Demon customers: why big companies let us run amok

A running theme in the worlds of deal seeking and points & miles accumulation is, Why do they keep letting us do this? You’ll often hear the word “stupid” thrown around, as in I can’t believe they’re stupid enough to offer this ridiculously good deal over and over again.

Companies aren’t stupid, but they may indeed be poorly managed, and bad management is what lets customers like us thrive. Here are a few causes of great deals for customers:

Focus on the wrong metrics: Those of you who haven’t spent time in corporate America may be surprised to find out that “profits” are surprisingly low on the priority list for many executives. They are instead concerned with things like revenue growth and customer acquisition. The thinking goes like this: we make $X per customer, so if we acquire another 100 customers, we’ll make an extra $100X per year. Or maybe the customers have an expected lifetime value of $Y, so the market value of the company will increase by $Y, so execs will be able to cash out those stock options sooner rather than later.

One flaw in this thinking lies in the fact that the most customers weren’t attracted to the business by too-good-to-be-true offers. If they were, you wouldn’t be making $X per customer or valuing them at $Y.

Improper incentives: Related to the wrong metrics problem, this occurs when you reward people for doing things which are detrimental to the business. Organizationally, this can happen at a high level, such as when you give somebody ownership of a credit card portfolio and judge them solely on the number of new accounts opened (this is my theory about what caused the Chase AARP debacle several years back), or at a low-level, such as when you give underpaid, undertrained front-line sales staff strict sales quotas. In either case, risk, profitability, and customer satisfaction metrics will be neglected with predictable results.

Bad systems: If you’re a mass market retailer or bank and you want to prevent people from doing something (for example, buying cash equivalents with your company’s gift cards), you’ll get much better results by having your systems prevent transactions instead of your employees. Management generally knows this, so why don’t they do it? First of all, systems changes are a pain in the butt. It takes time and money to make even simple changes and understandably managers aren’t inclined to fight these battles unless they have to. Secondly, even if there is a system in place the system will often have loopholes and overrides put in place to allow flexibility. No system is 100% secure–this is true both in computer security as well as in retail processes.

Bad training: Have you ever met an employee who didn’t know how to ring up a Vanilla Reload or any other prepaid product? Have you ever met an employee who wasn’t sure whether or not they were allowed to let you use a credit card to buy prepaids?

Unmotivated front-line employees: If you don’t have good systems in place, you need to rely on your employees to look out for you. In theory, that’s somewhat difficult but achievable. In practice, here’s the value proposition: “We’re going to offer you $8 per hour, no job security, lousy hours, and little hope for advancement. Oh, and also we want you take ownership of complex problems and high-value transactions.” What could possibly go wrong?

Slow flow of information: Bad management tends to slow the flow of information, since employees may learn that saying the “wrong” things or passing along the “wrong” results will get them in trouble. Or maybe they’ve learned the company is big and inflexible enough that speaking up won’t change a darn thing. Customers taking advantage of us? Not my problem, I’m not getting involved!

Desperation: Sometimes a company that’s doing poorly will offer amazing deals to get some traffic through the door, because having your marketing department think up creative way to give stuff away for free is much easier than managing the company well and figuring out how to reform a badly outdated business model. I’m looking at you, Sears.

Corporate dysfunction–make it work for you!