of a luxury that many people view as a necessity. If you are truly frugal in every way, you wouldn’t have cable in the first place. I understand that you have voiced that your health issues make you more reliant on distraction and television certainly is an easy one; no one would disagree that distraction makes discomfort easier to deal with, but certainly there are other methods of distraction. Once you subscribe, cable companies are fairly certain that regardless of the perceived value of their services, that is, whether you are happy to pay the bill or you feel it’s a complete rip-off, you feel cable is a necessity to your life and you will pay the premium to have it.
It’s the same reason that the Coach store doesn’t lower its prices if you complain about the price tag on the new spring line. Regardless of how it may seem in your city or social circle, a designer purse is a luxury. If you’re in the store looking to purchase one you are probably going to do so regardless of whether or not the salesgirl offers you $10 off. She won’t though, because she doesn’t need to.
In my area of Phoenix cable is also an oligopoly and across town it is a monopoly. There is no reason to lower the prices because there are only so many options. Sooner or later almost everyone I know has bounced between cable and satellite and back, and truthfully the differences aren’t that vast. Dish and landline cable companies are trading customers every day but rarely do they lose one altogether. For every customer that leaves dish for landline, there is one going the other way. Until that changes in any significant way, customers will continue to pay ridiculous amounts for the entertainment they feel necessary.

August 19, 2009 at 12:23 PM

 
Blogger Abby said...

Anonymous,

First of all, I'm sad to hear about Phoenix oligopoly since that's where we're moving!

Second, you're completely right: Cable/satellite is an absolute luxury. If there is such a thing as "truly" frugal, anyone who qualified for that term wouldn't have it. (Heck, my mom doesn't even own a TV!)

I wouldn't ever state that such things are necessities. They do make my and Tim's life easier, since we're home almost constantly and, with my energy problems, it's harder to find alternatives. Hiking and otherwise enjoying nature isn't as good an option when your energy is spotty, nor is going out to be with friends.

That said, you can always rely on books or get tapes/DVDs from the library. Not all the shows we watch have those options, but there's Hulu etc.

The point is, there are always more frugal options than paying for TV. I understand that completely. It is a luxury we choose to pay for, just as other people might choose a gym membership rather than go outside to take a walk or bike etc. Though certainly those options are a tad healthier than choosing to sit around watching TV!

And I think you're right, I think cable, like cell phones, have become something people view as a necessity that they just *have* to have. Not true. But it's thinking like that, as you say, that lets cable companies charge crazy prices. Dish seems to be about the cheapest and I'm not crazy about paying $40-50 a month, certainly. Still, with a husband who has ADD and because we are inherently couch potatoes anyway, cable is something we're willing to pay for. It does, however, mean that we tend to bounce around to get the best introductory deals.

Oh, and I forgot to mention: The operator offered me a discount, bringing the rate down to $44 a month for 12 months. Then I went and checked the website. Tim can sign up for a deal for $34.95 a month for 12 months. So I guess he'll become a new customer.

August 19, 2009 at 12:51 PM

 
Anonymous Anonymous said...

I am glad you managed to find a better deal with your dish company. Besides satellite, there is only one cable company that offers service in our area and we pay $128/month for cable and internet. Sounds like you'll have a much better deal regardless of your internet cost!

August 19, 2009 at 2:03 PM

 

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