Destroying Customer Value

My wife enjoyed here mobile phone sim-only subscription at Telfort (a KPN Subsidiary) for the past two years. She thought she had great value for money paying no more than around 13 euro/month for 300 minutes of call time and 100 text messages. (My wife really doesn’t care about having access to the web and her online social networks through her mobile). That was until a month or so ago she noticed that the monthly invoice increased with around 10 euro to 23 euro. Because of the holidays she didn’t spend a lot of time at it until today.

The Telfort approach, in my opinion, is the perfect example of a 1.0-inside-out-goods-dominant-customer-value-destructive approach. Allow me to explain:

What happened

After looking into the details of what happened it seemed that her two year subscription ended and was automatically renewed at the same conditions, without the discount offered two years ago. No questions asked, no renewal offer made, just extended the contract with a 75 % rate-increase.

She was also presented with a personalized message online that she was eligible for an offer of 17 euro/month, and that she could shop around for other offers. So she did. Only to find out that exactly the same package as she holds today is now being offered at approximately 8 euro/month, which is nearly 50 % lower than she paid before!

What she did

So, what she did was extend the contract for another 24 months at the rate of 8 euro/month. So Telfort gets to keep her, but still a lot of value has been destroyed, and here’s why:

• Telfort pi**ed-off my wife. She came upstairs to my home-office to tell me the story immediately.
• Knowing her, she will for sure tell at least her mother, her sister and some friends today (through the old-fashioned phone) how Telfort tried to steal something like 15 euro/month from her, by not telling her the options she had, when the contract expired. For the upcoming weeks she will tell the story wherever the topic of conversation allows it and for the upcoming year at least, it will resurface on several occasions like birthday parties etc etc. In two years from now, when her subscription ends, the story will resurface again.
• I’m as surprised as she is at the ignorance of Telfort, and to such an extent, that I’m even blogging about it.
• On top of that, my wife said to me: “if they would have just extended at the same rate I was paying before, I would not even have noticed anything, and I would still be a very happy Customer. Like she did before, she would even recommend Telfort to her friends, because of the low costs and easy to use online self-service to change your subscription etcetera..

So, let’s see what value has been destroyed:

1. Customer Lifetime Value: From the financial perspective at least around 5 euro/month (difference between the 13 and 8 euro/month), thus 120 euro for the two years of missed revenue. Which is in fact, all else remaining equal, 120 euro net margin thrown away by Telfort. On top of that, Telfort accrued additional costs for having to change the subscription status twice now.
2. Customer Referral Value: The likelihood of my wife recommending Telfort to anyone has dropped to the lowest level. My wife may not be an “influencer” online, but I know for sure that her telling this story will influence her friends and family, resulting in a destruction of:
3. Customer Network Value: If she would only NOT recommend Telfort that would be that, but now she has started spreading the word of her negative experience, resulting in an increased likelihood that people in her network, and now mine too, will no longer consider Telfort when renewing their subscriptions with other providers.
4. Value to the Customer: my wife’s perceived value of her subscription with Telfort has been significantly reduced, even although she now pays less than two months ago. She is angry and most of all disappointed that her trust in Telfort has been blamed by them. On top of that, she had to go through all the effort of finding this out, costing her not money, but valuable time and emotional distress.

So, when do companies realize that, while they may stand in their right when automatically extending contracts with conditions that favor only themselves, it is very likely that they will end up destroying a whole lot more value compared to a situation in which they would have helped the Customer keep, or even increase, her value-in-use.

A question for you:

Now maybe (just maybe) my wife was tagged as a “low value Customer” for which Telfort set-out the self-service strategy.. Now you tell me: do you think that was a smart strategy? What could/should Telfort have done differently?  I’m curious to hear your views on this.