Thursday 2 October 2008

Betfair Provides A Lesson In Customer Alienation


If you were told by your government that you were too successful and that you would have to pay an additional tax, would you be happy?

Probably not.

But this is essentially what Betfair, the world's most successful online betting exchange, recently told its customers.

The company recently announced that it would be adding a "Premium Charge" that is insists will only impact a small number of its customers - less than 0.5%.

The Premium Charge applies when a customer has, over the past 60 weeks, mets all of the following criteria:

The customer's account is in profit.
The total charges paid by the customer are less than 20% of gross profits.
The customer bet in more than 250 markets.

Not surprisingly, the response from Betfair punters was not favorable despite the company's assurances that very few customers are going to be impacted. And despite rumors that Betfair might be rethinking its stance because of the backlash, The Guardian reports that the company insists it is moving forward.

While a discussion of the specific issues that led Betfair to think its "Premium Charge" suitable are beyond the scope of this blog and would be boring to those who don't use betting exchanges, there is a lesson here that is applicable to any business - how you treat your customers matters and how you announce and implement changes that impact them makes all the difference.

Perhaps the most curious aspect of Betfair's move is the fact that the company has not tried to hide the fact that its change impacts its most successful customers. Its fee page even states:

"In addition to the other charges detailed above, a small number (less than 0.5%) of our most successful customers will incur Premium Charges."

Notwithstanding the justifications Betfair thinks it has to levy a "Premium Charge" on its most successful customers (which again are outside of the scope of this discussion), in my opinion no wise business ever presents - let alone implements - any change that specifically and overtly penalizes its most successful customers and sends the message to other customers that being a "successful customer" has an extra cost.

In my opinion, it's clear that Betfair has put its own interests above those of the customers it knows are its most "successful." And that's never good.

In theory, the most successful and sustainable businesses are those whose interests are well-aligned with those of their "best" customers (i.e. those customers who derive the most value from their products and services). In other words, the business wins when the customer wins.

Of course, businesses realistically cannot bend over backwards for customers all the time when it comes to maintaining a viable, profitable business. But there's a very fine line between running a profitable business and running a greedy business.

Clearly, Betfair's dominant position in the betting exchange market has given it the belief that it can take more from its customers. Incidentally, this type of belief isn't exclusive to Betfair - eBay faced a similar response when it hiked seller fees earlier in the year.

But because of the nature of a service like Betfair and the fact that it has no qualms about blatantly targeting its most "successful customers," the risk individuals take when their success is dependent on a dominant business is especially well highlighted here.

If there is a bright spot in all of this, however, it's that Betfair has just given its competition an opening and I'm pretty sure that other betting exchanges looking for more liquidity will be happy to welcome the over-successful punters Betfair decided to alienate.

1 comment:

Drifter said...

Interesting Article from it sounds like an outsider.