Good Question: Why Do New Customers Get The Deals?
MINNEAPOLIS (WCCO) -- When you sign up for cable TV, satellite, cell phones, magazine subscriptions, there are always special offers for new customers, but rarely for old ones. Why do companies spend more effort attracting new customers than they do keeping existing ones?
Consider Comcast's Xfinity Cable/Internet/Phone service called "Triple Play." New customers can get that for $99 a month, along with a $100 gift card and an HD FlipCam. Existing customers pay about $130. The difference works out to $360 more a year.
The Minneapolis Star Tribune does the same thing. New customers pay $3 a week for 7-day home delivery. Existing customers pay $5.13. The difference is about $70 a year.
"The bottom line is they work," said Kevin Upton, a marketing professor at the University of Minnesota's Carlson School of Management.
"You're always trying to attract new customers to your base," he said, and the idea of offering special deals "is a simple one with some drawbacks."
"We have got to stay competitive," said Comcast spokesperson Mary Beth Schubert.
"There is a myth that we are a monopoly, but we view satellite as a competitor, online TV as a competitor. Why do we spend money getting new customers? To stay competitive," she explained.
But that doesn't explain why a similar amount of money is spent on retaining old customers. Upton has an explanation for that.
"The secret in marketing is that most people are trapped by inertia," he said. "You know there's a better offer up the block, but it's too much work to change."
For cell phones, new customers often get free phones. Existing customers who need or want to replace their phones often pay $200-$400 for the handset.
That's because cell phone companies lock customers into contracts, and once they attract a customer, they know they can recoup that money over the length of the contract.
Cable and satellite companies are taking advantage of that inertia, said Upton, as people need to research new providers, consider the investment in cable boxes and equipment, and the inconvenience of having someone on your roof or rewiring your home.
That said, the fact that existing customers see the promotion for the new customers deals is a problem.
"Loyal customers resent that. We all see the ads. If they could make the offer to people who don't know them, they would be happier," said Upton.
Companies are beginning to change their marketing techniques.
Comcast, for example, has added Triple Play Rewards "a customer appreciation program that offers our valuable three product customers an ongoing discount on current services and other rewards throughout the year," said Schubert.
And Health Clubs like Lifetime Fitness are also offering rewards to existing customers, moving away from the model of spending all the customer marketing dollars on attracting new customers.
"Those kinds of things are turning out to be better offers," said Upton, as companies consider the lifetime value of a customer.
WCCO-TV's Jason DeRusha Reports
