Verizon Faceplants on $2 Fee

I was puzzled by Verizon’s attempt to sneak in a $2 “convenience fee” for customers who pay online or via phone.  Sure, it’s the end of the year and folks are distracted by the holidays, vacations and getting ready for 2012. But did they forget about social media or Bank of America’s recent $5/month debit card fee debacle?

I happen to think that Verizon is correct about charging a fee to discourage phone payments. Even if the payment system is completely automated, a certain percentage of those calls will end up failing over to a human operator and, at that point, the real costs start.

But charging to pay online where the incremental costs are, for all practical purposes, zero?  That doesn’t make a lot of sense to me.  So why’d they do this?

The “real housewives” philosophy of marketing.
Say or do something as outrageous as possible to bring attention to oneself.  Deal with the aftermath later.  And, if nobody notices (much), the $2/month multiplied by the millions who pay by these methods every month drops to the bottom line.  “Look at me” marketing works until it doesn’t and then you have to do something even more outrageous to get noticed.

Not a great strategy in a heavily regulated industry like telecommunications.

MBA math.  
Let’s say that just 1% of Verizon’s 91 million customers pay by these methods every month.  The $2 fee drops $1.8 million per month to the bottom line or $21.8 million annually.  Add in some churn reduction (customers mad about the fee will move over to autopay, which will always reduce churn) and perhaps the impact is doubled, even accounting for some customer cancellations.

This one fee can put $42-$43 million annually on the bottom line if my assumptions are even in the ballpark. While not a lot for Verizon, it’s easy money if you run the billing group and have been told to make the department (more of) a profit center.  The PR and customer care groups can deal with the backlash, right?

The problem with this MBA approach is that it generates “bad profits” as Fred Reichheld terms them.  The result is customer backlash, employee disloyalty and future ethical lapses.  Verizon may be headed for a Bank of America moment, as Erika Morphy refers to it in her Forbes blog.

Prediction?  Verizon comes off the fee and next time spends more time thinking about the blowback.


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