The Failure of New Customer Discounts



Companies Focus on New Customer Acquisition and Then Encourage Customers to Leave in Two Years

By Peter Lyle DeHaan, PhD

Peter DeHaan, Publisher and Editor of Connections MagazineMy family just completed our biennial cell phone switch. We’ve been doing this like clockwork for two decades. We pick the company that offers the best price and switch to that one. Two years later our rates jump, and no amount of pleading results in a package we can accept. So we switch carriers.

Of course, the same thing happens with our internet service provider and our cable TV/satellite provider. They also entice us with low introductory rates and then methodically jack up our bill every chance they get. We’re on a two-year cycle with them too.

Loyalty Goes Both Ways

new customerI’d prefer to find a vendor I can stick with and not change every two years. All they need to do to earn my loyalty is to offer fair prices. But they don’t. They give sweet deals to new customers as they gouge their current ones. They apparently value new business more than existing business. Don’t they know it costs several times more to gain new customers than to simply keep the ones they have? They should, but their actions don’t show it.

They prove their disloyalty to me with their unfair pricing. This causes me to be disloyal to them, and I have no regret about leaving them for a better deal. They’ve trained me to act this way.

The Burden on Customer Service Staff

Each time we switch a provider, we make multiple calls and even visits to each potential vendor, gathering information and looking for potential shortfalls in their service package. Of course, we foolishly start with our existing provider, but they’re not interested in keeping our business—at least not yet.

As we proceed, we take time with our existing provider and then all their competitors, including the one we eventually select. Our existing provider spends time with us to lose our business. Our new provider spends a couple of hours to close the deal and transfer our account. That’s a huge investment of time to obtain an account they won’t keep. In addition, all the other providers waste time with a prospect they won’t land.

The Impact on Customers

As customers, we spend a lot of time analyzing our options. Then we expend more time switching providers. But the biggest investment of our time is programming and learning our new technology, be it our phones, video entertainment, or internet access. Maybe someday I will gladly accept my bill doubling to avoid the agony of switching. Or maybe not.It costs several times more to gain new customers than to simply keep the ones you have. Click To Tweet

Churning Customers Is a Futile Business Model

If companies worked harder to keep the customers they have, there wouldn’t be so much pressure to gain new ones. They wouldn’t have to offer their new-customer incentives, which are likely at or below cost. They wouldn’t have to spend as much money on marketing. And their sales and customer service people could avoid a lot a of needless effort that produces no results.

Too Late to Make a Difference

Most of the time, once we switch providers, our former provider then makes a last-ditch effort to “win back” our business. But they’re too late. We’ve just gone through the agony of considering our options and doing a thorough spreadsheet analysis. We’ve gone through the pain of switching. We have shiny new equipment, which looks promising—once we learn how to use it. And now they think they can keep our business? No way. The only way we’ll do business with them is in two, four, or six years as we go through another cycle of selecting a new provider.

Though these service providers will persist in their insane cycle of customer acquisition and churn, your company doesn’t have to. Make sure you don’t follow their foolish example.

Peter Lyle DeHaan, PhD, is the publisher and editor-in-chief of Connections Magazine. He’s a passionate wordsmith whose goal is to change the world one word at a time.