Hacker News Reader

Comment by ABCLAW | Hacker News Reader

Financialization of everything and everything strikes again; we're now routinely applying quality of income measurements to determine book of business value - this means that increasing the current revenue take from recurring customers gives you a huge expected customer LTV bump prior to the increased churn. During this period, your numbers look great, so analysts pop up your ratings, which affords you access to cheaper capital - or alternately you can cash in and sell with a higher valuation multiple on your book.

In larger firms, you'd think the incentive would be to account for the drop-off caused by eroded goodwill, but functionally there's a middle level manager who is using this spike in numbers to jump to another role before the piper has to be paid by his replacement. Even if the company blows up, he can lateral safely with his new title.

View on HN

Well put. I think I saw this very dynamic in action with my car insurance this year. AAA tried to bump it 40% over the previous year with no claims in previous 5 years and no changes in major underlying parameters.

I think mileage may have gone up slightly but I'm still well below the norm.

Well, I guess AAA finally hit that "gap between your changes and the long term change in churn" for me. I dropped them for GEICO. But even before I left, I called them back and gave them a chance to match the GEICO quote. Their phone agent seemed to have no path in her script to consider or escalate this offer.

It sounds like we may need a catchy term for that gap you mentioned, the one where as a consumer I'm ready to jump but the alternatives (if any still exist) don't feel like they're worth the trouble. (I'm at that point with my cable internet provider.) Something like the "Recurry" or "Gamey Valley".

I worked in insurance that kind of increases do work (for the insurer), but we did it in the "boiling the frog slowly" way so there was no 40% trigger to wake you up.

We had little churn, if you stayed a customer after a slight rise, 90% stayed for the next slow rise.

The big pharma approach vs. the Martin Shkreli approach.

> It sounds like we may need a catchy term for that gap you mentioned, the one where as a consumer I'm ready to jump but the alternatives (if any still exist) don't feel like they're worth the trouble.

Captive customers? Rubes?

I call it a friction trap. Somethings gotta change and it’s certainly possible, but the friction is discouraging so you stay in the trap.

I call it "Loyalty Tax", Australia is terrible for it. Shop around every year as most of these brands are just identical white labeled policy underwritten by the same insurer. One trick I stumbled across last year was comparing prices on an aggregator (eg I used iSelect), and not buying. Then the agent called the next day and offer a 15% discount on my already cheaper price.

Same with electricity retailers. And if your existing company sees you are churning they will call in the cool off period to (a) entice you to change with a slightly better offer, and (b) find out the competitor's price. (I always give them a lower price to match than what I've been offered, because price matching enables the incumbent vendor to rip everyone off with bad list prices and private deals).

Be careful with iselect though, I think all their resellers use the same underwriter. I.E not real competitors.

Usenet subscriptions are like this too.

I like “loyalty tax” as a term

There are more cars on the road, cheaper gas prices means more miles driven per car, and we have fewer total accidents but the accidents we have are more expensive due to more expensive parts (i.e. bumpers these days are thousands of dollars due to sensors and cameras vs a few years ago). All combine to create ~10% rate increase year over year.

I know this sounds like conspiracy theory and I can't tell you if this is a trend or not but I've heard about it from several people. To add to your point, the inspector has more incentive and justifiable reason to scrap the car altogether (salvage title).

Then, the inspector can buy the salvage car for pennies on the dollar, fix it, and sell it with a salvage title.

I was with Admiral here in UK last year, then literally got a quote that was 100% higher for renewal, with no claims and no changes to the car or my coverage - Aviva gave me a lower price than the original one with Admiral was, and when I called them to ask if they will price match there was literally nothing they could do to match it. Insane.

All these companies are putting in a good amount of effort in "gaming" their clientele (for lack of a better word) - I wonder if they spent this brain cycles and time and other resources in actually improving their product, their support and generally treating their customers as human beings instead of Profit/Loss items, how much would it pay off in the long term.

All these gimmicks work short term, until someone figures it out (like this article). But if everyone is doing it then it wouldn't make a difference I guess.

We need a startup that uses the same market forces to slowly chip away from the capitalists.

i.e. a collective labour and legal assistance group that has economy of scale and/or ML that's cheap enough for everyone and uses its userbase to collectively punish companies that uses belligerent gamifications against its customers by automating bill payments and underpaying every single bill by a small amount that makes it financially penalizing to resort to collection agencies etc.

A consumer protection equivalent of unions + zombie botnets.

Nothing will change until people shop responsibly and not give their money to shitty companies. But for that to happen, we need reliable info on what places to avoid (how do I know if a particular place is owned by walmart, koch or whoever I want to avoid?).

Wikipedia?

Cooperatives is the best thing you will get. (A company owned by its clients).

But clients around generally clueless how to run businesses. So they either don't excersize their voting rights or they vote for incompetent managers.

One solution is cooperatives that have no operational assets and outsource everything. Then they still have bulk buying power.

Not to be flippant but that last option almost sounds like... a democratic government that regulates the market :)

I would think the board would setup independent quality of business monitoring commitee as a matter of course. Is that, like, a thing?

Sure but in the gap between your changes and the long term change in churn, a third party isn't going to be able to quantitatively monitor future churn rates before they happen.

The solution doesn't fix the problem, because the problem is that quality of business models just plain don't sample for customer goodwill - they measure sales metrics rather than feelings. So the sales metrics are gamed at the expense of the consumer feelings that create the metrics in the first place.

The dark side of data rears it's ugly head.

More like the dark side of stupid B-school ideas that should be discarded in the dustbin of history. The data is there if one cares to measure them and incentivize properly.

But why would they favor that? They are intelligently blind.

> they measure sales metrics rather than feelings

The term you're looking for is "brand". Measuring a brand's value is much more difficult than measuring sales, but it's not something new that no company do.

Net Promoter Score - https://en.wikipedia.org/wiki/Net_Promoter - is used to measure just this.

> Net Promoter or Net Promoter Score (NPS) is a management tool that can be used to gauge the loyalty of a firm's customer relationships

It asks one question:

> How likely is it that you would recommend our company/product/service to a friend or colleague?

The wikipedia article provides more details including criticism.

NPS doesn't measure future goodwill (or present goodwill for that matter). Rationally it may have some correlation, but it isn't a silver bullet even when understood and used properly (which it often isn't).

Instead you often get people trying to game their local NPS scores; not quite the same problem, but similar.

I believe any brand loyalty metric would be helpful if tracked consistently over time. If sales are climbing and loyalty is cratering it's time for the board to step in and ask questions.

Reply on news.ycombinator.com