I worked for AT&T a fews years after their world radically changed.
They had been a monopoly until January 1, 1984 when they were forced to divest the local exchange companies.
AT&T market share had no where to go but down.
However, instead of giving their most profitable customers incentives to stay with them, they offered almost everyone an incentive to come back AFTER they’d left!
Last week, after my subscription lapsed, I got a special offer to subscribe to Harvard Business Review for $30 lower than the regular renewal rate.
Subscription products aren’t the only ones that make these offers.
Credit card companies offer reduced interest rates to customers that have paid off or attempt to cancel their cards.
Employers offer retention incentives to some people who try to resign.
Why can companies be more accommodating when you’re leaving than when you’re there?
Isn’t it better to reward the people you have before they become the ones that leave?
Hi Keith!
You bring up a couple of interesting points. One thing that occurred to me while reading your comment is that your product or service is probably worth different amounts to different people.
The irony, to me, of lowering the subscription price is that price is not usually what’s driving my decision to cancel – so it’s irrelevant.
It’s usually time (can’t ever get to read the sub I thought I needed).
I love your consulting strategy (but don’t worry, I won’t use it with you!).
Thanks for commenting!
Ann
They know that once you are a customer there is a cost to you to change to another source. This cost is often time–a very valuable commodity in my life. They can maximize their profit by taking advantage of this fact by raising the price incrementally; regaining a few lost customers along the way is a simple marketing problem.
The argument against this theory is “the cost of getting a new customer” that is touted by the marketing folks. This is somewhat mis-leading because accountant knows that the marketing and sales people will spend money anyway – whether you leave or not.
I personally practiced this as a consultant. When I successfully finished one project and bid a new project (with the same customer) I would raise my hourly rate. Often times this worked 2-3 times before I was questioned and I would make an excuse and lower back to my last rate for one more project.
The balance is to raise prices / profits, keep your profitable current customers, while you find new customers.