The Loyalty Penalty: Why Long-Term Customers Often Get the Short End of the Stick. Amazon, Citibank, Apple – they all call me a loyal customer. Years of patronage, really? Or just plain laziness? I suspect they know the truth. But does my loyalty, whether genuine or apathetic, earn me rewards? Absolutely not. Discover why the "loyalty" programs often hurt more than they help and how companies exploit long-term customers. Learn about the hidden costs of brand loyalty and how to avoid the loyalty penalty
Is brand loyalty a reward or a penalty? Marketers want you to believe sticking with one company pays off—through rewards programs, frequent flyer miles, and exclusive perks. But the truth is, this "loyalty" often leads to higher prices, fewer benefits, and sneaky fee increases. Discover the hidden costs of brand loyalty and learn why new customers often get better deals than long-term users
Are you paying the loyalty penalty? Many long-term customers unknowingly face higher prices and fewer perks with companies like Amazon, Apple, and your cable provider. Learn why your loyalty may be costing you more than you think – from creeping internet bills and rising insurance premiums to dwindling airline miles and stagnant savings rates. Discover how companies exploit "switching costs" and how to avoid overpaying for your services
Avoid the loyalty penalty! Notice how internet, cell phone, and car insurance costs creep up after initial offers expire? Credit card interest rates and bank savings rates often decline over time, and even airline miles become less valuable. Learn why long-term customers often get worse deals than new customers and how to avoid this common pricing tactic
Are you paying a loyalty penalty? New customers often get the best deals, while long-term customers face rising prices and fewer perks. Companies exploit switching costs and limited competition, leaving loyal customers paying more over time. Learn why your loyalty may not be rewarded and how to avoid the hidden costs of brand loyalty
Airline loyalty programs: are they worth it? Earning frequent flyer miles is easier than ever, but are points devalued and rules constantly changing? New customers often get better sign-up bonuses via credit cards, surpassing long-term flyers' accumulated points. High annual credit card fees (sometimes waived the first year) may negate the value of points and perks like lounge access. Is the cost justified? Discover if your airline loyalty is truly rewarding or a hidden penalty
Airline loyalty programs: Are you paying a loyalty penalty? Aviation expert Bill McGee highlights the imbalance: customer loyalty to airlines doesn't translate into reciprocal benefits. Saving miles becomes pointless if you can't redeem them when needed, questioning the value of airline loyalty programs. Are you getting the perks you deserve, or are you just paying more for the privilege of being a long-term customer?
Airline loyalty programs: are they worth it? Plane seat occupancy has soared from 50-60% in the 1980s to 80-90% today. This, coupled with airlines aggressively monetizing every seat through paid upgrades, means fewer complimentary upgrades for frequent flyers. While previously, status members enjoyed free upgrades, now even those without airline affiliation can easily purchase them. As Gary Leff of View from the Wing points out, the value of airline status has diminished, though it's not entirely worthless. The days of significant perks for loyal customers are dwindling, highlighting the potential "loyalty penalty" many face
Airline loyalty programs: Are they worth the cost? Frequent flyer miles and elite status might seem appealing, but blind loyalty can lead to missed savings. Prioritizing airline points over cheaper fares means paying more for flights. Is priority boarding truly worth an extra $300? Even premium customer service often falls short of expectations. Discover how loyalty programs can actually penalize you and learn to avoid the loyalty trap
Loyalty Penalties: How Companies Overcharge Long-Term Customers. See how sneaky price hikes impact self-storage, car insurance, streaming services, and even your phone bill. Learn why new customers often get better deals than loyal ones, and discover strategies to avoid the "loyalty penalty
Fighting high internet bills? Years of loyalty to my provider yielded no discounts until I finally had other options. This highlights the "loyalty penalty"—companies often reward new customers while long-term users pay more. Learn how to avoid overpaying for internet and other services
I am not the only person who is slightly obsessed with this customer disloyalty. A former coworker swaps her internet account between her, her husband’s, and other family members’ names every year so she can get the introductory rate again. Things once got so contentious for a friend of mine when he was trying to change internet providers that the customer service representative not-so-subtly threatened him that he knew where he lived.
When I call up Peter Fader, a marketing professor at Wharton who focuses on consumer loyalty and customer value, to talk about the loyalty penalty, he first explains that some of what I’m describing is not, in his mind, true loyalty. True loyalty is “your inclination to stay with something despite good reasons and good capabilities to switch to something else,” he says. “It’s not just the fact that you repeatedly do a thing, it’s the fact that you aren’t locked into doing it.” In other words, it’s when you can easily go grab a banana, but you’re sticking with oranges, or eating only Chiquita bananas despite a generic brand sitting right next to them. Or in a non-banana example, you know, like marriage.
What many consumers are facing is coerced loyalty — barriers that keep people from changing things up or trying out competitors.
The primary way companies rope people in is switching costs, which fall into three buckets, Fader explains. Some are financial — cancellation fees, lost airline miles. Others are procedural — there are a lot of tedious, time-consuming steps to switch from one mobile phone carrier to another. Finally, costs can be relationship-oriented — you know your dentist or hairstylist doesn’t do the best job, but you’ve been going there forever, or you buy yet another iPhone because you’re afraid of the dreaded green-text stigma.
“It really is the case that the company kind of knows that they have you hostage,” Fader says.
That’s why some companies make it so hard for you to cancel (and are fighting so hard against the Federal Trade Commission’s click-to-cancel rule that would make quitting easier). Many industries are dominated by a handful of players, so even if you want to leave, there are few places for you to go. One 2023 research paper found that loyalty programs resulted in higher prices for all consumers, because there’s less pressure for companies to compete with one another when people don’t shop around. Businesses know that people are often just too lazy to do the legwork to go elsewhere, so they don’t have to keep prices as low or offer discounts. In a March Bankrate survey, US residents said they’d held onto their checking accounts at banks and credit unions for an average of 19 years and savings accounts for an average of 17 years. These financial institutions don’t necessarily engender loyalty; they’re just sticky.
“Inertia is not loyalty,” says Americus Reed, a marketing professor at Wharton. All businesses want to avoid consumer “promiscuity,” but ideally, it’s because those consumers are actively choosing to stay. If the product or service doesn’t provide value or connect to someone’s identity, “that’s a very dangerous strategy,” he says. But it’s one that a fair number of companies engage in, especially if the focus is getting people in the door and not worrying about what happens next. “The worst thing that can happen to a bad product is good marketing,” he says.
Consumers do have agency in this. As much as all of our parents drilled into our heads as kids that we couldn’t be quitters, you can indeed quit, even if the company makes it annoying to do so. And hey, you may not even have to cut ties entirely — you may just have to threaten to. Businesses often offer discounts or lower prices if you say you might leave.
Matt Schulz, the author of “Ask Questions, Save Money, Make More,” points out that you can also ask politely. You’d be surprised how much success you may have by calling your credit card company to ask for a lower interest rate or seeing whether the gym won’t cut you a break on your monthly payment.
“The truth is that so many more things than people realize are negotiable, and a lot of times, it kind of comes down to doing the homework and knowing what the deals are for the new customer and asking for those,” he says. “It’s in the company’s interest to keep you around and keep you happy, because the longer you’re there, the more money they make of you.”
As to airlines, Leff says to just earn points on all the airlines you fly on — at some point, you’ll probably be able to use them. You can look into credit cards where the points are transferable to airlines, but you may just be better off getting a cash-back card and accepting that airline loyalty is a thing of the past.
The problem isn’t loyalty — it’s fake loyalty. Sometimes, companies themselves don’t know whether their customers like them or are trapped.
“Every now and again, they should have customer amnesty. Let’s find out who’s staying with us for the right reasons and who’s staying with us just because of switching costs,” Fader says.
Consumers might not even know whether they’re truly loyal, either. If switching costs were lowered, we could be in for some surprises. Fader notes that the mobile carriers fought tooth and nail against phone number portability, which allows people to keep their number even as they switch networks, but when it was finally allowed, most people didn’t make a jump. There are plenty of loyalty programs and products that work well and that consumers would probably pay more for if pushed, Fader adds. He points to LinkedIn Premium, which may not be worth it for most people but definitely is for super-users, and Amazon Prime, which does keep getting more expensive but at this point is “just the cost of being a human being,” he says.
It’s not that you should avoid loyalty programs altogether, but you’re going to want to read the fine print. Keep an eye on all your bills, and if they start to increase, figure out why. Try out new products and services, and if the new thing is better and cheaper, switch to it, even if it means an hour (and hopefully no more) on the phone. But it’s always important to remember that a company won’t love you back. It loves its shareholders. So go ahead and cheat if you want to.
Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.
Business Insider’s Discourse stories provide perspectives on the day’s most pressing issues, informed by analysis, reporting, and expertise.
Source: Original Article