Most of us have been taught that being loyal is usually a good thing. Most of the time we are talking about personal relationships with our friends and family. A loyal spouse is good, a loyal friend is good, a loyal pet is good, etc. In this case, however, we are talking about the financial relationship of you as a consumer and a company providing a product or service.
Let’s step back for a minute and pretend we are the business and not the consumer. What is our objective as a business? What are we trying to accomplish? Answer: The business is trying to make the biggest profit possible in a competitive environment with other companies also vying for the same customers. So, that being said, what kind of pricing would you offer to bring in new customers? Would you charge higher prices than the going rate, or lower, and why? Answer: You would charge much lower rates to attract new business, because by charging the going rate or higher rates you wouldn’t be attracting new business.
Also keep in mind that costs for businesses are typically going up every year due to inflation on the products they buy and wage increases for their employees. Knowing that, how do they cover their costs? Answer: They have to increase prices in order to cover their costs. Who are they going to increase prices on? New customers or existing customers? Answer: Existing customers since new customers are given low teaser rates in order to attract them.
What does all this mean? Essentially it means that the longer you stay as a customer of an existing company, the more you are going to pay over time. Companies will keep increasing their pricing on existing customers annually to cover their increasing costs and the losses they take to bring in new customers.
How do you combat this dynamic? The answer is to switch to another company and get their teaser rate. If you really want to take advantage, and are willing to deal with a little hassle, switching every year or every other year will result in you getting the best deals available.
For example, let say you are paying $80 per month for satellite TV. You notice your local cable provider has an offer of $39.95 per month for new customers for a similar package. By switching services you cut your monthly costs in half. You repeat this again and switch back to the satellite in a year or so after the low teaser rate ends with the cable company and they begin to raise your rates now that you an “existing” customer.
Another example would be your auto insurance company. Same situation, great deal when you sign up and then the rates keep going up over time. Get some quotes from qualified competitors that are hungry for your business and then switch to the best deal.
This loyalty penalty exists with just about any business you deal with. Start looking for it. You’ll see it with your cell phones, lawn services, banks, credit cards, etc. All businesses have the same competitive issues. They need to bring in new customers by offering deals but also make a profit by raising prices over time.
One other strategy in both of these and other similar cases is to tell your existing service that you are going to switch because you have found a better deal. In many cases their retention department will drop their rate substantially, often matching the competition. In that case you win since your rates are now back in line with the competition.
Now that you are aware of this, start looking for it. You can test how far you are along the loyalty penalty curve by getting some competitive quotes from others offering similar services, or by asking friends what they pay. This will give you a benchmark. You then are in a position to make a move. Keep in mind that you need to do some due diligence to make sure the new company you select is reliable and has good quality. Cheap and bad is no good either. However, in many cases you will see the differentiating factor is not the quality of the service, but the loyalty penalty. My challenge for you is to list a few of the services where you have had the same provider for a number of years and then look for competitive offers from other hungry providers. I’ll bet that when you get some competitive quotes you will find a lot of savings out there.
Get out there and make it happen!
