Customer Acquisition versus Retention: A case study in costs

Monday, September 13, 2004 | 07:40 AM

Sprint_1 versus Cingular



Is your contract up with your cellular carrier? Don’t renew it, cancel it.

That's how you can get the best deal from your current provider. At least, that’s what I learned when I attempted -- unsuccessfully -- to renew my contract with Sprint, my now former cellular carrier.

The lesson unintentionally taught me is that consumers get a much better deal from the “Retention” department of a large subscriber-based corporation than they do from the "Sales" department. Its not just Sprint -- but they were the company that taught me these things. It turns out to be the case not only from mobile service providers, but other entities, such as ISPs -- AOL is notorious in this regard.

We are also former customers of credit card provider Capital One, for the very same reasons: The deal they offered to the public was unavailable to us as customers. Over the years, their rates crept up on my (triple A credit) wife's Master Card to 15%. They advertise a 10% card all the time. When they would'nt offer the same deal to us, it was buh-bye Capitol One (we got the preferred rate elsewhere). I suspect its true for a slew of other subscriber services.



I learned valuable lessons, and I share them with you, dear reader, in the belief that you will profit from my experiences. I also harbor the irrational hope that just maybe someone from one of these outfits will see this, and wise up.

But I am ahead of my self. Our quaint little story begins Christmas 2002, when we purchased a pair of Samsung N400 phones from Amazon. $200 each, plus a $200 rebate. (You may recall that I wrote how rebates sucked, and after much huffing and noise, we eventually got our cash. But that experience soured me on rebates, and I swore off rebates forever. I have stayed true to that oath).

Anyway, our contract expired in January. We got a marketing letter from Sprint to re-up. However, the deal they offered us, as their present customers, was far, far less attractive than the one they seemed to be spending billions of dollars advertising more or less nonstop on every media outlet available to everyone who is not their customers.


This is rather annoying. Perhpas they thought that we, as their exisiting customers, wouldn’t see those ads. It really didn't matter, because they are competing with everyone else, who runs of their competitive services. (That's called competition in the marketplace).

Over the ensuing months after the contract lapsed, our phone bills went up: My wife never uses her minutes, and I (who occasionally use the phone for business) often does. It was apparent our present plan had become inadequate.

Between the expiration of the contract and yesterday, we made repeated attempts to renew with Sprint. The problem was that their offerings to us (as current customers) were lousy -- vastly inferior to the parade of deals we saw advertised everyday.

Now, before anyone from Sprint wants to call me up and tell me how wonderful their netowrk is, let me stop you in your tracks: All cellular networks are more or less the same to me. Mobile telecom has become a commodity product. Even if the network were an issue, in the NY/LI region, Verizon has the best reputation.

No matter. The issue at hand is customer retention. You might think that as a customer, you could get a better deal to stay a customer -- zero acquisition costs! -- than the marketed offers made to potentially new customers.

But, alas, you would be wrong.

Here’s how the bizarro modern world of corporate customer retention/churn works: When you speak with just about any service provider as a current customer, you get routed into either a service or a sales process. The structure appears to be based upon profitability first (margin), and customer retention last.

As a month-to-month customer, one would think that retention was a priority. Forget it: Despite the fact that you are a present patron of the firm, it appears (at least in my experience) that you get offered much less competitive deals than what total corporate strangers get offered.

THis is, in my opinion, bad business. Its a short term approach; I suspect it contributes to “churn;” It certainly lowered the total customer experience, as far as me as a consumer was concerned. So for me, Sprint is now finito, a write off, kaput. I doubt I would ever use them again -- at least, not until I have been alienated by all the rest of the carriers (a process I expect will take about 10 years).

~~~

Now here’s where things start to get interesting: Call up and cancel your account. You will get transferred to a “Retention Specialist.” The woman I spoke with at Sprint was very nice; She offered us all sorts of lovely deals to stay a Sprint customer.

“Too late” I told her. We had just switched that morning from Sprint to Cingular -- despite my repeated attempts to stay with Sprint (if for no other reason than I loved the N400 Samsung phone). We had already gone to Cingular, ordered the new service, got new phones, and went merrily on our way.

“Well,” she asked, “what sort of deal did you get from Cingular for the 2 lines?”

I told her we got 2 Motorola V220 camera phones for $29 (I could have gotten them for free -- $200 plus a $200 rebate, but you already know my thoughts on THAT).

Our plan is 850 Minutes @ $60 /mo for the 1st line, 10 bucks for the second. No roaming or long distance charges, free nights and weekends, free mobile phone to phone calls, and our unused minutes rollover to the next month. Overages at 35 cents a minute. (Did I mention no roaming? You guys kill us with roaming all the time).

Sprint then offered a plan that was comparable -- not quite as good, but close -- figure 90% or so. Had they offered that to me prior to the switch, we would have, in all likelihood, stayed with them.

Oh well, too late. We had already invested an hour or so in Cingular, plus I was halfway through the Motorola manual. Cingular actually transferred my Samsung address book to the new Motorola phones (imperfectly, I may add -- but it was a big leg up).

There are lessons to be learned here, for both customers and carriers:

For customers: Cancel. That is your best negotiating stance. The caveat is you must be prepared to follow through and go elsewhere.

For carriers: Rethink your retention policies. If you treat your customers worse than you do your non-customers, is it any surprise that customer loyalty is nil? Churn awaits you . . .



Next up -- we will revisit this issue when we get out final month billing cycle:

USA Today reports that customers who leave get charged all sorts of cancellation fees, odd charges, and are often not appropriately pro-rated -- meaning they get billed for the full month (I canceled on 9/12 and expect to pay no more than half a month.)

Monday, September 13, 2004 | 07:40 AM | Permalink | Comments (8) | TrackBack (8)
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Listed below are links to weblogs that reference Customer Acquisition versus Retention: A case study in costs:

» No Loyalty - No Need from Those of you who think you know everything annoy those of us who do
I'm a regular reader of Barry Ritholz Blog (The Big Picture). The other day he had an article that hit very close to home on a topic I've dealt with regularly for years. A lack of customer loyalty by companies.... [Read More]

Tracked on Sep 14, 2004 7:33:44 AM

» Why Everyone Hates Their Wireless Provider from FunctionalAmbivalent
Barry over at The Big Picture, which is the best business blog in the whole universe, discusses customer acquisition vs. customer retension in the cell phone business. You think politics is nerdy? Try marketing. Barry concludes that cell phone companies [Read More]

Tracked on Sep 21, 2004 3:39:59 PM

» Why Everyone Hates Their Wireless Provider from FunctionalAmbivalent
Barry over at The Big Picture, which is the best business blog in the whole universe, discusses customer acquisition vs. customer retension in the cell phone business. You think politics is nerdy? Try marketing. Barry concludes that cell phone companies [Read More]

Tracked on Sep 21, 2004 3:42:43 PM

» Why Everyone Hates Their Wireless Provider from FunctionalAmbivalent
Barry over at The Big Picture, which is the best business blog in the whole universe, discusses customer acquisition vs. customer retention in the cell phone business. You think politics is nerdy? Try marketing. Barry concludes that cell phone companies [Read More]

Tracked on Sep 21, 2004 3:49:31 PM

» Where is it? from d-42.com: Josh Cohen online
First Up... The Carnival of the Capitalists is up. So not only is it not news until someone with a column-writing contract reports it, but that column has now been syndicated to a couple of sites and linked by Neal... [Read More]

Tracked on Sep 21, 2004 4:12:26 PM

» Where is it? from d-42.com: Josh Cohen online
First Up... The Carnival of the Capitalists is up. So not only is it not news until someone with a column-writing contract reports it, but that column has now been syndicated to a couple of sites and linked by Neal... [Read More]

Tracked on Sep 21, 2004 4:14:17 PM

» Where is it? from d-42.com: Josh Cohen online
First Up... The Carnival of the Capitalists is up. So not only is it not news until someone with a column-writing contract reports it, but that column has now been syndicated to a couple of sites and linked by Neal... [Read More]

Tracked on Feb 16, 2005 10:35:27 AM

» Customer Loyalty Nonexistent With Wireless Carriers from CustomersAreAlways
Thats what Barry Ritholtz thinks in his post titled, Customer Acquisition versus Retention: A case study in costs. I must agree that yes, there is no such thing as customer loyalty in the wireless industry. Talk to just about any... [Read More]

Tracked on Feb 8, 2007 11:24:34 PM

Comments

I had pretty much the same experience. I'd been a Verizon customer for years (since the days when they were GTE Cellular in NorCal), and I tried like the dickens to get them to match AT&T's deal for me, but they wouldn't.

So I switched. It's just dumb. It's also SOP for corporate America. How much work do companies put into retaining good people on a daily basis, rather than just trying to recruit good people, then panicking when they quit?

Posted by: paperwight | Sep 13, 2004 4:50:54 PM

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