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Know your true value as a consumer
By Linda Stern |
March 29, 2011, Tuesday
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Print Edition
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CONSUMERS may be worth a lot more than they realize.
You may feel worthless if you have just received shabby treatment from a retailer, bank or utility. But a look at how much you have been traded for in a Wall Street deal might make you feel more valuable - though perhaps not much happier.
Take last week's announcement that AT&T Inc plans to buy T-Mobile for US$39 billion to create the largest wireless company in the United States. Work out that sum on a per-customer basis and it comes out to US$1,147 each.
And in the cable world, with its hefty bills for television, Internet and phone service, you are worth a lot more. Last year, when Cablevision Systems Corp bought Bresnan Communications, it paid US$4,700 per cable customer, an amount that deal critics said was too high, and above the US$3,000 to US$4,000 range more typical in recent cable deals.
These are figures worth remembering the next time you get offered a one-year deal that may save you a couple of hundred bucks to switch cable or satellite provider.
Banks, brokers, airlines, restaurants, social networking sites and more all have a pretty detailed idea of what every new consumer is worth. Their figures inform large-scale acquisitions, and also put a ceiling on the amount of marketing they'll put behind winning a new name or user.
Of course, bankers would say that companies don't just pay for the customers when they do a deal but for lots of other things - including the brand name, the staff, and the tangible parts of the company, such as the machinery in a factory. But none of that would matter without the customers who buy a company's products.
"They do monetize us," said Sally Greenberg, executive director of the National Consumers League. "We're a bunch of numbers with dollar signs in front of us." Indeed, add it all together and a consumer with a solid income and a good credit rating could easily be worth tens of thousands of dollars to corporate America. Only problem - you can't go to an exchange and sell your consumer self - at least not yet.
Do the math
The issue now is not that companies analyze how much money they make from consumers, it's that companies are getting much better at doing the math. So firms that used to simply aggregate how much an average customer was worth now know they can afford to spend US$150 to win over Customer A and only US$25 for customer B. And customer C, who might be the most loyal customer of all, may not get any direct offers at all.
A loyal customer may be worth more in an acquisition, but won't garner great direct marketing deals because their behavior is already set. This is worth keeping in mind - it may not seem right or fair but disloyalty can pay as companies will often offer enticements to win back a customer they lost to a rival, or sweeten the deal for a customer who is threatening to take his accounts elsewhere.
The airlines have excelled for some time at appraising each individual customer. "Individual traveler tracking programs and electronic distribution direct to mobile phones and desktops is what really allows them to create individual customer values," said Robert Mann, an airline industry consultant.
When Air Canada spun out its Aeroplan frequent flyer program as a separate company in 2006, it pegged each participant as worth about US$3,000, a metric still used as a rough guide in the industry, he said.
Hard numbers are hard to come by, but Mann says airlines value corporate flyers at a higher level than individual flyers, and know which passengers always go for the discounted fares. "If I'm a guy who always flies first class, I will never see any of those special offers under direct distribution," he says. "The airlines will offer only the prices and terms they feel extract the greatest revenue from that customer."
Consumer advocates say consumers can do more to make sure they benefit from the new marketplace math. They can negotiate the best cable or phone or credit card deal now, and then go back to the bargaining table in a year and renegotiate.
"Understand that you are a commodity that people want," says Ira Rheingold, executive director of the National Association of Consumer Advocates. "You have something companies want and you should use it to shop around and get the best deal for yourself."
You may feel worthless if you have just received shabby treatment from a retailer, bank or utility. But a look at how much you have been traded for in a Wall Street deal might make you feel more valuable - though perhaps not much happier.
Take last week's announcement that AT&T Inc plans to buy T-Mobile for US$39 billion to create the largest wireless company in the United States. Work out that sum on a per-customer basis and it comes out to US$1,147 each.
And in the cable world, with its hefty bills for television, Internet and phone service, you are worth a lot more. Last year, when Cablevision Systems Corp bought Bresnan Communications, it paid US$4,700 per cable customer, an amount that deal critics said was too high, and above the US$3,000 to US$4,000 range more typical in recent cable deals.
These are figures worth remembering the next time you get offered a one-year deal that may save you a couple of hundred bucks to switch cable or satellite provider.
Banks, brokers, airlines, restaurants, social networking sites and more all have a pretty detailed idea of what every new consumer is worth. Their figures inform large-scale acquisitions, and also put a ceiling on the amount of marketing they'll put behind winning a new name or user.
Of course, bankers would say that companies don't just pay for the customers when they do a deal but for lots of other things - including the brand name, the staff, and the tangible parts of the company, such as the machinery in a factory. But none of that would matter without the customers who buy a company's products.
"They do monetize us," said Sally Greenberg, executive director of the National Consumers League. "We're a bunch of numbers with dollar signs in front of us." Indeed, add it all together and a consumer with a solid income and a good credit rating could easily be worth tens of thousands of dollars to corporate America. Only problem - you can't go to an exchange and sell your consumer self - at least not yet.
Do the math
The issue now is not that companies analyze how much money they make from consumers, it's that companies are getting much better at doing the math. So firms that used to simply aggregate how much an average customer was worth now know they can afford to spend US$150 to win over Customer A and only US$25 for customer B. And customer C, who might be the most loyal customer of all, may not get any direct offers at all.
A loyal customer may be worth more in an acquisition, but won't garner great direct marketing deals because their behavior is already set. This is worth keeping in mind - it may not seem right or fair but disloyalty can pay as companies will often offer enticements to win back a customer they lost to a rival, or sweeten the deal for a customer who is threatening to take his accounts elsewhere.
The airlines have excelled for some time at appraising each individual customer. "Individual traveler tracking programs and electronic distribution direct to mobile phones and desktops is what really allows them to create individual customer values," said Robert Mann, an airline industry consultant.
When Air Canada spun out its Aeroplan frequent flyer program as a separate company in 2006, it pegged each participant as worth about US$3,000, a metric still used as a rough guide in the industry, he said.
Hard numbers are hard to come by, but Mann says airlines value corporate flyers at a higher level than individual flyers, and know which passengers always go for the discounted fares. "If I'm a guy who always flies first class, I will never see any of those special offers under direct distribution," he says. "The airlines will offer only the prices and terms they feel extract the greatest revenue from that customer."
Consumer advocates say consumers can do more to make sure they benefit from the new marketplace math. They can negotiate the best cable or phone or credit card deal now, and then go back to the bargaining table in a year and renegotiate.
"Understand that you are a commodity that people want," says Ira Rheingold, executive director of the National Association of Consumer Advocates. "You have something companies want and you should use it to shop around and get the best deal for yourself."
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