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The Price-Hike Gamble

October 6, 2008  

No doubt you've noticed it with your cable bill, your phone bill or anything else you pay on a regular basis—prices that creep slowly, and steadily, upward for no readily apparent reason. Most of us shrug off the extra cost as a minor annoyance; we won't go to the trouble of canceling services and finding an alternative over a few bucks. But we all have a breaking point, and one price increase too many will send us straight into the arms of a competitor.

In a post at his blog, Seth Godin recounts just such an experience with his car insurance. Despite a clean driving record, his premium continued to rise.

"The logic, I'm sure, was, 'well, let's raise it a little and see who quits,'" he notes. "If revenue increases enough to make up for the few who quit, you come out ahead. So, quarter after quarter, year after year, repeat the same process. Raise it a little, check to see if revenue rises in aggregate, and repeat."

The quote for Godin's latest premium, though, went over his tipping point. "19 minutes later, I was at Geico," he says. "Something in my relationship with the insurance company shattered … And the number was suddenly enough to make me take action."

The Po!nt: Be careful about constant, incremental price hikes; when one customer has finally had enough, notes Godin, there's a good possibility that 1,000 or 100,000 have also had enough—and if they leave en masse, you've got a problem.

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