“The Lifetime Value of Customer” Concept

AA vintage sidecar (date unknown) at the Great...
Is the AA’s approach to customers old-fashioned?
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Well, we survived October unscathed (although it remains to be seen if Ireland will drag the whole of Europe down) and am now pretty well settled in England so will be able to write more frequently again.

An issue that has really been highlighted during my move is that so many companies here seem to have little or no understanding of “The Lifetime Value of Customer” concept. And I’m not just talking about SMEs here – in fact, many of them understand it far better than the big ones.

Let me illustrate this – apart from Newsweek, that troubled publication that continues to make it far more attractive to take out a new subscription each year than renew (see “Is There Value in a Repeat Customer”), an excellent example of this is the AA (Automobile Association) here – an organisation that is clearly confused by policies and customers.

Having been a member of its sister organisation in South Africa for some 20 years I joined the AA in England as soon as I was no longer using hire cars, and had bought my own. It’s just a piece of mind thing for me as I’ve only had a very few occasions to need their help in all the years. Well, as luck would have it, a few weeks after joining I did need them, so put in a call.

I won’t go into the details here – suffice it to say that I needed to upgrade my membership for the call to be answered (hadn’t read the small print carefully enough) so did so. Imagine my shock to find that I was not only charged for a new, higher-level membership plus a penalty for not having had the right level when making the call, but was given no credit for my previous membership fees. In other words, I was considerably worse off than somebody who was not a member at all when calling.

Assuming that somebody had pushed the wrong button, I wrote to the AA and – after having to request a response for a second time – got a rather offhand letter referring to “company policy”: that wonderful phrase used by so many people to hide behind. The fact that the policy is stupid seems to have escaped them.

The fact is that the AA, for the sake of around £40 will lose my future membership fees of probably some £3000: an extremely poor decision. They just do not understand the concept of “Lifetime Value.”

Mind you, they’re not alone – I’ve seen numerous examples of some of the world’s biggest companies throwing away, potentially, millions of dollars/pounds in future sales through mistreating their customers in the technology channel.

And yet the concept is so simple: attend to your customers, have sensible policies, take the opportunity of turning an unhappy customer into an advocate for your business and you will thrive. Take a short-sighted view at single transaction level and risk all those future earnings you might otherwise have had – not exactly a guarantee of long-term success, is it?

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7 responses to ““The Lifetime Value of Customer” Concept

  1. The AA would seem to belong to that group of companies for who business would be great if not for the pesky customers!

    • Yup, for many organisations it seems that customers are not their reason for existence so much as the things that get in the way of their carefully crafted policies and procedures.

      It’s when companies adopt that attitude you know they are doomed to long-term decline and insignificance – unless new leadership sets them straight before the rot is too deeply entrenched.

  2. Good to hear you’re more settled.
    It’s not only in the UK that these motoring organisations are in disarray.
    Here in the antipodes I’ve found they’re all separate and don’t give a hoot if you’ve been a member of a sister organisation basically for life.
    They treat you as fair game, a target for one email/mail marketing campaign after another. They’ve got into all sorts of things that are not really the knitting. I suspect that they’re sometimes staffed by the species “Sub-Homo HelpDeskus”. (To be fair help desk people are probably also trapped by failing management ideas…)
    In a world with a shallow and meaningless version of the web, more about instant gratification than anything useful, this might be part of the devolution!

    • Although one gets frustrated with the “Help Desk” and/or “Customer Service” people – both of which job descriptions tend to be oxymoronic – it’s hard to blame the people involved. The real culprits are the management who implement short-sighted policies and measurement of staff that do not take account of the needs of customers.

      Why so many large organisations are so really bad at what they do in these areas is something that would make for an interesting study, although I suspect it’s the “Peter Principle” hard at work, whereby those who have set the tone were promoted to the level of their own incompetence with the consequent results.

      • I seriously try to avoid contact with help desks. (Although some like the tax people in Australia can’t be avoided. They eliminate billions of dollars of production from the economy each year!)
        At the end of the day, as you say, it’s not the script monkeys caught up at the other end of the line. Neither is it really their immediate managers. Those managers have brains infected with bad ideas. Basic Mental Poisons. Like the idea that help desks have ever been any good at all.

  3. British companies should learn from one of their most successful businessmen ever, Sir Richard Branson. Ever since he started Virgin a long time ago he has, even when he couldn’t afford it, given perfect customer service. As he said “you upset one customer you lose ten”

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