The customer loyalty myth

This behaviour is not only counter intuitive it goes against the old 80:20 marketing rule – spend 80 percent of your marketing budget on existing customers and only 20 percent trying to attract new ones. The behaviour is downright insulting and confirms customer loyalty is a total myth and the companies uncaring. Why, for example, should a new broadband customer get a service at half price when loyal customers are denied it? Basically loyal customers are being told: ‘get stuffed, we know most of you won’t change and we can take you for granted and ignore you’.

Therefore, next time you see a company, any company, offering an identical service or product to a new customer at a lower price than you are currently paying, ask for the same terms, complain and take your business elsewhere.

Unless and until the ‘silent majority’ take issue with the insulting behaviour that has become so prevalent in the last few years, we consumers will continue to get shoddy service and be treated as imbeciles.

If consumers make a habit of taking an interest in corporate behaviour it is only a short step to look at ‘management’ and identify other negative activities. Look in the business press for reports of company directors rewarding themselves with large bonuses – for doing little more than their jobs. Only a few months ago a certain power company did just this, encouraging a few to pick up the telephone and find another supplier.

Some businesses have yet to learn the fundamental message; the customer controls the product or service delivery relationship.

A word of caution here. We, as consumers, have to be careful not to penalise suppliers who are passing on lower production costs. It would, of course, be completely unreasonable for anyone who purchased a 40-inch LCD television two years ago for $6000 to complain to a supplier when a current version is available for less than half this amount. Technological advances, economies of scale, more sophisticated production methods, combined with lower margins, are reducing prices.

That said there are industries where the message that customers are actually in control is simply not getting through. Professional services; medical consultants, lawyers, accountants and dentists are in this frame with their archaic and plainly daft time-based pricing model, self regulating monopolies, failure to use new technology and not delegating work to less qualified persons.

By way of example I would like to single out dentistry. I have no complaints about the standard of service and prices I (and my family) receive for routine events – e.g. ‘clean and polish’, X-rays, fillings etc – but when it comes to purchasing products like a night splint or a porcelain-bonded gold crown this profession is taking the p***.

The typical price for a night splint is $750 plus GST. It is made of a polymer/plastic using a mould taken from an impression. The result is a bespoke piece of plastic two to three centimetres long which has been crafted by a technician, I suspect, in 15 to 45 minutes.

Why should this cost the same as a 1GB Acer netbook and tell me which has the greater technological input, engineering, research and production cost?

Move on to dental crowns, veneers and implants. The prices vary from $2000 to $4000 and are fairly low tech – though I would be the first to admit that the application process is skilled, if not overly time consuming. So why do they cost so much?

I suspect the answer is a combination of monopoly abuse and the healthy application of setting prices based on the product being ‘medical’ in nature. Wholesalers and retailers who might apply a margin of 30 percent were the products available over the counter put a margin of 300 to 500 percent when the word ‘health’ is added.

This was brought home to me by my enterprising GP who conducted a series of experiments. He too was fed up with the prices of various medical tools, including weighing scales and those devices for looking into ears and throats. The scales from a ‘medical products’ catalogue was several hundred dollars, yet the self same device with a different ‘badge’ can be purchased over the counter at Briscoes for around $100.

The other devices typically cost over $1000 when sourced from a local medical products supplier but similar products can be bought online (from India) for less than a third.

It is the same for MRI scanners and X-rays. This equipment from a traditional medical products provider costs a fortune but not any longer. New companies including ZPMC and Zhongxing Medical have developed state-of-the-art digital machines for a fraction of the price. Whether this translates to cheaper X-rays and scans is moot, but if prices don’t fall we all know what it means.

There are those out there who will say this is the market at work and we should ‘suck it up’. I say it is price gouging predicated on the abuse of monopoly power.

If we want change we must vote with our feet. 

Whenever I observe advertisements like ‘half price broadband for 3 months’, ‘term deposit at 4.5% percent’ or ‘one week only special on ……’, I get irritated at the company concerned who clearly think less of their existing customers than new customers.