Loyalty is dead. Being a loyal customer will not get you the best rate. In fact, companies will go out of their way to raise prices on their most loyal customers.
Let’s take a look at a few scenarios.
Your contract with the cable company ends. Your cable company jacks up your price by 20% even if you are willing to sign another contract.
Your electricity plan has expired. You have been a loyal customer but your provider shows no love when it’s time to renew.
Your home and auto insurance companies have no problems increasing your premiums 10-20% even though you have made no claims on the policies. To make things worse, these companies will raise premiums by 30%, and then offer you a 5% loyalty discount.
A few years ago, I wanted to refinance my mortgage. I called my current mortgage company and asked for rates. The rates I got were high, so I decided to shop around by contacting a mortgage broker. The broker shopped around for me, and the best rate he found was offered by my mortgage company. I found it odd that my mortgage company wouldn’t offer that rate to me when I called.
The story applies to cell phone companies, home security companies and any other company you have been using for a long time.
Why does no one value loyalty anymore? Shouldn’t the loyal customers get the best deals? Sometimes, it feels like only new customers get good deals, and loyal customers are profit centers for big companies.
Why do companies think they can raise prices on their loyal customers and get away with it?
Price Optimization
Price optimization is the practice of raising prices based on the likelihood that loyal customers will not shop around with competitors for a better price. Companies use sophisticated systems to identify customers who are unlikely to shop around.
Price optimization algorithms can identify loyal customers for a price increase based on customers’ loyalty to other service providers, magazine subscriptions, browsing history, and the products they buy. This is in addition to other factors that go into rates such as age, gender, type of car and your neighborhood.
In 20 states price optimization for insurance rates is illegal but many companies employ the practice anyway. Insurance premiums are determined based on many factors such as your claim history, credit scores, your neighborhood and payment history. It is hard to prove that a particular company is discriminatory in its pricing practices.
What can you do to get the best rates?
Shop around every year. Whether it’s insurance, cable, internet or phone service, make it a point to get multiple offers before you sign up. It can be a time-consuming process to do research and compare offers. But the savings are worth it.
Prices are important but don’t overlook other factors such as reliability of service and good customer service. Some services and products are cheap for a reason, and you want to stay away from them.
Bottom Line
Companies no longer reward customers for being loyal. In fact, companies use pricing algorithms to identify customers who are unlikely to shop around for price increases. Shop around at least once a year to get the best rates. Keep in mind that price is important but so is good service.