To Improve Customer Retention, Make Products Free?

To increase its customer retention, Sprint announced that it’s discounting fees on their pay-as-you-go service. In the Fox Business article Sprint Looks to Boost Customer Retention With Lower repaid Bills, it’s noted how Sprint’s new Boost service “is $5 less than the starting price of the brand’s current lowest-priced plans.”

According to the article, “Sprint has had some success drawing customers to its Boost brand through a program that lets users lower their bills by $5 per month following every six on-time payments. Sprint’s prepaid customer rolls grew by 20% last year to 14.8 million, while its contract business shrunk.” In business school, that’s referred to as cannibalizing yourself. But I digress…

The interesting point here is that the company is trying to increase retention with a price drop (and also by pulling customers away from its other products).

Companies who truly understand customer retention strategies understand that a price drop is the absolute LAST thing you should ever have to do. This price drop retention strategy is for companies who have allowed customers to view them as a commodity, and some companies are thereby viewing themselves as commodities.

In virtually any industry, customers will stick with companies for many reasons, not just price. And those other reasons (product quality, wait times, customer service, responsiveness, relationships with the employees, affinity for the company, making customers’ lives easier/better/more hassle free, and on and on and on) provide the value piece that plays into decision-making far more in many customers’ eyes than price.

Before you do your next price drop to increase retention…before you start heading in the direction of free products…before you willingly cut your own profits in an effort to become more prosperous (if that even remotely makes sense), find out the specific factors that drive loyalty for specific customers, and do the best job possible of incorporating those into a 1-to-1 retention strategy.

Avoid the easy and (for the long-term) ineffective path to customer retention – avoid the price drop.

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Posted on in Business Advice, World of Customer Service

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