For businesses, the ultimate goal is not just gaining a large amount of customers, but a large amount of customers who are loyal. Last week I wrote about loyalty, and how I believe it should be rewarded. Unfortunately, in some cases customers are actually being punished for their loyalty, and there are many ways this can happen – including what I believe is a scam based on a common practice among many including utility, telecoms and card processing providers.
It is the long-term contract which locks you into a service agreement for over a year. Some businesses bombard customers with countless tariffs and package options, confusing them with hidden costs and added extras. Often, customers are offered the option to sign a long-term contract to lock-in to so called “low tariffs” to avoid price increases. These types of plans offer little freedom and flexibility, and are often designed to squeeze more money out of a confused customer.
One key example of this is utility companies and their gas and electricity tariffs. Too often, customers are automatically placed on a higher tariff than is necessary. When the bill comes through the letterbox, many customers are shocked by the high price but pay it because they cannot comprehend how their bills were calculated.
Thankfully, this is something the government is hoping to put a stop to. Last week, it was announced that energy companies will be limited to offering four core tariffs per fuel. They must also place their customers on the cheapest tariff, with the option to upgrade. It’s expected that these changes will take place by mid-2014.
But it’s not just energy companies that are pulling this trick – it seems it’s going on everywhere. At certain gyms for example, if you sign up to a 12 month contract and decide not to carry on after this, you must manually cancel within a notice period or you will be automatically locked into a new 12 month contract. Rather than opt-in, the onus is on you to opt-out of your contract or miss that window and get tied in for another year against your will.
Mobile phone companies are another example – often luring customers into 24 month contracts by offering the latest phone for free, while making them pay for hundreds of minutes, texts and data they will never get through. Much of the time, the cost of the contract over the two years ends up being much higher than buying the phone outright and choosing a pay-as-you-go plan.
Some more unscrupulous providers will automatically switch you onto a higher cost tariff on the back of a beautifully crafted marketing message, then lock you into a long contract with high cancellation fees. You only have to contact the Industry Regulators, Ombudsman or nowadays look on the Internet to find out this happens all too often. A quick search on “ABC Provider” on Google or TrustPilot review site will highlight the extent of this problem with some very colourful comments from disgruntled customers.
It is never in your interest as a customer to sign a supplier contract that goes beyond a year as it will be designed to prevent you from switching to a better provider. The best protection you will need from rising prices and poor service will be your ability to switch to a better provider. This threat will keep your current provider on their toes.