Thursday, July 3, 2008

Profiting from Confused Customers or Losing Business

By: McGovern, Gail, Moon, Youngme,
Harvard Business Review,
June 2007, Vol. 85, Issue 6

Some companies have found that confused and ill-informed customers, who often end up making poor purchasing decisions, can be highly profitable.

These adversarial value-extracting strategies are common across industries, from banking and hotels to video stores, book-purchasing clubs, ticketing agencies, and car rentals. Here we'll look in detail at some examples of these strategies in the cell phone service, retail-banking, and health club industries.

It's no surprise that when a nice guy comes along, customers defect.

Consider the online banking Direct: In the six years since its launching, Direct has taken a determinedly customer-friendly stance, offering products that are straightforward and easy to understand. The approach has paid offering Direct is now the fourth-largest thrift bank in the United States, with total assets of more than $60 billion. In this highly competitive industry, ING Direct is adding 100,000 new customers a month, and its customer base is rapidly approaching 5 million.

Gail McGovern ( is a professor of management practice, and Youngme Moon ( is an associate professor of business administration, at Harvard Business School, in Boston.

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