FILE PHOTO: A woman holds a phone as she passes a Vodafone store in London, Britain May 16, 2017. REUTERS/Neil Hall/File Photo
Vodafone is one of three major mobile phone operators deemed to have the worst customer service, according to a survey by Which? © Reuters

Here’s an example of some everyday corporate behaviour that ought to raise more questions but doesn’t. It is from a survey that the consumer group, Which?, published last week about the way UK mobile phone companies treat their customers.

According to the 6,135 members that the organisation questioned, the biggest, richest operators such as Vodafone, EE and O2 were generally thought the very worst for service: they treated their subscribers almost like paying peons. Customer care was weaker and value for money inferior.

It was only when you got to the ranks of the smaller players that better service started to appear.

It is a familiar story across great swaths of the economy. Big powerful consumer organisations such as banks, insurers and energy utilities routinely treat customers with disdain. There’s even a name for one manifestation of the syndrome: the “loyalty penalty”. That’s when a company actively milks its loyal customers, relying on their inertia to push them on to elevated tariffs, while reinvesting some of the cash this throws off in offering non-customers more favourable introductory deals.

The scale is startling. In a complaint to the Competition and Markets Authority last autumn, the charity Citizens Advice estimated that customers in five markets — including telecoms, mortgages and savings — were paying a cumulative £4bn a year loyalty penalty, or £877 per household. When it comes to home insurance, companies entirely depend on the practice. Research from Citizens Advice found that insurers make literally all their profits from customers who have held policies for more than six years.

There are various excuses offered. It is said the public doesn’t mind paying a small “convenience tax” for the privilege of not shopping around and simply pressing the auto-renew button. Or that customers buy the notion that “teaser offers” help to encourage competition, thus ensuring that while they might pay a tidge more in the short term they enjoy some wider benefit in the end.

But this is so much corporatist twaddle. “Gouging” your most loyal customers is not reasonable. Indeed, the very fact that it routinely happens raises questions about what’s happening in the boardroom. Isn’t it more normal for companies to treat their existing customers decently? That is rationally how you win their loyalty and make sure they keep coming back to buy the product you sell.

To understand the loyalty penalty, you have to look at where it flourishes. Most of the affected markets are not very competitive. Of eight big consumer sectors examined last year by the Social Market Foundation think-tank, no fewer than six were estimated to be moderately or highly concentrated, with mobile and broadband the most oligopolistic. Banks and energy utilities also figured high up the list.

Then there are the things that limit customer agency: the formidable opacity of pricing, which makes comparison difficult, or the fiddly frictional factors, such as switching direct debits or having to port across data, that may discourage some customers from making the move. And lastly there’s human nature; most of us don’t want to spend all our time shopping around for all of the services we have to buy.

The biggest problem though is the management mentality that drives this conduct. Bosses impelled by powerful incentives to deliver short-term financial outcomes look at customers en masse less as people to be served than economic units with a “lifetime value” and an “average revenue” per head to be extracted. The objective is to maximise shareholders’ returns (and of course their own bonuses) at all costs.

When the average tenure of a chief executive at a listed UK company is just 4.8 years — lower than anywhere apart from Brazil, Russia or India — chieftains don’t tend to think about the long-term consequences so much.

Most of the “fixes” that have been touted for gouging involve external agents or technology. The CMA would like to see tougher regulation, and maybe a crackdown on anti-competitive mergers. Companies are introducing artificial intelligence robots that will, in return for a fee, ensure customers are always on the finest tariffs. But this just exposes a deeper unfairness: signing up those with the money and technological savvy while leaving the older and more vulnerable customers behind.

Opinion polls show that younger voters in particular have dwindling faith in the fairness of markets, believing that Britain’s system of distribution and exchange is rigged. The prime minister, Theresa May, talks openly about Britain’s “broken markets”.

Companies need to look in the mirror and see the unpleasant face these rip-offs present to the public. Boards should wake up and acknowledge their wider legal duty to protect “stakeholders”, including customers. For if they don’t do so, someone more hostile to the free market system surely will.

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