Captive Customers - Reality or Fiction?
By Lior Arussy
customers rarely leave us,” I was recently told by an executive.
“I understand all about customer strategy, but it is not
relevant for my company. The
moment we get them, they stay,” he added with great conviction.
For a brief moment this executiveâ€™s argument sounded like
customer heaven for his company had identified a method for retaining
customers with minimal investment.
Reality was quite different.
This executive along with others in a variety of industries
posit that minimal investment, if any, is required to keep their
customers from defecting. This belief is augmented by the concept of
“captive customers” which is the notion that customers are held
captive by the companies with whom they business as evidenced by
extremely low churn rates. These companies mistakenly equate retention
with satisfaction. “Prisoners
cannot leave the prison so why bother making their stay more
pleasant,” the thinking goes.
several reasons why customers can become captive.
One reason is the result of customersâ€™ delight from an
amazing customer experience - a total value proposition that is so
attractive that they will have no reason to shop for competing
products and services. The
second reason bears no semblance to the first.
Customers are often held captive as a result of monopolistic
industries and unfriendly business regulations.
The utility industry is a classic example of a monopolistic
industry where the absence of competition leaves customers at their
providersâ€™ mercy and prevents them from defecting to a competitor.
Other reasons behind customer captivity include the following:
quality competition - The quality of competitors is often so
poor that despite the desire to defect, a lack of suitable
alternatives inhibits customersâ€™ ability to do so.
- After years of poor customer service, customers have simply
gotten used to the idea that nothing will change, leaving them
with no will to fight their company. In some cases, customers
perceive the product or service as a commodity and lack the desire
to take the time and effort to search for better alternatives.
barriers to defection - Until the passage of legislation
allowing consumers to leave their mobile carriers with their
mobile numbers, defecting from mobile carriers was extremely
challenging. Customers preferred to remain in a state of permanent
dissatisfaction with their carriers so long as they kept their
mobile numbers rather than defect and update their family, friends
and colleagues on their number.
knowledge - historically a significant reason, the
proliferation of the internet and the speed of information flow is
leading increasingly educated consumers to seek other alternatives
in growing numbers.
that customers are captive frequently leads companies to mistreat the
very people who keep them in business. These companies operate under
the mistaken belief that mistreating customers is free. Mistreating
captive customers comes with a price - a hefty price.
customers view the products and services that are provided by their
vendors as commodities. They do not associate significant value with
these products and services and expect prices to reflect this
perception. If your company faces a similar situation, welcome to
“commodity hell.” In
“commodity hell” there
is no mercy from price reduction. Regardless of the latest discount or
free month of service, you will never satisfy your customers. Your
margins will decline drastically forcing you to cut costs. Your
customers will be dissatisfied and dissatisfied customers are costly
- very costly.
customers are reluctant customers.
They tend to complain excessively and frequently abuse their
vendorsâ€™ employees. Each complaint comes with a price. As the length
of the call from an irate customer increases, so does the cost.
Transferring the customer to a manager or supervisor increases
that cost. Calling to complain about the inability of the company to
resolve the problem on the first, second or third call, increases the
cost. Customers on hold while other customers complain further
increases that cost. Captive customers utilize a disproportionate
amount of resources and companies cannot generally operate effectively
and profitably under these conditions.
captive customers tend to limit their purchase and usage of their
vendorsâ€™ products and services. They do not associate value with
them. Cross selling and up selling opportunities will vanish. Growth
prospects will dissipate. The destiny of new products, services and
features will often be doomed to failure even before they get off the
consider some or all of your customers captive - change.
Inertia is not a strategy for long term success.
Most importantly, captive customers are costly both for the low
price they pay for your products and for the products that they choose
not to purchase. The only
way to treat captive customers is to free them from their captivity.
Design and deliver appealing experiences that will surprise and
delight them. Never take your customers for granted. Monopolies will
crumble. Legislation will pass. Do
not wait for your captive customers to find better value elsewhere.
Taking your partner for granted in your personal life is a bad
idea. I posit that it is a
costly endeavor and a bad idea in commercial life.
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