Keeping Customers in a Crummy Economy

With recession expectations growing, some companies are taking extraordinary steps to hold on to customers

by David Bogoslaw

Even before the U.S. economic outlook darkened as the gravity of the financial crisis came into focus, companies started to get more aggressive in their attempts to hold onto old customers and attract new ones. Telephone companies' offers for two months of free service and reduced rates, discounted gym membership renewals, and generous gift cards from high-end department stores all underscore a pervasive fear on Main Street: With the uncertainty around the credit seize-up, consumers may be digging in for a long hibernation.

In upstate New York and other rural communities it serves, Frontier Communications (FTR) is even sending sales representatives door-to-door to persuade customers to lock in another year's worth of service at a discount rate. Those visits are effective where customers are often two-income families with busy lives, and many of those drop-ins are scheduled in advance, says Brigid Smith, a company spokeswoman. "We're sensitive to what this financial crisis means to them and we have to communicate with them," she says.

It's not only because of the gloomier economic picture that Frontier and other telephone companies are trying harder to hold onto customers. Ongoing attrition of users to more advanced technologies, like wireless, and poaching by cable companies have also called for more aggressive retention efforts. Verizon Communications (VZ) estimates an average loss of 8% to 9% of its customer landlines a year over the past few years, most of them going exclusively wireless or switching to service from a voice over IP (VOIP) or cable company, says spokesman Bill Kule. The barrage of competition from cable operators was a key impetus for Verizon's fiber-optic service, called FiOS, which bundles voice, high-speed Internet, and television service together into a triple-play package, which had been connected in more than 7 million households by the end of June.

Verizon has long been pitching promotional offers at "customers on the precipice of leaving," says Kule, but those became more urgent after the company saw bigger than expected departures of both broadband and voice customers during the second quarter. Since July, it's been offering all three services for the price of two to keep customers thinking about switching and to win back residential and small business customers who have already left, says Kule. Verizon is also urging customers to sign up for at least a one-year plan, hoping it will help them stick, he adds.

Sinking Economy…Cable Company Boost?

The tougher economy may have put cable service providers more squarely in the catbird seat, relieving some pressure to offer perks to customers. Their rationale: Subscribers to premium cable channels and pay-per-view events have arguably already chosen to cut their entertainment expenses and trade down—by staying home, says Christopher King, a telco analyst at Stifel Nicolaus (SF).

Long before the financial crisis tripped off new alarms last month, DirecTV (DTV) had initiated a program to retain customers, who sign up for either 18 months of standard service or two years for advanced service with features such as high-definition. "We're always looking at customers who are about to roll off their commitment, and there are groups we do go after with commitment-renewal efforts," using free digital video recorders or HD boxes as incentives, says Paul Guyardo, DirecTV's chief sales and marketing officer.