Do You Make Money When Your Customers Make Mistakes?

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Making mistakes in business can be costly – unless it’s your customers who are making them.

That appears to be the lesson from companies that knowingly profit from customers’ errors and oversights. What these businesses fail to appreciate, though, is how the short-term gains they generate come with a much more significant cost – the erosion of long-term customer loyalty.

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Profiting From Customers' Errors And Oversights

Mistake-driven profit maximization is not a secret strategy, as there’s even an official accounting term to describe it: “breakage” refers to revenue from customers who pay for a product or service and then forget to fully utilize it. The gift cards you’ve stuffed in a drawer and neglect to redeem. The full-year Pilates classes you paid for but never attend. The frequent-flier miles you’ve spent years accumulating but then let expire.

Companies don’t just profit when people underutilize a product or service, they also profit when people overutilize them (e.g., cellular data overage charges and bank account overdraft fees). While businesses deserve to get paid for such overutilization, many do so without giving customers fair warning, so they can adjust their behavior and avoid unanticipated expenses.

Then there’s perhaps the most nefarious mistake monetization tactic, “dark pattern” designs on websites and mobile apps. They actually encourage customer errors by strategically sizing buttons and links to get users to do things they didn’t intend – such as selecting looser privacy protections on a social media platform or making recurring contributions on a political campaign website.

Profiting off mistakes is an especially topical issue given the increasing popularity of subscription-based services, a business model that locks in recurring revenue but also plays into companies’ worst temptations – encouraging customers to “set it and forget it” while executives marvel at the ensuing cash flows.

The easy money generated by these strategies can be intoxicating and addictive. It can be difficult to spot such transgressions, as they creep insidiously into a business model, nudged forward with one seemingly innocuous decision after another: A penalty fee, instituted to dissuade certain customer behaviors, that proves quite lucrative. Or a well-intentioned performance metric that inadvertently encourages mistake monetization.

Evaluating Policies Through A Customer-Considerate Lens

To avoid these dubious practices, companies should evaluate their policies through a “customer-considerate” lens:

  • Are you taking advantage of people when they’re most vulnerable (e.g., banks that sequence withdrawal processing to maximize overdraft charges)?
  • Are you avoiding communication with customers, fearing they’ll be reminded of – and then reconsider – a purchased service they’re not actively using (e.g., automatic subscription renewals without advance notification)?
  • Are you relying on penalty charges to compel customers’ continued patronage, depriving them of flexibility for buyer’s remorse (e.g., gym memberships that require extended commitments and impose early cancellation fees)?
  • Are you “tricking” customers into taking actions they’ll later regret (e.g., default privacy preferences that favor the business, and are difficult for customers to modify)?

Business practices that run afoul of these litmus tests may raise short-term revenue, but they’ll sap long-term loyalty.

When these strategies unravel, people realize they’ve been manipulated and it stirs resentment – creating an emotionally-charged, memorable coda to the customer experience that can leave deep “cognitive scars.” The resulting customer angst doesn’t just thwart repurchase and referral behavior, it actually drives viral negativity, raising reputational risk from which a business may not recover.

A Prize For Avoiding These Dubious Tactics

The good news is there’s a prize waiting for firms that avoid these dubious tactics. When companies avoid profiting from customers’ mistakes, or even help them avoid mistakes – it’s a rare signal of consumer advocacy that turns heads, forges loyalty, and drives exceptional business results.

For example, Ally Financial (a bank that’s posted outstanding shareholder returns in recent years) has long pursued a strategy worthy of its name – acting in the best interest of customers, in part, by not monetizing mistakes. When overdrafts occurred, the bank charged customers a single fee, instead of one for each rejected item, as many other banks do. This year, the bank eliminated overdraft fees altogether.

Canva – a company that has democratized graphic design with its easy-to-use software – has also shunned mistake-driven revenue enhancement. When users sign-up for Canva’s 30-day free trial, the company doesn’t silently charge their credit card on Day 31, as many software vendors do. Rather, they send an e-mail reminder five days before.

While Canva might lose out on some revenue due to that proactive communication, they earn invaluable goodwill and positive buzz from customers who see that the company isn’t trying to take advantage of them. That aboveboard approach has catapulted Canva to a $40 billion valuation, making it one of the world’s most valuable startups.

Monetizing mistakes is no way to build a successful franchise. Business leaders have a moral obligation to engage their target market in a manner that enriches customers rather than exploits them. Because when companies neglect to grow revenue responsibly, they breed customer dissatisfaction and set the stage for their eventual decline.

About the Author

Jon Picoult is the founder of Watermark Consulting and author of “From Impressed to Obsessed: 12 Principles for Turning Customers and Employees into Lifelong Fans” (McGraw-Hill, Nov. 3, 2021). A noted authority on customer and employee experience, Picoult is an acclaimed public speaker, as well as an advisor to top executives at some of the world’s foremost brands. He helps organizations impress customers and inspire employees, building loyalty in both the marketplace and the workplace. Picoult earned an A.B. degree in cognitive science from Princeton University and M.B.A. in general management from Duke University.