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Why do existing customers pay more?

Existing customers for services, like broadband, pay TV, mobile phones, and insurance often find that their suppliers are charging loyal customers higher prices than new ones. We’ve all known it was happening, but why do existing customers pay more?

It’s an unfortunate fact that loyalty isn’t always rewarded. In fact, the opposite is often true, and it’s all because inertia is big business. The longer a customer stays with a company, never changing package or deal, the more money a company in those industries can make from them.

Existing customers who are loyal to one company and stay with them for years are mostly ‘out of contract’. The advantage is you’re free to leave at any time without being charged, escaping ‘early exit fees’, but this freedom often comes at a cost.

This is because you’re not technically within a contract term, where the price is fixed for a certain period. For an existing customer who is ‘out of contract’, your price could be increased each year, or even several times a year. If you stay with the same company for years, that’s a lot of price increases.

Energy works slightly differently, because the regulator Ofgem sets a price cap which moves up and down in line with wholesale energy market costs, and sets the price for out of contract customers on the Standard Variable Tariff (SVT); and Ofgem also ban suppliers from offering new customer tariffs which aren’t available to existing customers. But it is still the case that existing out of contract customers default to the SVT, and miss out on the security of fixed deals.

Contracts with price rises built in

A contract won’t always protect you from all increases during the contract term. Many contracts now have small print allowing ‘RPI increases’ where companies pass through extra costs aligned to the official rate of inflation onto customers – this is now standard in the mobile phone industry.

Paying more is helping to provide cheap deals

Existing customers paying more helps companies offer cheaper prices to new customers. New customers get better deals because companies need to offer discounts to encourage you to join. The strength of their brand and products isn’t enough on its own, especially in industries where a product or service is perceived to be very similar, like broadband.

And when people start to shop around, a competitive price is needed to appear on comparison sites like uSwitch or MoneySupermarket. Here, a cheap price boosts a supplier up the league table, meaning more customers are likely to join. But, it has to be paid for by someone, and it’s often existing customers who end up paying more.

Better deals for existing customers

It’s certainly been the case that if you shop around for the best deals and switch between providers more regularly, you’ll be a ‘new customer’ more often and benefit from these cheaper deals.

However, in the last few years in markets like energy, some companies offering the lowest prices have collapsed as costs have risen. This has led business leaders to rethink their strategy and focus more on providing a better deal for existing customers. And that’s where we come in.

ismybillfair offers existing customers the chance to get a better deal with their current provider – whether that is a price saving, or an improved product (eg more data or a faster speed), or the security of a fixed deal.

This means that if you’re happy with the company and its product or service, you can stay exactly where you are and simply move to a better deal – and often put some cash back in your pocket.