How can customer dissatisfaction lead to higher profits for the company? Companies have found out that ill-informed customers can be beneficial for them in terms of profits. Some companies have abused their customers intentionally, however others unwittingly exploited and took advantage of them. The Slippery slope: There are two major ways in which companies make profits by misleading their customers: * Offering the customers a broad variety of services or products, which can be very confusing, especially when there is lack of transparency.
Moreover, if even the information is complete for the customers, the companies can take advantages of consumers’ difficulties in predicting their needs. * Using fees and penalties for offsetting costs and discouraging undesirable customer behavior. These hostile strategies are common from banking and hotel industries to video stores and car rentals. Here particularly 3 industries will be discussed in details: cell phone industry, retail- banking industry and health club industry. Cell phone industry: When a customer signs up for a service plan, he chooses a certain pricing option with different ranges of minutes.
These plans can have various restrictions and allowances. However, these varied plans are not a result of customer-centric strategy. They are rather ways to take advantage of customer’s unawareness of which plan to choose, in the result of which customers can be penalized either for using too much time or for not using enough. However, such strategies cannot always guarantee profits for the company. They can increase the dissatisfaction among customers, the proof of which can be thousands of complaints that the U.
S. Federal Communications Commission gets annually.
These complaints should be worrisome to companies because customers can switch toward a transparent and friendly alternative. Retail-banking industry: Another sphere in which the company-centric strategy is used is retail-banking industry. For signing up in the checking accounts people are offered dozens of alternatives. If the customers cannot precisely predict their needs, they can have losses. Here are some examples of situations when the banks take advantage over the customers’ ignorance * The customers receive less interest when the consumers’ balances are above the minimum of the balance bucket and if the alances fall below the minimum level, they have to pay some penalties.
* Banks usually debit the consumers’ checks in the order of size, rather than in a chronological order, for the rest of the checks to bounce and to cause multiple overdrafts, consequently penalties. The company-centric strategy of banks led to the customers’ dissatisfaction and it became so pervasive that New York congresswoman Carolyn Maloney reintroduced the Consumer Overdraft Protection Fair Practices Act to forbid banks charging overdraft protection fees, unless the customers explicitly are informed about the service.
Health club industry: Health clubs tempt customers to sign long-term contracts, knowing that they will rarely visit the club. They realize that all their customers will not completely use the facility and therefore sell more memberships than they have the floor space to accommodate. Moreover, an investigation conducted by the New York City Council concluded that 41% of clubs didn’t explain their fees in writing, 81% didn’t give potential members a contract to read at home and 96% didn’t inform customers of all the ways they could legally cancel a contract.
In New Jersey a lot of complaints have brought litigation against almost two dozen health clubs that provided fraudulent contracts. Health clubs require to spend more time to attract new customers because their existing ones try to find a way out. Moreover they even encourage ways to retain customers with reward points for members who work out regularly. The warning signs: According to the research most of the executives are acknowledging the negative effects of the functions described above but they mention that those actions do not represent an intentional strategy.
The executives know that because of these negative practices the companies slid down the slippery slope and have difficulties for purchasing on the way back up thus becoming vulnerable for the competitors. For avoiding this practice the executives should ask themselves the questions mentioned bellow. * Are our most profitable customers those who have reasons to be dissatisfied with us? * Do we have rules we want customers to break because doing so generates profits? Do we make it difficult for customers to understand or abide by our rules, and do we actually help customers break them? * Do we depend on contracts to prevent customers from defecting? Climbing back into favor: Effective CEOs are able to recognize the opportunities and eliminate the negative effects which make the company vulnerable. The company centric strategies can cause loss of the target market and profitability in a long-term period, thus many companies prefer being economically sustainable.