Forget Loyalty Blog Discussion

Former_MSE_Andrea

Click reply to discuss Martin's blog here

charlie12

I know some people who are like that, they prefer to stick to who they are used to. However what's more worrying is the fact that they refuse to believe that there are cheaper alternatives that offer the same/better service. Nothing I say or do will change their minds. In fact I prefer to keep quiet - if they switch and something goes wrong, the blame gets put on me and I have to spend my time helping them resolve the problem.

Nowadays I just point them to this website, but the rest is up to them

I often get a sense of frustration though, especially when people I know (who are comfortably well off with no debts) complain of high prices and yet waste money away by being loyal to "default" companies. It's almost like they are happy, or proud(!) to be a customer of a company yet are being screwed every day by them!

A common annoyance is during conversations where the subject of call costs come up - quotes like "oh! it's only 10p a minute" (to a call centre) , or "I love texting cos it's cheap - only 12p". It's this blind ignorance that makes my blood boil.

It does however bring a smug smile to my face from time to time

Rafter

Problem is that this blind customer loyalty funds moneysaving!

If customers weren't loyal at all, then everyone would have to pay the same basic low price.

Nationwide (which is owned by its members and therefore not full of fat cats or greedy shareholders) tried to do just that a few years ago with one low mortgage rate for all. It lost market share rapidly!

My personal view is that introductory deals should not be so loss leading as to rely on blind customer loyalty once the promotion ends.

The fact is though, that you do have to pay a bit more for quality service, uk call centres, branch banking but it is difficult to put a price on this.

Similarly a 5% loan looks like great value, except you are going to get the hard sell for insurance, total inflexibility and a hefty repayment penalty and may be better off with a 6.5% loan without these.

Credit cards are a real problem though because the pricing is so messed up:

Take a card with a 15% APR paying 1% cashback

Customer A buys 2 items at £1000 each (total £2000) in early January and pays them off in two equal installments in February and March.

Customer B buys 1 Item in January and 1 item in february at £1000 each and pays them off in February and March by the due date, avoiding interest.


Customer A pays £59 in interest for his behaviour but gets £20 cashback.

Customer B pays nothing in interest and gets £20 cashback

The bank earns 1% from the retailer in fees (which cover its cashback costs).
It earns £59 in interest from Customer A
It pays £16 in interest on the money it has borrowed from its savers to fund interest free credit and lending to customer A & B.

It pays £16 in costs on the two customers to cover issuing statements, cards, fraud costs, computer systems, payment processing, call centre staff etc.

Still with me?

So the banks profit and loss account looks like this....


.........................Customer A........Customer B............Total

Interest received..........59...................0....................59

Interest paid..............(10).................(6).................(16)

Retailer fees................20..................20...................40

Cashback paid............(20)................(20)................(40)

Costs.........................(8).................(8)................(16)

Profit/(Loss)................41................(14)..................27


So the smart moneysaver who pays their bill in full loses the bank £14 and the silly loyal customer who uses the credit and pays interest makes £41 in profit.

For every 3 smart customers the bank needs 1 loyal interest paying customer to make any profit at all.

And this example is before any stoozing or taking advantage of 0% offers.

It is also the reason why loyalty schemes are being cut, BT fees are being introduced and why if you pay your bill in full you won't get rewarded for your loyalty, because the bank loses money on you month after month.

Question is, as customer B, would you sacrifice your cashback so the bank can make a small return from you and hope that the bank will reduce the interest rate for the loyal customer A? Or do you think they will carry on making as much profit as possible so you might as well keep screwing them and shopping around?

Nationwide tried being fair to all their customers, but new customers were put off by the lack of a juicy deal and existing customers could still go elsewhere and get a good introductory deal.

I'm happy to be loyal to my bank, FirstDirect, because they offer me a good deal, great customer service and I know they are probably making a fair profit from me. I could save a few £100 a year by switching my mortgage, current account and credit cards actively but know I'll get worse service.

I also know that the companies making these 'best' offers have to be relying on customer inertia to fund the deal, so some poor mug like customer A is going to end up paying a lot more in the long term.

And finally, my solution. Better regulation! Paying £100 for a payment protection policy worth £10 is extortion. Paying 20% on a credit card when a reasonable interest rate is 10% is profiteering. Earning £100's of stoozed profit on multiple credit card offers is opportunism which has to be paid for by other customers. Paying a fair price for financial products, not being missold, not being lured into debt and making it easy to switch without encouraging it through overgenerous offers that have to be paid for by existing customers has to be the right thing.

R.

charlie12

I totally agree with you, Rafter. I myself am "loyal" to certain companies as they provide an excellent service at a fair price. Yes, I can go cheaper but I will be sacrificing quality of service. Examples include my broadband provider who charges £35 a month for a 2MB service but offers an impeccable quality of service. Or Equipower who is around £50/year more expensive than npower but offers far better service. I'm happy to pay for quality service, as long as it is priced fairly.

One thing I want to point out is that I had to switch from "default" providers to get to this stage. "Default" providers being companies like BT, British Gas, BT Broadband. These are the providers that many people are with from the start. They are the providers who immediately come to mind, e.g when you think of Phone providers BT comes to mind first. In your situation with First Direct, most people would be with one of the major high street banks at first, and then would have to switch later on - at a guess I'd say that your first bank account was not with First Direct(?) IMO most default providers can often be bettered in both service and pricing. This is what I was referring to in my original post.

However saying that, there are also other companies who I'm with solely because they are cheap, where service quality is not particularly great. This is mainly because customer support/service is not that necessary, and/or there are simple alternatives readily available if necessary. Example: 18866.com - cheap calls, some of the cheapest around, however customer service is email based and not particularly great. I use them whenever I can, if it doesn't work for any reason I can simply switch to another provider temporarily.

But yes, we savvy moneysavers should be grateful that there are many many others out there who make more profit for companies, who essentially subsidise us

RichyRich

Rafter wrote:

Paying £100 for a payment protection policy worth £10 is extortion. Paying 20% on a credit card when a reasonable interest rate is 10% is profiteering. Earning £100's of stoozed profit on multiple credit card offers is opportunism which has to be paid for by other customers.R.

Overcharging for insurance and interest is extortion but stoozing is mere opportunism? I appreciate high interest and insurance premiums are unwanted but you always have the right to shop around.

Don't get me wrong, I like stoozing and finding bargains/misprices/saving money. But it's only prudent customer behaviour. Stoozing is "opportunism" - yes. But if someone's willing to pay for a £100 insurance policy that costs £10 to underwrite, who can blame the insurers for selling at such a price?

"Extortion" is taking money by force. Nobody forces anybody to take PPI and it's illegal to force someone to take it out with their mortgage/loan providor.