Terry Vavra's Blog

Buying Back Customers

Posted on 03. Mar, 2010 by tvavra in Customer Recognition

I’ve often said that businesspeople regularly fail to appreciate customers until they lose them.  Suggest spending money on a customer retention program and businesspeople will find every reason not to.  Yet, when a customer defects, they’ll eagerly throw money at the defecting customer in an attempt to win them back – even when they may have no idea just how valuable the customer really was.  Thus the old adage, “you don’t know what you’ve got until you lose it…” confirmed.

Rigid Enforcement of Loyalty Criteria

Last year I blogged about the consequences of unwisely demoting customers (Stop Demoting Customers! – 4/23/2009).  Harrah’s was the subject of my criticism having demoted my wife and me because our casino play in 2008 didn’t live up to their targets (set during better economic times).  Now, Harrah’s is once again my focus.  This time for having spent lots of money to win us back, after having demoted us!

Atlantic City casinos (and others around the country) will often elevate a player to a higher reward status in their Players’ Club (loyalty program) based on the customer’s ability to show preferred status at a competing casino.  In the case of my wife and me, entering 2009 Harrah’s demoted us, but another Atlantic City property didn’t retaining us instead at their “preferred” level.  So you can perhaps anticipate the ironic situation I’m about to describe.  Recently we decided to again play at Harrah’s.  We showed the Total Rewards agent our higher status card at the competing casino and asked if they’d be willing to elevate us to their Diamond Status (the level from which they had previously demoted us).  Elevate us?  Absolutely!  But that wasn’t all.  As if to prove how wrong they’d been in previously demoting us, they also gave us $200 in playable cash and $50 in food credits!

Foolish Expenditures to Win Back Previously Loyal Customers

Now in my previous blog, I observed that Diamond-colored plastic doesn’t cost Harrah’s any more than Platinum-colored plastic.  Had Harrah’s not demoted Linda and me, we would have continued to play at their casinos throughout 2009.  But instead, in an apparent uncalculating move, they took away our preferred status and by doing so encouraged us to concentrate our play at a more beneficent (and strategically thinking) casino.  But then they spent $250 to get us back!  Which leads me to ask, “Which is the action with the highest return?”  It seems obvious that investing in your current customers (even if it means selectively modifying tier-criteria to retain customers who have proven to be profitable over a period of time) is smarter than spending money to later “buy them back”.  So, the next time you’re considering how to maintain a healthy customerbase, I encourage you to first consider what actions you should take to retain the profitable customers you already have.  Override their possible, scripted demotion, to maintain their long-term loyalty.  If you thoughtlessly demote them, you likely send them to your competitors and you commit yourself to the possibility of buying them back in the future!

The gaming industry is by no means unique in promulgating this “demotion/win back cycle”.  The cable TV industry, cell phone category and many other industries are rife with similar, thoughtless and expensive cycles.

Tags: appreciating customers, Customer win-back