Companies and Customers

Wittingly or not, many companies encourage customers to make bad purchases -- with the result that their profits depend on their most dissatisfied customers. Are you making the same mistake? ONE OF THE MOST INFLUENTIAL propositions in marketing is thatcustomer satisfaction begets loyalty, and loyalty begets profits. Why, then, do so many companies infuriate their customers by bindingthem with contracts, bleeding them with fees, confounding themwith fine print, and otherwise penalizing them for their business? Because, unfortunately, it pays.Companies have found that confused and illinformed customers, who often end up making poor purchasing decisions, can be highly profitable indeed. What follows is a cautionary tale. Some companies consciously and cynically exploit customers in this way. But in our conversations with dozens of executives in various industries, we found that themajority of firms that profit from their customers' confusion have unwittingly fallen into a trap.Without ever making a deliberate decision to do so, they have, over a period of years, taken greater advantage of their customers. In most cases, there's no defining moment when these companiescrossed the line. Rather, they found themselves on a slippery slope that led to an increasingly antagonistic strategy. Think of the cell phone service, banking, and credit card industries, each of which now demonstrably profits from customers who fail to understand or follow the rules about minute use, minimum balances, overdrafts, credit limits, or payment deadlines. Most of the companies in these industries started out with product and pricing strategies designed to provide value to a variety of customersegments, each with its own needs and price sensitivities. Yet today, many companies in these industries and others find that their transparent, customer-centric strategies for delivering value have evolved into opaque, company-centric strategies for extracting it. Although this approach may work for a...