The shareholder mandate is a powerful force that can cost you enormously as a consumer if you're not careful.
I got a call from my cellphone provider in early November. A helpful agent asked if I wanted her to look into lowering my bill. Because I use my phone a lot for work and because I travel a lot, my bill is pretty high. So naturally I said yes. She went through my history and suggested a new plan that she said, based on my history, would save me money. Being reasonably savvy about marketing, I made her run through the changes, then asked point-blank if she was sure I'd be saving as much as she said, as long as my usage patterns didn't change. She said yes. So I made the change, and accepted the condition -- which is that my contract would be extended by a year and a half.
My next bill came in 50 per cent higher than the previous two. Unhappy, I complained. The first agent I spoke to passed me on to a higher-up, with whom I argued a bit more. I knew the company could offer me a package that would cost me less than $100 a month because a friend has it. Finally, after threatening to just walk away and pay the penalty for doing so, I got what I wanted. My previous bill was almost $400. I knew the company could charge me less because I know cellphone profit margins are about 50 per cent.
Why would they treat a good customer this way? Because this company has shareholders who are constantly demanding more -- more subscribers, more users, more revenues, more profits, more dividends. It helps them that we have some of the most expensive mobile costs in the world, thanks to limited competition. But it's not enough, so the big players have to resort to these tactics to goose their earnings.
But that doesn't mean you have to accept it. Clamouring shareholders make your job as a consumer difficult, but you can and should take the time to fight for a good deal, especially in Canada, where competition for so many things is practically non-existent. Banking is another example. Banks also have hungry shareholders, who expect and demand profit increases that I don't think banks can deliver without resorting to what I consider tricks. Take fees: They're always going up. My bank informs me of fee increases in letters, which I often don't bother reading or, if I do and vow to call and complain, never follow through on.
A bank that takes an extra, say, $29 in fees from each of its customers every year is going to boost its earnings a little -- not a lot but enough to make it worthwhile. The same is true of the financial products they sell. Most are grossly overpriced, but the banks rely on us being busy or ignorant to get us to buy.
As a stock analyst, I see how much money companies make and how they do it. Cell phone companies call losing a customer "churn". It's expensive, because winning a customer is also pricey. So they'll try to hold on but eventually, if they sense they're about to lose a good customer, they'll give in.
Same with banks: If you do a lot of business with your bank, it likely also has an unpublished deal that you can demand. Of course they tie you up with the nightmare of actually moving your business -- savings, chequing, mortgage -- elsewhere, but they also know that if you ever go through with it, they've lost you forever.
You can probably save yourself hundreds or thousands of dollars a year by taking a hard look and a harder stance at all your service providers. It might take some time, but you'll end up making up for it. Stand up to the shareholders. And PS: Never buy an extended warranty. This analyst can tell you that it's the most profitable part of most companies' sales, meaning they're not worth the money.
Fabrice Taylor is an award-winning financial journalist and analyst and author of the President's Club Investment Letter. Email him at: firstname.lastname@example.org