The Lifetime Value of Your Customer

About a week ago I bought a piece of software to help me submit press releases automatically.  It didn’t quite work as I had hoped with all the sites to which it submits, but did save me a chunk of time over manual press release submissions, and that’s a great thing!

This past weekend I got a note from the company owner giving me a $20 discount on a special, limited-time offer purchase of this same software, since I’m an "important" member of his article submission site.  I didn’t realize that I was, but I guess the article submission software that I use submits to his site, which gave me this status.

Consequently, I wrote and asked him for a $20 rebate, as I had just bought the software 7 days prior to this email.  I thought it was a reasonable request, as many retail stores will refund the difference in the price you pay for an item if you discover the item on sale at a cheaper price within a week or two of purchase.  Had it been a greater amount of time, I would have never asked for the refund.

He refused, citing it was against his policy to offer credits and rebates, but offered me a $20 discount on future purchases.  I suppose that can be seen as fair, but I just see it as a manipulative marketing ploy to ensure that someone buys from you again, and nothing annoys me more when retail stores pull this stunt. 

From a business owner’s perspective, I have to acknowledge that it’s a smart financial business strategy (not one that I choose to employ, btw), as it permits you to keep your customer’s money.  However, I find it a highly unattractive from a customer’s point of view.  Why? There’s an extraordinary likelihood that I’ll never use the discount because I’ll never buy from this business again or will forget to use the discount if I do make future purchases, which makes it fairly worthless gesture to the customer, unless you’re a longtime loyal customer that frequently buys from this business.  Those very reasons make it a highly profitable strategy to the business owner, but I think it’s a fatal move to pull on a first-time customer. So, how smart does that make this strategy in the end?

I wrote back and told him that I wasn’t interested in any of his other products, and that his refusal to refund $20 was my $20 loss, but to him represented the loss of a customer, as well as to future referrals.  He responded in what I found to be an offensive manner, in essence telling me to grow up, and telling me that I would be out of business quickly if every old customer of mine came back to me and requested a refund when my price changed.  I agree–if customers of 3, 4, or 5 weeks ago or longer came back requesting refunds, no business owner could afford to do that regularly.  However, I had just made the purchase a week ago, which I detailed in my initial email to him.  I didn’t think I was out of line in making this request, as many retail outlets with extensive overhead honor this request fairly routinely.

He went on to state that I was completely unprofessional by threatening not to refer his product over a mere $20. Granted, it’s not a great deal of money, but it became a very important $20 principle to me. Despite how well the product might work, why would I want to refer my valued colleagues and clients to someone who has poor customer service strategies?  Furthermore, he informed me that if he gave me the refund, he would have made only $24 on the sale, as my sale came through an affiliate referral. The wording of the email made me think it was MY fault that he had to pay his affiliate a 50% commission.  HE made that decision on his affiliate commissions, not me.

Hmmm, let me think here. He got a sale he wouldn’t have normally gotten (my sale) because someone else referred me — I probably would have never heard of him or his software without that referral.  My lifetime customer value to him from my own purchases could perhaps be several hundred dollars in the future, if he developed other products of interest to me, and my ability to refer the product that I purchased to others could have possibly meant several thousand dollars in sales to him from my referrals.  As a matter of fact, in the last month, I just sold about a $1000 worth of software for another company for which I’m an affiliate.  That’s $1000 in sales the company wouldn’t have without me.  Just having 10 affiliates do this for you every month is a cool $10,000/month in sales of a virtual product that doesn’t have any packaging, doesn’t have to be shipped, doesn’t have to be purchased at a wholesale cost, and doesn’t have to be stored in a warehouse space.  It’s almost like selling air, and a MUCH more profitable venture than having a physical product requiring shipping, or having to sell from a brick and mortar retail outlet with all the overhead inherent in that venture.  I equate my $20 refund request to a possible $5000 loss in lifetime customer value to him.

This experience has been worth its weight in gold to me as a lesson in how NOT to treat my virtual clients and affiliates.  I’m getting ready to lauch a number of ebooks and programs this year, and while the customer is not always right, it pays not to tick them off over a easily-granted request.  It’s much easier to sell to someone who’s purchased from you previously and to continue to finesse that relationship than to continuously cultivate brand-new customers.

Am I out of line?  I’d love to hear the pros and cons..:)