Consumers have long been told that it pays to be faithful. If you stick with a company, the thinking goes, you'll eventually be rewarded with a discount, an upgrade, or a perk.
That's not always how things play out, unfortunately. More often than not, sticking with a company long-term actually means you wind up paying more. Business Insider has termed this phenomenon the "loyalty penalty," and says that there's a high chance you're paying it.
It's become normal for things to get more expensive over time. Whether it’s your grocery bill, your internet provider, or your cell phone plan, costs are going up everywhere. Companies know this, and use consumers' desire for a deal as a way to lure them in.
Don't Miss:
- The same firms that backed Uber, Venmo and eBay are investing in this pre-IPO company disrupting a $1.8T market — and you can too at just $2.90/share.
- Kevin O'Leary Loves ‘Wonderful Recurring Cash Flows' — These Small Industrial Assets Deliver Just That
Then, instead of continuing those cost-cutting deals that lured you in in the first place, the companies will raise their prices and cut the benefits. They rely on limited competition and the costs of making a big switch to keep you on the hook.
Airlines are the perfect example of this. According to Business Insider, airline loyalty perks have fallen off over the last several years. Sure, points may be easier to earn now, but their value has greatly diminished, and the rules surrounding their use are constantly changing.
“The bottom line is that in recent years, the loyalty has been flowing from the consumers to the airlines, but it hasn’t been flowing in the opposite direction,” American Economic Liberties Project Senior Fellow for Aviation and Travel William McGee told Business Insider. "It begs the question, what are you saving [points] for?”
Trending: ‘Scrolling To UBI' — Deloitte's #1 fastest-growing software company allows users to earn money on their phones. You can invest today for just $0.30/share.
Airlines aren't the only ones taking advantage of customers' loyalties, either. In the self-storage industry, companies have a name for the practice, existing customer rate increase, Slate reports. Phone service provider Verizon (NYSE:VZ) reportedly announced that many of its long-time customers, who had been receiving loyalty discounts, would no longer be eligible for those rates.
Peter Fader, a marketing professor at The Wharton School of the University of Pennsylvania, says that what many consumers are experiencing is a form of coerced loyalty. Companies knowingly establish barriers to keep consumers from trying out a competitor or switching up their plans.
“It really is the case that the company kind of knows that they have you hostage,” he told Business Insider.
This, he says, explains why so many companies are fighting so hard against the Federal Trade Commission's "click-to-cancel" rule that would make canceling services much easier.
See Also: Kevin O'Leary Says Real Estate's Been a Smart Bet for 200 Years — This Platform Lets Anyone Tap Into It
Despite the fact that the rule was blocked in court earlier this summer, there are still plenty of ways consumers can push back on the loyalty penalties.
Matt Schulz, chief consumer finance analyst at LendingTree and author of "Ask Questions, Save Money, Make More," suggests calling up a customer service representative and asking for a discount or perk.
"The truth is that so many more things than people realize are negotiable, and a lot of times, it kind of comes down to doing the homework and knowing what the deals are for the new customer and asking for those,” he told Business Insider. “It’s in the company’s interest to keep you around and keep you happy, because the longer you’re there, the more money they make of you.”
At the end of the day, not all loyalty programs are bad, and it simply isn't worth boycotting them wholesale. What's important, the outlet says, is reading the fine print and keeping an eye on costs over time. And if you find a better deal out there, take the leap– it may take an hour of your time to make the switch, but your wallet will thank you.
Read Next: An EA Co-Founder Shapes This VC Backed Marketplace—Now You Can Invest in Gaming's Next Big Platform
Image: Shutterstock
