July 2009 Archives

Something that's been bugging me recently is the practice of offering specials to new customers only, especially specials offering everlasting prices below what current customers are paying.

For example I was subscribed to RSYNCpalace.com's New York 100GB plan at $16.95/month and if you go to their front page right now they're offering a 15% discount to new customers for the life of the account. I emailed them and they applied the discount to my existing account, though they also stated that they don't normally do this.

As another example I have subscribed to a premium USENET service for $15/month for the past 2 years only to discover today that they offer the same service at $10/month to new customers only. I've obviously cancelled my account and will sign up again with a different name next month.

I can understand why businesses do this since the vast majority of their customers will never discover the specials, and of the small number who do an even smaller number will actually leave in a fit of rage. Upon discovering the special prices they're more likely to just re-sign up since they can now get the service they're already used to at a lower price, just as I did.

The question that's been gnawing at my brain is what could be a better model?

I guess the goals are, in a nutshell:

1. reduce churn: existing customers should feel they are valued and have a reduced incentive to shop around
2. pricing model should have flexibility to attract new customers without counteracting goal #1

If a company has setup fees they could waive these. No detriment to existing customers who have already paid their dues, and a small incentive for new customers to sign up right now. However when the company's services is heavily commoditised as it is for USENET services, and there are no setup fees, what incentives could be offered to new customers without making existing users feel like they are being gouged?

I've tossed around the idea that existing customers could be given discounts based on tenure, i.e. maybe after 6 months you get an ongoing 5% discount, rising to 10% after a year. That helps to discourage existing users from leaving but doesn't help to entice new customers to sign up. You could perhaps offer new customers their first month at a discount, reverting to the usual discount schedule after month one. But my gut says this is violating the KISS principle for little overall gain.

Then again, pricing model complexity is exactly what all of the telcos & banks have opted for so maybe bashing customers into confusion is the way to go.

Anyone have any bright ideas?

Fail #1 - Calling my mobile from a line with caller ID blocked so I can not identify the caller. The caller identified herself as a Citibank representative then proceeded to ask for my personal details beginning with my with Date of Birth. Of course being a paranoid I told her it was poor practice to ask customers for personal identifying information when the customer has no way of verifying the caller's veracity. Thankfully she then said I should call Citibank as soon as possible using the number on the back of my credit card.

I called 13 24 84, went through the IVR menus, and thankfully wasn't put on hold. The rep verified my identity using my full name, DOB, a single recent transaction on the account (note the ease with which one could provide these details if my account were indeed already compromised), and a secret question.

The rep claimed that Citibank had reason to believe that my card data had been swiped and used to produce replica cards. I find that hard to believe given that I've very rarely actually used the physical card with most transactions being online. But whatever.

Fail #2 - Although the rep was unable to provide details on exactly why they believe my account had been compromised Citibank was going ahead with blocking & cancelling the current account, and re-issuing a new card + number. This is really inconvenient given the number of auto-direct-debits I have setup and that the new card would not arrive for 7-10 days. I asked if there were particular merchants they considered risky but she could only say that "the system as a whole has identified your account as possibly compromised". Useless.

She did however question if I recognised two transactions - one from GoDaddy and another from PayPal, neither of which should look suspicious given the frequency of transactions from those "merchants" on my account, none of which I have ever raised issue with.

Fail sub-total - 17 minutes on the phone, no card to use for a week, and when the new card arrives I have to go and update a bunch of billing accounts. And no reason to believe that my card was actually compromised, nor that they won't call me again a week from now to say that I'll be re-issued with yet another card.

My gut says that either their own systems were compromised, or one of the merchant systems were compromised, and they are unwilling to share the truth.

The Big Money published an interesting article about Swoopo, describing it as The Crack Cocaine of Auction Sites. I observed one of the auctions over the course of about 8 hours today and it is pure evil genius. I wish I'd thought of this first though I'm uncertain whether I could live with the guilt of such blatant robbery of the ignorant.

The Swoopo homepage displays 10 auctions that are close to "ending", giving the impression that bargains are to be had on those auctions. I clicked through to an auction for a MacBook Pro 13.3" laptop which was ending in 45 seconds.

The RRP according to the listing is $1699. I don't know whether that's true but its somewhat irrelevant as Swoopo conveniently informs me that an identical laptop recently sold for $323.98. What a bargain!!

As always, the devil is in the details.

Swoopo's auction allows bidders to only bid in 1c or 2c increments. It costs the bidder 60c to bid. That means for a $323.98 laptop there were almost 16,200 bids. At 60c a bid, Swoopo collects almost $9,720 in revenue, and if their RRP is to be believed Swoopo collects a gross profit of over $8,000.

The sneaky bargain hunter might be inclined to think that s/he could snipe the auction - wait until the last second and throw their bid in. Swoopo has you covered. Every time someone bids on an auction the deadline is extended by up to 20 seconds. The auction does have a hard deadline but as you'll see from the screenshot below the particular auction I watched has a deadline over a month away (image captured on 13th July 2009).

When I began watching this particular auction there was 45 seconds left, and the price was around $47 - an absolute bargain. As the timer ticked towards zero bidders started to appear from all sides. I went to make my breakfast (Weet-Bix Multi-Grain) and by the time I returned 3 minutes later the deadline had been extended such that there was 4 minutes left. As I ate the timer kept pushing out as various bidders joined in the action.

A couple of hours later I checked on the auction again and the time left had pushed out to over an hour, the price was around $65. A few hours later as I began to write this blog post the price had reached $84 with 4 hours remaining.

Most of the action seems to be coming from user "Maneumi". Throughout the day poor "Maneumi" has been in the most recent bidders panel. In the 25 minutes it took to write this blog post, "Vidoona" has joined in the action and now the two of them are wrestling it out through the magic of Swoopo's BidButler, boosting the price to $114. Yes sir, in 25 minutes there have been some 1500 bids @ 60c a pop.

BidButler automatically bids for you when you are away from your computer. I don't think I need to comment further on the ridiculousness of this.

The service preys on those who fall into the trap of "sunk costs", those who are unable to resist the sweet siren call of an amazing "bargain", and those who can't see that this is fundamentally a lottery - there's only ever one winner per auction. And all to produce gross margins upwards of 80% -- pure evil genius.

Finally, I had to check if they had any competitors given that the business model is extremely sound. Sure enough there's a copycat at Bid Rodeo whose apparent selling point is that they only allow Americans to bid so you don't have to compete against those funny smelling foraynors.

UPDATE: The MacBook Pro auction finished at $162.58 after 8129 bids. That's $4,877.40 in bid fees, a tidy profit for Swoopo of more than $3,100 over the RRP.

In a final, deft touch to lure you in the completed auction tells you exactly how many bids the winner put in.

Look at them savings!!

The rocky state of Queensland must be doing it tough as they're now allowing pokies to accept $50 and $100 notes says the Courier Mail.

I think the QLD Government is lacking in ambition. They need to work with the RBA and its Note Printing subsidiary to produce a $1,000 bill as soon as possible. To facilitate their use in current pokie machine hardware the bill should be the same size as one of the existing notes, perhaps the $5.

Additionally, they should allow regular pokie players to link their mortgage accounts directly to their Casino Rewards program cards. I understand this would involve require some technical integration between clubs, pubs, banks and the Government's coffers so this work must begin today so that it can be ready as punters grow weary of feeding $1,000 notes into their favourite machine.

I understand that not everyone may have a mortgage. For those who are unable to save a deposit for their first home the Government should encourage the use of credit cards at the pokies. This would help first home buyers save their deposit through their credit card rewards programs as they gamble.

Our old maths rooms

I read with interest an article about the way maths is taught in Singapore. It reminded me of how dad had taught me multiplication.

I was 5 or 6 years old and the family had an Apple ][e compatible PC. We had a maths game which was nothing more than basic arithmetic problems rendered in giant ASCII fonts - stuff like 6 x 9 = ?. Dad sat down with me in front of the PC and using Lego bricks we would count out 6 sets of 9 bricks. I would then count the total number of bricks one by one, on my fingers and toes (to keep the tens). :D

It was tedious work and I can't remember exactly how long it took but I only recall maybe 5 sessions over a couple of weeks before I could begin accurately answering the questions without the Lego.

I couldn't understand why when I got to 4th grade (3-4 years later) students were still having difficulty with their times tables but now I do. I wonder how many people would find practical applications for basic maths if they had only had someone to teach them to understand maths rather than apply rote learned formulas and tables. Thanks dad. :)

In general I think I've been quite lucky with teachers. My final 3 years of high school maths were spent with one of the finest teachers one could ask for - an engineer who through his past work was able to help us relate our theoretical math to real problems he had encountered. It also didn't hurt that he recognised that I was talented but lazy so he would prod me along as required.

And just before I took my driving exam I did a series of lessons with a professional instructor (who duly informed me that a 3 point turn in someone's driveway is technically illegal :) and even he related the differentials I was doing at school back to the acceleration, speed and distance travelled during our driving lessons.