My
last “Deep Thort” was about “doing the right thing”. This latest “Deep Thort” is about “doing the
wrong thing”.
Last
week the Financial Conduct Authority (FCA) announced it had identified “a
number of areas of potential consumer harm” over how insurers charge their
customers. The main concern is around so
called “loyalty pricing” when insurers charge new customers less than existing
customers as a means of drawing new customers in.
Many
of us have experienced this and we really don’t like it. It is not only insurers. It is wide spread practice amongst many
businesses offering services that we pay for on an annual or monthly payment
basis. We get this great deal to start
with which becomes a poor deal at the end of the introductory period.
A
particularly pernicious trick is the offer of “automatic renewal” whereby the
supplier can take an increased direct debit amount from the customer when they
increase the premium. A letter arrives
saying it is time to renew “but you don’t have to do anything”. So most of us don’t, and then we find the payments
have increased by 100% or more!
Why
do these companies do this to one of their most precious assets, their
customers? The practice is clearly
widespread if even the FCA has noticed and is becoming concerned enough to
mount an investigation. Let’s test this
against the “doing the right thing” questions from our book “The Z to A of Success”.
1. Is
this really a better way or is it really just a short cut for my benefit? It’s
really just a short cut for my benefit.
2. Will
this deliver win/win outcomes for all the people involved? At the
start it looks like a win for the customer but it quickly becomes a lose.
3. Am I
prepared to give first and receive later to achieve those win/win
outcomes. It may look like give first and receive later, but as the ultimate intended
outcome is win/lose it fails this test too.
So
the companies that do this are playing win/lose. But isn’t that what business is all about? Well it is in some sectors but in the long
run it doesn’t work. Research
tells us that it costs at least six times more to win a new customer than it
does to retain an existing customer. So loyalty
pricing is not only “doing the wrong thing”, it is in fact the “wrong thing to
do”.
Discuss!
