When customers crack the whip

In the last one year, there have been several high-profile instances of the power that customers have come to command. The Arab Spring was not just the rising of the citizen against the state. It also signals the rise of the customer class and the ability to force companies to rethink their one-way relationship. When customers are angry, they do not fume in forums alone. They mobilise, launch strident campaigns and give companies a financial ‘black eye’

Netflix, the darling of the video rental business, believed they were helping their customers when they announced different price packages for streaming and actual delivery. Since profitability was taking a hit on physical deliveries, they forced their customers to choose between a lower ‘streaming only’ or ‘DVD only’ plan and a higher priced plan for customers who wanted both. Bad move. It set off a storm of protests and a loss of over 800,000 subscribers in a quarter. Their share price took a hit of over $11 billion. For business reasons, the company stayed with the plan. But the painful lessons will not be easily forgotten.

Bank of America notified its customers that a monthly $5 ‘service fee’ would be applicable on debit card transactions. A 22-year-old, Molly Katchpole set up an online petition as a response and it was signed by over 300,000 people in a matter of days. The bank backed down, though it maintains that the charge may be introduced sometime during the next year. Verizon is the latest casualty, after having announced a $2 convenience fee for payments made on the phone. It withdrew the notification in the face of strident customer protest.

What we are seeing here are not isolated instances. The very foundations of the customer- company relationship are being redefined. Advertising and PR used to be one-way streets, with companies able to control messages and contain dissent. But that is no longer possible. Customers are nailing companies to the wall and forcing them to act even when profitability takes a hit. Even small increases of $2- $5 are not forgiven when customers sense that the motive is profitability alone.

The entry of the customer into the pricing paradigm is likely to be very discomfiting. Companies cannot predict what the reaction to a price rise will be. There will be instances when a legitimate price increase will have to be deferred when companies want to retain market share. There was a time when companies could hope that their customers would stay as ‘silent partners’. They would leave individually when they were unhappy with the pricing or any other company policy. But the ability to influence a huge section of the customer base and create gaping holes in the cash flow is a sobering thought.

In India, where internet penetration is not anywhere as high as the US, customers have a different weapon – PIL ( Public Interest Litigation). A few months ago, telecom companies saw that the spike in text messages on festive days could be a huge money spinner. So, they simply doubled the cost for sending the messages for that day alone, netting a few hundred crores without any additional investment. Now, the High Court has stepped in and banned the practice. Either way, its the customers who are now having the last word.