Unrequested discounts can be smart business

ECONOMIC NAVIGATION & SIGHTSEEING

April 13, 2008|By JAY HANCOCK

Companies selling things to my household are acting suspiciously. First, my home-equity lender cut the interest rate a quarter-percentage point for no reason I could divine. Then Verizon offered to lower my monthly bill for cable TV and Internet by $5.

In both cases, I would have been perfectly happy to keep them at the old price. In neither instance did I complain, threaten to fire them or do anything else to prompt them to give me a discount. Nor were contracts expiring. Accustomed as I am to being nickeled and dimed by banks and airlines and everybody in between, I find this highly disturbing.

Fortunately, says consumer expert Richard A. Feinberg, companies are not turning into welfare agencies. They are just as interested in making a buck as ever, and often giving unsolicited, permanent discounts helps them do so. In high-turnover industries such as finance and telecom, such deals can retain customers who have not thought of defecting but might do so later.

"They're playing smart now because they know how many customers they're losing if they don't do that," says Feinberg, director of the Center for Customer-Driven Quality at Purdue University. "All this is based on the lifetime value of the customer. The businesses that understand the lifetime value of a customer are more aggressive at keeping them."

Verizon loses $60 a year by giving me the discount. But if the deal keeps me with them an extra two years, they make up that money and more.

In fact, Feinberg says, I shouldn't settle for a $5 Verizon discount. "You could have gotten $10."

jay.hancock@baltsun.com

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.