Gibbs reviews reader feedback from his recent column on Sprint and ponders the costs of losing customers.
Following your feedback to my column “An open letter to Dan Hesse, Sprint CEO” I need to clear up something that apparently some of you didn’t get: I understand the economics of consumer cellular service; what I couldn’t get over was that it makes no sense for Sprint to let me go.
Before we delve into that issue let’s talk about feedback: A number of you (who all appear to be called “Anon” – which strikes me as particularly wussey) chastised me for a variety of things that ranged from comparing me to Glenn Beck (one of the most bizarre critiques I’ve ever received) to the brain damaged “crap reporting … how much did you get paid by the other carrier? Sprint rocks, and the EVO is the best phone on the market”.
Adding the online comments to the direct e-mail I received it appears about 60% of respondents agree with me that the cell phone service providers are the devil’s spawn and most likely have a special place in hell reserved for them, while about 40% disagreed. About half of the latter disagreed strongly enough to resort to name calling (my favorite was the forum response that started out calling me a moron) or simple rudeness. To this group all I can say is your mothers wear army boots.
So, back to what matters: The money. Here’s the deal: My phone broke and Sprint would give me a new (bottom end) cell phone for $155 if I signed up for a new two-year contract. Alternatively, they’d let me go to another carrier (where I could get a new phone for free by signing a two-year contract) if I paid $110 early termination fee. The best deal from my perspective is obvious and involves saying goodbye to Sprint.
After my column ran a very nice chap from the Sprint executive offices got in touch and we had a long conversation about the economics of cellular service and the nature of very large companies and what did he get stuck on? The early termination fee. His rationale was that it was the only way Sprint could recover the cost of acquiring me. What he was ignoring was the cost of replacing me.
From a number of reports it appears the cost of “hunting” (the marketing term for customer acquisition) in the cellular business is in the region of $120. Given that Sprint’s customer churn in the first quarter of 2010 was 2.15% and the company lost 75,000 customers it would appear that customer replacement will be in the realm of $9,000,000!
Now what’s the cost of “farming” existing customers? I’d bet a lot lower than the cost of acquiring new customers. But for Sprint there’s a bigger issue than just losing customers. Just search Google for negative user stories about Sprint; they lost customers and pissed them off at the same time.
Now I suppose that by me paying the $110 to get out of the account Sprint can treat the account as profitable but they have lost a customer in the process and what are the three key things you can do to improve your business? That’s right; increase profitability, reduce costs, or make your customers happy.
In Sprint’s case, the profit on my account was illusory, it will cost them to replace me, and they wound up with an unhappy ex-customer. And that doesn’t sound wrong headed to you?
Gibbs has had enough of cell phones in Ventura, Calif. Try contacting him at backspin@gibbs.com.
