Loyalty doesn’t always pay

An unbelievable offer lands in your inbox drawing attention to an incredible deal from your energy, streaming service or mobile phone provider.

It is a deal that proves too good to be true – not because the offer contains incorrect information, has a number of strings attached or comes from someone who wants to steal your credit card details.

The special offer is for new customers only. Long-term clients like you are locked out and instead slugged a “loyalty tax” for their ongoing support.

You would reasonably expect loyal customers of any business to be viewed as a valued commodity and recognised and rewarded for their continued patronage.

It holds true for loyal customers of a supermarket chain or café, who often access benefits or special offers in return for their allegiance.

Instead, staying true to a financial institution or any number of other service providers can burn a hole in your pocket.

The cost of being loyal

In what appears to be a case of “as a thank-you for being a loyal customer for so many years we will overcharge you”, long-term clients are increasingly paying higher fees and charges while new ones are being offered better deals.

A loyalty tax is said to have been applied when preferential rates, reduced annual fees or discounted monthly subscriptions are offered to new purchasers at the same time as denying long-term, loyal clients the same deals.

As wage growth fails to keep pace with the cost of living, the loyalty tax has become a hot topic around the dinner table – and in the office, too.

Loyalty taxes have long been associated with banks and other financial institutions. As a case in point, many mortgage lenders offer new customers lower home loan interest rates than those paid by existing and often long-term borrowers.

To achieve a better deal, existing lenders are forced to re-negotiate their rates with the lender or switch to a new financial institution.

It is not just mortgage lenders who “tax” loyal customers.

Streaming services providers regularly offer new customers “one month free”, “a special rate for the first 90 days” or “a 10-day free trial” while at the same time passing on price hikes to long-term, committed customers.

And if you fail to take steps to complete an upgrade, some mobile phone providers will let loyal customers languish on their old plans long after their contracts expire. It will mean you will be “taxed” by missing out on the perks that new customers receive including extra data, a lower monthly premium or even a new handset.

Perhaps even more anxiety-inducing is the concept of a loyalty tax being applied to long-term employees.

Employees leaving their jobs for other companies report that they end up with a salary increase of up to 10 per cent while those who remain with existing employees might – over time – end up with an increase of just 3 per cent.

Those who remain loyal to their existing employees are taxed for their commitment while those who move on are offered a better deal.

Ignorance is often key

If taxing loyalty is so rife, why do not more customers vote with their feet and switch providers when they discover they have been penalised for their long-term patronage rather than rewarded?

One reason is that the deals dished out to new customers are not always obvious to existing clients, who often fail to spot the loyalty penalty that exists in their relationship with a provider.

A financial institution, for example, is unlikely to go out of its way to tell long-term customers they are offering new customers a lower home loan interest rate, which would save existing customers thousands of dollars if also applied to them.

Another reason is most providers do not inform their loyal customers that they could save money by moving to a cheaper deal.

On top of that, many find changing suppliers a time-consuming chore or confusing task.

Complex pricing structures often make it hard for purchasers to compare quotes to see if one deal is better than another.

This is likely to be the case where it involves vulnerable people, such as the elderly, people with a disability and those who lack proficiency in the English language.

Regardless of the reasons why customers fail to ditch providers who penalise loyalty, those who are getting “ripped off” rather than rewarded will experience feelings ranging from outrage to annoyance.

Perhaps even worse, a once-loyal customer who does not take the time to shop around will potentially lose thousands of dollars over a lifetime.

Making the switch

Shopping around to change a provider, even if it takes an hour or two to complete a switch, is most likely an excellent investment in time.

It is a sad fact that the cheaper deals afforded to new customers end up being subsidised by a backbone of faithful clients who are being penalised for not being willing or able to switch.

If that is the reward for loyalty, then things needs to change. We need to research competitors, contact our providers and be offered a better deal – or switch.