Churn - on how companies nowadays loose money by mistreating their most loyal customers

Posted on November 3, 2009

This is not a story about butter. It is an observation on the sad state of customer relations in Portugal (and indeed elsewhere, but I stick to my own example here) and about how to fail miserably at retaining loyal customers and reducing customer churn.
I won’t name names here because this is not a complaint about any particular entity, but a general grievance instead.

The bank tale

So first I’ll tell my sad tale of how I’ve had this particular bank account for some twenty-odd years and why I am about to close it because at this time it is just a losing proposition for me to keep it open.

Until some time ago I used this account as my main account. My paychecks were deposited there, I payed most of my bills out of it and my major credit cards were associated with it. Things went smoothly (I think this is by far the best portuguese bank as far as on-line management of your accounts goes.)
But then I went shopping around for a loan to buy a house and another bank offered me a much better deal and so I obviously went with them. The fact that I had been a good customer of theirs and had a perfect track-record meant squat when it came to giving me a good deal on the loan and because this was a major decision as far as my financial situation is concerned I just had to bail. Just for the record, the deal I got on the other bank was significantly better and so now I put up with their utter sub-par web banking system. I’ll live.

So time went by, I transfered all of my direct-debits to my new main bank account, my paycheck is now deposited there, I obviously started using their debit and credit cards almost exclusively and this is when I started loosing money with this setup. Because now that I mostly don’t use the account anymore, even if I still had a decent ammount of money in there, they started charging me for my cards and for the fact that they kept my account open. Yes, I had some money that was just laying there, free to be used on their overnight applications and because I didn’t show signs of life they started billing me for the privilege of having my money with them. Nice, heh?

So what do I do then? Well, I’m tracing back all of the (mostly micro) payments still hanging on that account and those cards and I’m about to close it down for good and end a decades-old relashionship with them.
Because they pushed me to do it.
Now I know this is mostly sentimental gushy stuff, loyalty doesn’t mean a thing to banks and it’s all just business and in the end money is all that matters but damint, to me it matters. I had this account open since I was a teenager and it was with it that I started really managing my money when I was still a kid living on my parent’s allowance, so to me it meant something.

But is it really that irrelevant to the bank? Is this really such a sane business decision? I’ll come to this point later on, in the next section of this article.

For now I’ll just note the point that if I want to use that bank again in the future I’m better off going to them as a new customer rather than a loyal twenty-someting-year customer (a.k.a. the sap). New customers, if they wait for the right moment and play their cards right, get lots of breaks and good deals.


This story that I just told illustrates a point that applies to probably every activity, from banking to telecoms.

Companies focus so many of their resources and attention to aquiring new customers but then, after they are aboard, treat them so badly that people are really better off just dumping the company altogether when they don’t need them (even if only temporarily). What’s the best way to get a discount on your subscription for a given service? Just leave. If the service you want to cut the bills for is something whose market is very tight at the moment (say telecoms), then maybe, just maybe you can get a better deal by just threatening to leave, but then, in my experience, most times they quickly forget about your intentions to leave just a short time ago and go ahead and mess up your bills or just let the offer expire after a few months and you go back to square one, having just postponed the problem for a short time.

So people just tend to, after possibly a few months of “special offers” that byte them in the end due to the messed up billing systems, leave the company for a competitor. And then, after a few years you start looking around again and the cycle starts over.
But given the time most companies take to recover the money they spent acquiring each customer (i.e. the time you have to be a customer for them to recoup the money they spent on advertising, price breaks and deals, etc just to get you as a customer) this sounds like a suicide strategy (and I’m not even broaching the subjet of destroying market value through sensless price wars).
Getting a customer is an expensive proposition. All the adds, the marketing campaings, the licenses they pay for the technology that drives or supports the service they provide to you… There are miryad little things that all add up for a customer to finaly arrive and start getting their service (even if, yes, the service consists largely of keeping your money for you. And yes, I’m over-simplifying.) :-)

So, back to the bank. As is apparent from my account above, I had an emotional attatchement to that bank and that bank account. It wasn’t a smart thing for me to have, it made my economic decisions irracional but then I’,m only human and people do that sort of thing. They get atattched to their first bank account (this wasn’t it for me, by the way, but it was the first one I opened up by my own). And then they tend to favour the bank they have that account on and let some things slide. I knew I would end up paying the annual charges for my Credit Card. But I didn’t expect to pay them for all of the cards (some of wich were offered up as special deals without extra charges never ever a lot of years ago). And I certainly didn’t expect to get billed for keeping an account open with money in it. In the end the charges were so high that it just became unbearable to keep te account open. So they lost an accont, but most importantly, they lost a customer who would go back to them in a heartbeat if the opportunity arose.

And you know what that makes me? A customer that’s extra difficult to get back, because now I’ll only go back if I get an extra-good deal for something. So the cost of getting me back as a customer just went way up for them. Not out of vengeance, mind you, they’re just one more bank for me now, and the playing field is level for them and all the other banks.

All of this because no one though to do a check on this weird guy who had some money (and some stock too, by the way, which just got sold) lying around and maybe give him a call before getting the hammer down on his account and start charging for everything they could.
Some people will, doubtlessly say “Oh well you know, it’s just the way the system works, this thing is automatic, no one’s to blame” to which I respond: “Ah, just go fly a kite on the South Pole, will you?” When they wanted to sell all of those marvelous investement opportunities they had no problem minig their databases for the people they thought would be interesting investors, so why didn’t they do a basic screening against that same criterya when the time came to put down the hammer?

It’s just stupid and it’s making them loose money in the end. Just like the TV providers and the utilities and all the other companies out there.