Insight of the Week: Think Twice About Your Latest Offer in a Crowded Marketplace

When cellphone customers go over their allotted monthly minutes, send too many text messages, or eat up too much data, it’s not uncommon for their carrier to contact them, encouraging them to switch up to a higher level service plan—and a more expensive one. But new research from the Wharton School and Columbia Business School indicates that these offers may actually do more harm than good, leading some customers to switch to another carrier altogether.

The verdict? In a crowded marketplace, be careful what you say to your customers.

This week’s insight: When you’re selling a product or service in a market where customers can easily switch to a competitor, sometimes the best strategy is to simply let your customers come to you, rather than vice versa.
Research study: “The perils of proactive churn prevention using plan recommendations: Evidence from a field experiment.” by Eva Ascarza, Raghuram Iyengar, and Martin Schleicher, Journal of Marketing Research (forthcoming),
What they did: The research team examined the behavior of 65,000 South American customers who had cellphone plans from major providers when those providers contacted them with offers to upgrade to a new plan.
What they found: In a busy marketplace like cellphone services, contacting customers and urging them to switch to a new plan often backfired. The research team found that companies that contacted customers first saw the rate of customers leaving and seeking service elsewhere rise from 6 percent to 10 percent.
Researchers believe the increase may be due to the fact that, by contacting customers and urging them to upgrade, companies are reminding them of their monthly spending and thus, indirectly, encouraging them to seek out a cheaper plan. This is particularly true of customers who more frequently went over their plan limits, but less true of customers who had fewer overages.
In short, in a busy and competitive marketplace where customers can easily switch between providers—and where there are few remaining new customers to be had—it may be best to simply leave your existing customer base in peace.

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