How angry do you have to be with your energy supplier to refuse a 17 per cent discount? As angry as you get when you realise you’ve been overcharged for years, treated with contempt, taken for a ride, ripped off and generally played for a mug. And that’s probably what they’re doing to you too.

The major electricity and gas suppliers make vast amounts of money by relying on customers’ inertia, the tendency to let bills come and go and not do anything other than pay them, to not climb that insurmountable wall of inaction to seek a better price. So much for all the talk of competitive markets when most of us are mugs.

The banks play the same game. The effort of searching for a cheaper mortgage and – heavens forbid – filling out all those forms and stuff tends to keep us chained to whoever we have the mortgage with. The opposition will try to shift us with the possibility of lower rates, with blandishments of straight cash even, but it’s all too hard.

Yet the big corporates also are foolish to treat their customers as the mugs we often are. One of the most basic laws of business is that an existing customer is more valuable than a new one as it’s much more expensive to acquire that new customer than it is to keep the existing one. So why do they treat us so shoddily?

Subliminal reaction

What almost subliminal reaction do you have when you see an advertisement for your bank that offers a particularly enticing interest rate, but the asterisk at the end of it points to “new customers only”? I’d suggest you should feel a little peeved – your bank, the one you pay all the money to, is acting like a tart to attract a fresh mark, giving someone else a better deal while ignoring your loyalty.

And so it has been my experience with AGL, though I suspect if the other mob was the incumbent, the story would be much the same. It goes like this…

I’ve always looked at whatever discount AGL has offered me and tried to pick what seemed to suit me best, but the size of the last electricity and gas bills were enough to goad me into doing what I had been too lazy to do for years: use one of the comparison outfits for a quick check of what else might be on offer.

Not surprisingly with the incentive of getting a cut themselves, the comparison mob found a better offer. So I sat through the tedious terms and conditions over the phone and authorised them to go for it.

Also not surprisingly, the incumbent supplier (AGL) phoned and wrote, wanting to talk me out of changing. I missed the calls and didn’t return the messages. With the changeover deadline looming, AGL tried harder and tracked me down long enough to make their best offer: a 17 per cent discount.

The way we use gas and electricity, that’s a substantial amount of money. But the offer simply confirmed that AGL had been ripping me off for years, taking some thousands of dollars extra off this mug punter, not offering me, their hitherto loyal customer, their best deal.

Principle at stake

I suggested something along those lines and that I might be interested if they also would refund all that they had overcharged me since I first signed up with them ages ago, but that wasn’t forthcoming. The 17 per cent was a better deal, but stuff ‘em. There was something that might have been a principle at stake. I had effectively shaken hands on a deal with another party, never mind the legal cooling off period, AGL had not treated me like I was their valued customer - and I would have had to listen to a bunch of terms and conditions again.

I’m not intending to plug the alternative suppliers. As I say, I suspect if they had been the incumbent, the story would have been much the same and now I would be a new AGL customer.

The story is too common across any number of businesses.

From the top

But all of this puts me in mind of two stories, one featuring Guy Russo, the hamburger flipper who has done a remarkable job turning Kmart around, and the other, Kerry Packer in his feisty prime.

For mine, Russo is Australia’s best retailer.

Someone who had only ever worked at McDonalds, rising to run the company in Australia and then China, brought in from somewhere way beyond left field to do a job that had defeated generations of experienced retail management.

His success has come from a combination of many factors but among them was the idea of ditching the promotional “specials” brochure.

Russo saw the usual “50 per cent off socks and jocks until Sunday” differently. In his way of thinking, the brochure effectively was telling customers the store was going to double the price of socks and jocks on Monday. He didn’t like that message, didn’t like the relationship it represented with loyal customers. So they stopped the specials.

The Kerry Packer story might or might not be exactly true – a lot of Packer stories are in that category – but it’s instructive.

For decades one of the big legal firms had done all the Packer empire’s defamation work. One way or another, a smaller upstart firm managed to make a pitch to Packer, offering to do all the work for some $1.5 million less than what the incumbent were charging. (Don’t hold me to the dollar amount – I said this is a story rather than a report.) Packer said he’d think about it.

Packer subsequently called in the big firm’s defamation partner, someone he had worked closely with for years, told him about the pitch and asked what he would do about it. The partner immediately said his firm would match the lower price – and so Packer threw him out, taking that answer as meaning he had been overcharged if they could now do it for so much less. The new boys got the business.

We’re left to speculate that if the partner had used the old line about paying peanuts and getting monkeys, had stressed the quality of his advice rather than the price, or perhaps had said he could look at maybe sharpening pricing a bit but couldn’t match the upstarts without compromising, maybe he would have kept the work. Maybe not – you could never be sure with Packer.

But you can understand why loyal customers would be mighty annoyed to discover their loyalty wasn’t being reciprocated. And it costs a lot more to win a new customer than to keep an existing one. You can probably prove it by using one of the comparison sites.

Michael Pascoe is a BusinessDay contributing editor and chronic inertia sufferer.

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