What Is The Price Of Customer Loyalty And Who Pays It?

I say that there is a ‘price’ attached to everything and it is always paid. What is open to influence is ‘who’ pays the ‘price’.  The question I wish to address in this conversation is this one: what is the price of customer loyalty and who pays it?

Let’s leave aside theory for those that specialise in it: the professors, the authors, the ‘gurus’. And look it this question in the concrete – through my lived experience.  In particular, let’s look at two recent events and experiences.

Churchill: The Price of Customer Loyalty is a 70% Mark Up

Recently, I got a renewal reminder through from Churchill regarding the car insurance policy I have with this organisation. The price was was around £320. And I was assured that I was taken care of, needed to do nothing, was in safe hands and this insurance would be renewed automatically.

In the early part of my business life I got a good look inside the insurance industry. What struck me was how the folks in the insurance industry did everything in their power to not pay customer claims including legitimate claims. Where paying out could not be stopped, the focus was on delaying payment as long as possible (money in the bank earns interest for the insurance company) and making an effort to get the customer to agree to a smaller amount than the customer was due.

With this in mind, and a niggle at the back of my mind suggesting that the previous year the premium had been less than £200, I started my due diligence on the insurance comparison websites. Guess who showed up among the most competitive insurance providers? Churchill.  Guess what the premium was? £187

Let’s take a good look at this from a loyalty perspective. The price of loyalty was to be paid by me as follows: increase in premium of £133 which amounts to a markup (on the £187) of 71%.

What did Churchill offer me in return for this extra premium? Nothing. The only difference between the £187 (on website) and the £320 (renewal) was that I got less cover! The £187 premium included free car breakdown insurance, the £320 premium did not.

What did I do? I took out a new policy for £187 and then rang to cancel the renewal. How did the call-centre agent respond? She asked me to allow her to match the best quote I had got elsewhere. I told her that Churchill had already done that. When I explained that I had taken out a new policy via the website she told me that it was normal for new customers to get a better deal especially if they sign-up online.

What else did she do? She told me off. For what? For taking out a new policy and messing up the internal system. What would she have liked me to do? Ring up Churchill, ask them to match the quote, get the renewal premium amended and continue with the existing policy.  It occurs to me that Churchill is true outside-in organisation which understand the customer and focuses on the customer experience. How else does one come up with this radical approach to doing business? Joking!  And sadly, the orientation is the default one despite all the talk.

Lesson for Customers: Never trust a commercial organisation to have your interests at heart. The standard practice is to sell you what makes most revenue-profit for the organisation this year.

Lesson for Enterprises: Given the radical transparency and ease of shopping facilitated by the internet it is necessary to pay attention to your pricing policies; not all customers are lazy, ignorant, or wealthy especially in the current economic climate.

 RAC: The Price Of Customer Loyalty Is A 12% Mark Up

We received a renewal reminder from the RAC. Like Churchill, the RAC assured me that I was in safe hands, had to do nothing, the renewal would take place automatically.  Given the comprehensive cover I have (UK, Europe, Number of People, Services) the sum of £342 did not seem too much.  As I was doing the Churchill search on the net, I did the same for car breakdown cover.

I chose only to look at two organisations: RAC and the AA.  RAC turned out to be just as competitive as the AA. Given my positive experiences with both organisations, I did not mind which ended up providing the cover.  When I plugged in my cover requirements from the renewal reminder into the RAC website, I found the same cover for £322. No big difference.

Seeing myself as a Customer Experience investigator, I chose to call the RAC. I selected the ‘going elsewhere option’ on the IVR. The agent answered the call, I told him the situation. He has helpful and investigated. What renewal premium did he offer me? Better than I was looking at on the RAC website. He offered me a renewal premium of £307. I took up the offer.

So let’s do the maths. The price of customer loyalty is still paid by the customer. It is just that in the case of the RAC the price is much lower: £35 representing a mark up (on £307) of 12%.

Lesson for Customers: Not all enterprises are out to get you to pay every penny. Some like the RAC settle for charging you modest amounts (mark up) in exchange for the convenience of doing nothing – saving you time and effort.

Lesson for Enterprises: Charging modest premiums in exchange for convenience is likely to be better received-experienced by your customers; I view RAC rather differently to Churchill – the latter shows up for me as greedy, the RAC shows up as fundamentally ok. If you do get caught like the RAC did then consider being gracious and generous like the RAC agent. Why? Because, it left me with the experience of gratitude to RAC rather than the experience of getting satisfaction at besting greedy Churchill.

Final Thoughts

It occurs to me that companies have made a mess of customer loyalty as they have viewed this in a selfish (transactional) manner. They have viewed loyalty in terms of getting more money from customers.  And by necessity the cost of customer loyalty falls on the customer: the customer pays to be loyal, stick with existing supplier.

So the opening for those who are up for a radical approach to doing business arises with grappling with this question: how can we create superior value for the customer such that s/he stays with us and is happy to pay a premium?  It occurs to me that Apple has been doing a great job of answering this question through its hardware, software, and ecosystem.  Which may explain why it’s value has rocketed over the last ten years. And why the market in used Apple hardware in eBay is more than all the other PC companies combined.


A tale of two car breakdown companies and the six lessons you can learn

I have been a loyal customer of the RAC for over 16 years

In the UK the two main car breakdown companies are the RAC and the AA – they are both reputable.  I have been buying breakdown cover from the RAC for over 16 years.  Each year the RAC send me a renewal quote and I simply let them renew the cover.  I don’t go and check the websites to get quotes from other providers.  Why?  Each time I have needed the RAC they have delivered.  In particular, the RAC won my heart when my wife and 3 young children were coming back from France and their car broke down near Paris.  The RAC made sure that my family was taken care of and got them safely back to the UK even though the car could not be repaired at the roadside.

So when the renewal reminder came in this month I simply accepted that I would renew with the RAC.  Then I got a car breakdown renewal reminder from the AA; I had taken out car insurance with the AA last year and took out car breakdown cover even though I did not need it because by taking it out I got a significant discount on the car insurance premium that more than paid for the car breakdown cover.

How two young ladies brought the AA brand to life and won me as a customer

When I rang the AA call centre I was greeted by a friendly voice and I told her that I did not wish to renew the breakdown cover.  She put me through to the retention team.  My call was picked up straight away by another friendly, bubbly, voice who asked me why I was not choosing not to renew.  I told her that I had only taken out the AA breakdown cover because of the car insurance discount and was a long standing happy RAC customer.  She asked me if I would give her the opportunity to offer me a competitive quote.  Because she was so great on the phone with me I agreed.

She came back with a quote that saved me some 40% on the renewal quote put forward by the RAC.  Because of the value that she had created for me and how she was being on the phone (friendly, enthusiastic, helpful, validating) I agreed to take up that quote.  This young lady then proceeded to ask me questions to provide the comprehensive cover I needed.  At one stage she asked me my wife’s birthday.  When she picked up the uncertainty in my reply she empathised and made playful fun of me / with me.  This little interaction here – a fundamentally human interaction – made the whole experience stand out memorably!

Lesson 1:  if you want to win your competitors loyal customer then you need to create value for that customer.  You can do that in many ways.  The AA created emotional value for me – the young lady that I spoke with made we feel great about talking with her and signing on with the AA.  She was also given the freedom from the AA to create economic value for me by saving me 40% of the RAC price.

Lesson 2: your employees shape the customer’s perception of your brand so choose them wisely. I do not know what the components of the AA brand are.  I do not know how the marketing dept want the AA brand to be portrayed.  I do know that as a result of my conversations with the two AA call centre agents I am left thinking/feeling that the AA is a fresh, friendly, enthusiastic and helpful organisation.  That appeals to me and that is why I am happy to be an AA customer.

How the RAC failed to keep me as a customer

After I signed up with the AA I rang the RAC to cancel the automated renewal.  The RAC call centre agent asked why I was not renewing and I told her.  She asked if I would give her a chance to offer a competitive quote and I reluctantly agreed.  Why reluctantly?  On the one hand I had established an affinity with the AA and was happy on the choice I had made.  On the other hand the RAC had looked after me well for 16 years.  The call centre agent came back and told me that the figure I had quoted could not be right – her system was telling her that it was £10 higher.  I did not take this well because I was thinking I am doing you a favour by letting you quote  and you are implying that I am a liar! So I asked this call centre agent to make sure that my breakdown cover was not renewed and ended the call.

Lesson 3: never imply that your customer is lying – we do not take this well especially when we are telling the truth!

Lesson 4: there is absolutely no point in spending money on CRM systems if you employees are not going to use them when it matters.  If the RAC call centre agent had looked into her CRM system she could have reminded me about the times that I had needed their help and they had delivered.  She could have not played the price game and played the relationship and reciprocity

Lesson 5: if you have not given your customer facing staff access to a full view of the customer’s relationship with your organisation (through a CRM system) then you are asking them to compete in a race (for the customer) with their legs tied together.

Lesson 6:  if you don’t give your customer facing staff the freedom to be flexible and use their judgement then they will not be able to do what it takes to win over customers.  I suspect that the competitive intelligence unit with the RAC had fed the AA prices into the computer system and the RAC agent had to stick with those competitive prices.  And that is how she ended up implying that I was lying on the price I had been given by the AA.

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