Why “New customer only” deals are bad for regular payment businesses.

I thought the effect of “New customer only” deals on long term business were well understood, but, in the last month, I’ve seen some examples which show that some companies still haven’t grasped their long term effects.

Its’ true that “new customer only” deals get people through the door (which every business needs), but for businesses that survive on regular payments (e.g. subscriptions or credit repayments), or want customers to continue to use them, it also has a crippling side effect. By doing “New customer only” deals you will annoy the existing customers who can’t get the best deal purely because of policies you’ve put in place and supported. This means you’ll see the number of subscriptions, repayments, or returing customers dry up and you may also alienate some customers to the extent they will refuse to deal with your brand in the future.

An example I’ve personally experienced is with my mortgage provider. They currently will offer new customers a 0.9% lower mortgage rate than they provide me with, which leaves me, as an existing customer of nearly a decade, with one of two choices;

1) Stay on the higher rate knowing I’m with a provider that is more worried about new customers than existing ones.

2) Move provider in the hope that the new provider has a better policy towards existing customers.

This means that for my mortgage provider they’re looking at two possible outcomes;

Outcome of 1) They have a disgruntled customer who is unlikely to recommend them or use them for further services.

Outcome of 2) Instead of the reduced income from offering me the lower rate they’ll see no income as I’ll be with a competitor.

Neither of which is good for their business.

So if you’re thinking of providing any service which requires regular payments in a market where you have competition (and that’s pretty much anything from subscription website services to loans), don’t alienate your existing customer base with “new customer only” deals because in the long run those customers who came through the door to take the offer up will, in all likelihood, go out it again when they get moved to your “existing customer” classification.

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  1. It’s the same with mobile/cell phone contracts. You have to switch if you want a free phone or a lower rate for “new customers”.
    But the long-long term effect is again something different: If all the providers do this, people just circulate among all the providers every year. I guess some of the mortgage providers changed from the competitor to your provider and the other way around.

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