Customer loyalty vs new customer offers

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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'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?

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This page contains a single entry by goosmurf published on July 23, 2009 6:00 PM.

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