Captive Customers – Reality or Fiction?

"Our 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 executive’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.

There are several reasons why customers can become captive. One reason is the result of customers’ 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 providers' mercy and prevents them from defecting to a competitor. Other reasons behind customer captivity include the following:

• Lack of quality competition – The quality of competitors is often so poor that despite the desire to defect, a lack of suitable alternatives inhibits customers’ ability to do so.
  
• Inertia – 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.
  
• High 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.
  
• Lack of 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.

The belief 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.

Captive 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.

Captive customers are reluctant customers. They tend to complain excessively and frequently abuse their vendors’ 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.

Additionally, captive customers tend to limit their purchase and usage of their vendors’ 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 ground.

If you 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.

Lior Arussy is the President of Strativity Group and the author of several books. His latest book is Passionate & Profitable: Why Customers Strategies Fail and 10 Steps to Do Them Right! (John Wiley & Sons, 2005). Read an excerpt of this book.

To learn more about customer strategies, sign up for Lior’s newsletter at www.StrativityGroup.com.

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