Finding new customers is hard. First, you have to identify the people who are interested in what you are selling. Then you have to find a way to meet those people so you can tell them about what you are selling. Then you have to convince them that they want what you are selling, and if you manage to do all that, you still have to agree to a price for everything.
Doing that takes time, money, and a whole lot of effort and patience.
On the other hand, if someone is already a customer of yours, things become much easier. You already know who they are and what they want. They already know you and (hopefully) trust you and want to purchase your product or service. So all that’s left is to agree on a price – which should be easy because they already have some expectation based on their previous purchase.
Given that keeping an existing customer is so much easier than finding a new one, you would think that companies would work hard to make sure that their existing customers stay customers.
Sometimes companies keep customers (either intentionally or not) through “lock-in” – they make it so difficult to switch to a competitor that it isn’t worth the cost. This is essentially why Microsoft dominates the business world. The cost of switching is too high for most companies – they simply can’t do what they need to do on other platforms (or they don’t know how). Comcast keeps its customers despite horrible services, prices, and policies because in most cases they are the only option for cable or high speed internet.
So how do you keep a customer if there are low barriers to switching or lots of competition?
You can try to create “brand loyalty”. By creating a community around the product or company, you can convince people to keep coming back. This is (more or less) what Apple relies on. You can also create loyalty through exceptional customer service. HP support managed this when they promptly and efficiently fixed my out-of-warranty laptop for free. REI does this through their simple and generous return policy (if it breaks or you don’t like it – return it).
If none of these options are possible, you are left to compete on price, and if you are competing on price you better price yourself accordingly.
Take for example, my webhosting provider. I use webhost4life. They have been OK – they have had several service outages and issues with my site, but on the whole I’ve been satisfied with their service over the past year. Being inherently lazy, I decided to renew my plan, and look into adding a second site for my photography work. Imagine my shock when I discover that they wanted to charge me for the privilege of renewing my plan. Since all the work in setting up the hosting plan had already been done, essentially they are trying to charge me for taking my money. To add insult to injury, if you sign up for a new account with them, they will not charge a setup fee – so it is cheaper to be a new customer than an existing one, yet somehow they expect me to feel some compulsion to continue purchasing their service.
Not going to happen.
They are competing on price, and there is a lot of competition out there. The cost of switching is roughly one hours worth of work – most of which doesn’t even require my attention (uploading and downloading the site). They are a company that didn’t realize how they were competing, and as a result lost customer.