Best of the ISP-Lists

They Signed But Won't Pay

Members of the ISP-Wireless list discuss what to do when a customer complains that since cheaper service is now available, you should lower your price to match that of the local phone company.

[March 19, 2001]

On the ISP-Wireless list in March, JM observed,

"We started our wireless operation about 15 months ago and some of the early customers were ecstatic at the high-speed service. As such, the initial agreements we offered were relatively pricey. This was especially true with one company of 25-30 users: in this particular case, they signed a three-year agreement for fixed pricing for service. Now, with the introduction of telco DSL and competing cable companies, we have one of these multi-user customers asking us to drop our price to meet the telco price, or to release them from the contract to go after the lower-priced DSL service. Any thoughts?"

A number of respondents were pretty miffed at the idea of bowing to the customer's demands in this case:

[AC argued] "There is no way you should release them from their contract with you, which is binding on all parties. If you did, all of your existing contracts and future contracts would be meaningless; and you do now have the law on your side."

[PF agreed] "They signed, they pay. Just like every other contract in the universe. My car is worth less now than when I bought it two years ago, but will the bank let me refinance on that basis? No. Don't get into the 'I'll switch for a lower price' game."

[KW added] "A company's growth strategy depends to a large extent on financial projections, and that contract is a part of those projections. I don't see any reason why you should change your plans because your customers want to play the field: that's what they're supposed to do before they settle in to a contract. If anything, give him the opportunity to 'buy out' his contract at an amount that will be economically favorable to you. If he pays it, then let him out."

[BM contended] "If a customer tried to run out on a contract, I would drag them to small claims court in a heartbeat and sue them for the balance. I run my business on what my service contracts bring in. With these, I project future equipment purchases and other line items. If you can't get paid, why be in business? I did not go into business to make friends: I did it to make money fairly with a good day's work."

[DS noted] "I tell the customer that once the contract is complete, we will have covered our overhead on the equipment and would be happy to lower the pricing if that is what the market requires. I have DSL customers I installed two years ago that are in higher-cost contracts, but the equipment I used was expensive and extremely reliable. They had no other option then, and today they are paying three times more than my competition. We will lower price in the future for them, but first we need to cover the cost of the equipment."

Others held a far more lenient view of the situation:

[RB offered] "Rigid contracts don't always work well in telecom. There are ways of being flexible that will keep a customer without changing prices every time. In general, most telecom companies have to re-price their products, or they face losing customers in the future when the contract expires. Your relationship with your customer is your best asset."

[GI agreed] "It may be wiser to lower your pricing than to lose the customer: consider the cost of acquisition per customer. Also make sure, if you're matching a competitor's contract, that you're matching the complete contract. Maybe they have a lower charge on a monthly basis but they charge extra for install, etc."

[PJ added] "Also consider: what do you do when they break the contract? If they say sue me, then you must. Can you afford to get a lawyer, collect the money, and make anything after his fees? And consider the bad reputation you would get. It's not worth it."

— End