The Price of Loyalty

tivo_logo1I had a random thought today while reviewing my personal budget that I’d like to explore here: Why do subscription prices go up for loyal customers? Shouldn’t they go down? Not as a gimmick or something that a few companies do, but across the board?

Here’s the status quo: For the vast majority of things you can subscribe to–television, Netflix, magazines, any of those lady companies (is Birchbox a thing?) that deliver perfume to you every month, even monthly rent–over time, you have to pay more and more money to maintain the subscription.

But why? A loyal customer is a customer you already have–they are your most valuable asset. You don’t have to pay for Facebook ads and TV commercials and junk mail to acquire them.  You already have them! So shouldn’t you do everything possible to keep them?

Every 6 months, my cable bill goes up, and every 6 months I call the cable company and ask for a better rate. They give me a temporary promotional rate, and then 6 months later when it expires, I call again.

Of course, this is what cable companies want, because it’s win-win for them. Either you pay more for the same thing, or you get on the phone with the cable company, where they get the chance to sell you more stuff. But it feels like an uphill battle. How awesome would it be if your cable bill went down every month, even just $0.25? Wouldn’t you be more likely to never switch to another company?  The longer you stick with them, the less you pay.

The other argument is inflation. If you pay the same thing every month, you’re actually paying less money because of inflation. But who subscribes to anything that stays the price every year? Almost every subscription goes up over time.

Part of me says that a loyalty system that incentivized long-term customers by lowering the price every month by default would have to have limits. And it probably does. For example, if you sign up for a new cable company for TV and internet for $100/month, and the bill decreases each month by $0.25, after 5 years you would only pay $70/month. After a total of 16 years, you would pay nothing. You’d get your Birchbox for free each month.

But if you told me today that you would be my customer for the next 16 years, I’d sign on the dotted line in a heartbeat.

One other anecdote: about 10 years ago, I bought a series-2 Tivo with a lifetime membership. The life-time membership basically meant that if I kept the Tivo for at least 3 years, after that my payments would be free. My guess is that Tivo thought that most people would upgrade to a new Tivo after 3-4 years anyway.

However, I still have that Tivo. I haven’t paid a cent in 7 years. I don’t care about HD or recording 18 shows at the same time–I’m perfectly happy with what I have. This is very similar to the cable example I outlined above. Is Tivo happy to have me as a customer, or 10 years ago would they have preferred if I hadn’t bought a Tivo at all?

What do you think? Would something like this be appealing to you as a consumer? Which services would it work particularly well for?


7 Responses to “The Price of Loyalty”

  1. Sara says:

    That’s how it works for me and my USAA homeowner’s and car insurance. I’ve been with them since I got my license in 1986 and nobody else can touch them. They made me mad once and got me calling around to other companies. They talk all kinds of sales talk about how much they can save me… until they find out I’m with USAA. Their voice falls and they say “oh.” The cheapest place I could find was still $300 a year more than what I was already paying. So I’m still with them. Yes, a loyalty discount would be fantastic – for cable, phone, internet… I’m a big TiVo fan as well. If I were a landlord, I’d keep the rent the same for my good tenants because they’re so hard to find. Much cheaper than fixing up my trashed place every few years because I finally priced the bad tenants out.

    • Jamey Stegmaier says:

      Sara: Insurance is a great example! I hadn’t thought of that. Very cool that they decrease the cost the longer you stay with them. And that’s also a good point about how keeping the same customer can be good for the the company/owner (the rent example).

  2. Joe Babbitt says:

    Interesting post, Jamey. The reverse way to ask this question is “can your loyalty as a consumer be bought?” and the answer (for me anyway) is a resounding “uhh, yeah.”

    • Jamey Stegmaier says:

      Can you think of any ways that your loyalty is currently being bought by something you pay for on an ongoing basis?

      • Joe Babbitt says:

        I stand corrected. The question should be “is my loyalty being bought?” and the answer to that is “no.” Which should change. Insurance notwithstanding, and I’ve done the 6 month internet/cable thing too, but like you said, even if my customer’s payments dwindled year after year, if I knew they were going to be mine forever, I’d be delighted to discount for their loyalty.

  3. Charles says:

    Cell service is the worst about this. Free phones and discounts for new customers, but no loyalty to existing ones.

    • Jamey Stegmaier says:

      That’s another great example. 4 years ago I called Sprint and told them I was thinking about switching to AT&T to get the iPhone after being with Spring for 7 years. I asked if they wanted to compel me to stay, and they said no. I have nothing against Sprint, but they would probably still have a customer if they had offered me something for my loyalty.

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