Monday, February 9, 2009

Penalize Your Worst Customers

It is a generally agreed upon strategy to reward ones best customers. Airlines offer luxury lounges for frequent flyers, Amazon offers discounts or exclusive offers to high volume customers, even the local coffee shop is willing to give me one free coffee for every ten I purchase.

There are a lot of ways for a company to show that great customers get great benefits. Penalizing your worst customers is not one of them - but it is often used. For example:

I have been a customer of the Royal Bank (RBC) for over 15 years. My first account was there. My first loan. My savings and investments were all there. In my early twenties, in the mind of RBC, I was a great customer. Then I wanted to build a house. Before going to the bank, I made sure I was prepared and a sure thing for approvals. I did my homework and had everything was in order. My RBC mortgage guy agreed, but he felt that a guy my age should be renting. He felt the necessetiy to preach how tough building a house is. How much time is needed to invest. He offered personal examples of house building gone wrong when his niece tried to build a home. He made me feel stupid for even walking into his office.

So I left. I built two houses instead. I've since sold both of them, and purchased my third house. None of these properties have had RBC's name on them. I went to RBC with an opportunity to expand our relationship. To sign my next 25 years away to them. They put up road blocks. They found the opposite of help in the dictionary and made that their customer service policy. That was the start of the end of my relationship. I pulled all my accounts, investments and insurance and went to a competitor. A company who actually made my life easier.

But that's not really my problem.

The only service I had left was a small line of credit. About 10 months ago I received a letter from RBC. They were notifying me that my account had been "reviewed" and that the interest I was paying on my line of credit was about to increase by 6%. I called RBC. The account "review" had nothing to do with my personal situation, my payment history, or any other influencing factors. I was told that the bank had just decided to increase my interest because of market conditions. The last time I checked, interest rates were at a basement rate. Maybe the increase had something to do with me pulling my services and closing all my account? I had been rewarded for being a great customer (user of lots of services) rather than being a loyal customer (15+ year relationship). I was worth less to them, so they needed to make more from me before I was gone for good.


The worst part about this situation. I never received a call from RBC. Nobody asked me why I didn't go with them for my mortgage. I never heard from the mortgage guy again. When I pulled all my accounts, the teller didn't question me. Nobody cared. Then when their auto-review program flagged my account as low-value they hiked my interest.

Lessons:
  • Don't piss off your loyal customers.
  • Don't provide opportunities to completely destroy the relationship.
  • If a customer is unhappy they may no longer require your services - but that doesn't mean that the decision is life standing. Talk to them, invite them back. Tell them the door is always open. Explain the benefits that the customer may not be focusing on in their current situation.
  • Putting up barriers to keep customers from leaving is always a bad idea.
  • Try to avoid squeezing the last few nickels out of your customers before they move on. It only reinforces their decision to leave and forever leaves a bitter taste in their mouth.
  • Banks have high growth based on word of mouth and I bet your business does as well. How does penalizing a low value client help?
Do you penalize your worst customers (even unintentionally)? Do you think a lost customer is gone for ever? What is the definition of a great customer to you - a loyal customer or a high volume customer? Or can it be both?