Utility Providers Banks, Telcos, and energy companies are all the same.
Consumers are not happy with power companies.
But everyone kind of already knew this.
They have their loyalty pipeline backwards.
A large Australian bank promised new customers a healthy bonus in the form of frequent flier points (don’t they all), however it was not available for current customers.
In other words, it was an acquisition bonus.
As I was an existing customer of that bank, I asked them to give me the healthy bonus as well because I had been a customer for 10+ years with them.
They flat-out said no (whomever their head of marketing is, is a moron BTW.)
I proceeded to explain the following to them, which they still flat-out said no to (again proving that whomever their head of marketing is, is a moron):
I said if I leave because of this hypocrisy, I won’t recommend them and worse still for them will proactively give them a bad review.
Not only that, they will need to acquire another customer to get back into same position before I left.
They didn’t realize that they had to spend to acquire me in the first place.
NOTE: Actually, they really would need to get two customers to get back into the same position if they lost me.
It has been said that it is approximately three times more expensive to acquire a new customer, than it is too keep an existing one.
That makes sense.
Let’s say it costs this bank $100 to acquire a customer.
So, they spent $100 to acquire me.
They would need to spend another $100 on another customer next to replace me, for a total of $200.
Not only are they happy to lose a customer (me), which is a financial loss of $200, they are happy to lose me for life (including all the bad that will then be generated.)
The bad will possibly add thousands of dollars of potential lost life-time revenue on top of that.
They could have just spent the $33 and given me the same frequent flier points bonus to keep me and kept the $177 revenue, plus any extra $1000s I would have spent with them over my life time.
But, no.
They add insult-to-injury by rewarding new customers who have no loyalty with them through joining bonuses.
These joining bonus contribute to the three times acquisition cost.
Then, when the customer stays around after the bonus, the bank does nothing, nor provides incentives for their loyalty.
They are basically saying: “We don’t care about you, we care about new, unloyal customers.”
This is the ultimate customer churn model.
Churn is customer attrition.
Churn rate is rate of attrition. It is the percentage of subscribers to a service who discontinue their subscriptions to that service within a given time period.
I’d be willing to bet that churn rate of utility companies is phenomenally high relative to other industries, because they can get this right.
And because Banks don’t care about their customers, in the form of customer service or loyalty, customers are just shopping for the cheapest service.
So the chicken-and-egg cycle continues and banks compete on price, not service.
If you are in a commodity industry like utility companies, don’t compete on price.
Here what you should do:
- Acquire a customer;
- Do everything in you power to keep them happy, indulging refunds, incentives to stay etc. AKA service; and
- Get them to recommend and refer friends.
It will be cheaper and more profitable in the long run.
If someone wanted to come in and disrupt these industries, that is how it should be done.