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Netflix 'Throttling' Heavy DVD Renters: Gives Preference to Infrequent Renters
AOL News ^ | Feb. 11, 2006 | By MICHAEL LIEDTKE

Posted on 02/11/2006 5:52:44 AM PST by yankeedame

Updated: 03:15 AM EST

Netflix Presses Pause for Heavy DVD Renters 'Throttling' Practice Delays Shipments, Gives Preference to Infrequent Renters

By MICHAEL LIEDTKE, AP

SAN FRANCISCO (Feb. 11) - Manuel Villanueva realizes he has been getting a pretty good deal since he signed up for Netflix Inc.'s online DVD rental service 2 1/2 years ago, but he still feels shortchanged. That's because the $17.99 monthly fee that he pays to rent up to three DVDs at a time would amount to an even bigger bargain if the company didn't penalize him for returning his movies so quickly.


Carlos Osorio, AP
Netflix subscriber Manuel Villanueva typically receives about 13 movies per month
-- down from the 18 to 22 DVDs he once received before being identified as a heavy renter.

=================================

Netflix typically sends about 13 movies per month to Villanueva's home in Warren, Mich. - down from the 18 to 22 DVDs he once received before the company's automated system identified him as a heavy renter and began delaying his shipments to protect its profits.

The same Netflix formula also shoves Villanueva to the back of the line for the most-wanted DVDs, so the service can send those popular flicks to new subscribers and infrequent renters.

The little-known practice, called "throttling" by critics, means Netflix customers who pay the same price for the same service are often treated differently, depending on their rental patterns.

"I wouldn't have a problem with it if they didn't advertise 'unlimited rentals,'" Villanueva said. "The fact is that they go out of their way to make sure you don't go over whatever secret limit they have set up for your account."

Los Gatos, Calif.-based Netflix didn't publicly acknowledge it differentiates among customers until revising its "terms of use" in January 2005 - four months after a San Francisco subscriber filed a class-action lawsuit alleging that the company had deceptively promised one-day delivery of most DVDs.

"In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service," Netflix's revised policy now reads. The statement specifically warns that heavy renters are more likely to encounter shipping delays and less likely to immediately be sent their top choices.

Few customers have complained about this "fairness algorithm," according to Netflix CEO Reed Hastings.

"We have unbelievably high customer satisfaction ratings," Hastings said during a recent interview. "Most of our customers feel like Netflix is an incredible value."

Netflix

Displays latest trading session. See more charts.

Stock Quote: NFLX Profile: About NetFlix Talk About It: Company Buzz Headlines: More NetFlix News

The service's rapid growth supports his thesis. Netflix added nearly 1.6 million customers last year, giving it 4.2 million subscribers through December. During the final three months of 2005, just 4 percent of its customers canceled the service, the lowest rate in the company's six-year history.

After collecting consumer opinions about the Web's 40 largest retailers last year, Ann Arbor, Mich., research firm ForeSeeResults rated Netflix as "the cream of the crop in customer satisfaction."

Once considered a passing fancy, Netflix has changed the way many households rent movies and spawned several copycats, including a mail service from Blockbuster Inc.

Netflix's most popular rental plan lets subscribers check out up to three DVDs at a time for $17.99 per month. After watching a movie, customers return the DVD in a postage-paid envelope. Netflix then sends out the next available DVD on the customer's online wish list.

Because everyone pays a flat fee, Netflix makes more money from customers who only watch four or five DVDs per month. Customers who quickly return their movies in order to get more erode the company's profit margin because each DVD sent out and returned costs 78 cents in postage alone.

Although Netflix consistently promoted its service as the DVD equivalent of an all-you-can eat smorgasbord, some heavy renters began to suspect they were being treated differently two or three years ago.

To prove the point, one customer even set up a Web site - http://www.dvd-rent-test.dreamhost.com - to show that the service listed different wait times for DVDs requested by subscribers living in the same household.

Netflix's throttling techniques have also prompted incensed customers to share their outrage in online forums such as http://www.hackingnetflix.com.

"Netflix isn't well within its rights to throttle users," complained a customer identified as "annoyed" in a posting on the site. "They say unlimited rentals. They are liars."

Hastings said the company has no specified limit on rentals, but "'unlimited' doesn't mean you should expect to get 10,000 a month."

In its terms of use, Netflix says most subscribers check out two to 11 DVDs per month.

Management has previously acknowledged to analysts that it risks losing money on a relatively small percentage of frequent renters. The risk has increased since Netflix reduced the price of its most popular subscription plan by $4 per month in 2004 and the U.S. Postal Service recently raised first-class mailing costs by 2 cents.

Netflix's approach has paid off so far. The company has been profitable in each of the past three years, a trend its management expects to continue in 2006 with projected earnings of at least $29 million on revenue of $960 million. Netflix's stock price has more than tripled since its 2002 initial public offering.

A September 2004 lawsuit cast a spotlight on the throttling issue. The complaint, filed by Frank Chavez on behalf of all Netflix subscribers before Jan. 15, 2005, said the company had developed a sophisticated formula to slow down DVD deliveries to frequent renters and ensure quicker shipments of the most popular movies to its infrequent - and most profitable - renters to keep them happy.

Netflix denied the allegations, but eventually revised its terms of use to acknowledge its different treatment of frequent renters.

Without acknowledging wrongdoing, the company agreed to provide a one-month rental upgrade and pay Chavez's attorneys $2.5 million, but the settlement sparked protests that prompted the two sides to reconsider. A hearing on a revised settlement proposal is scheduled for Feb. 22 in San Francisco Superior Court.

Netflix subscribers such as Nathaniel Irons didn't believe the company was purposely delaying some DVD shipments until he read the revised terms of use.

Irons, 28, of Seattle, has no plans to cancel his service because he figures he is still getting a good value from the eight movies he typically receives each month.

"My own personal experience has not been bad," he said, "but (the throttling) is certainly annoying when it happens."


TOPICS: Business/Economy; Culture/Society; Miscellaneous
KEYWORDS: blockbuster; dvd; greedycustomers; netflix; throttling
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To: goresalooza

back in the days of book clubs, i would get the introductory deals and quit as soon as i had ordered the minimum number of books required.
i got banned from book clubs as a result!


51 posted on 02/11/2006 7:55:40 AM PST by drhogan
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To: discostu

they were also intentionally delaying the sending out of dvds, even for dvds that were not in high demand.
i mostly rented stuff like "tales of jim bowie" and 1950's dinosaur movies, and they still delayed the mailing.
i never attempted to get any new films.


52 posted on 02/11/2006 7:58:52 AM PST by drhogan
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To: drlevy88

You said they should just print copies, I said that would be stupid of them because it's illegal and they'd get busted. A lawyer doesn't stand a chance of making any money because they work like a library not a newspaper because they make it clear in the terms of service that they work like a library. Explicitly outlining that they have a limited number of copies of every movie and depending on what you select you might or might not get it immediately, and now they even describe the throttling in the terms.


53 posted on 02/11/2006 8:01:24 AM PST by discostu (a time when families gather together, don't talk, and watch football... good times)
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To: discostu

I can vouch for that. The only time I've had serious trouble getting something from Netflix was when I tried to get "Cowboy Bebop", first session. I've only had two occasions of bad disks. The turnaround has consistently been no more than three days from my shipping the movie back to getting the next one.

Is this news troubling at all? Yeah. I don't like to hear it. But Netflix has always worked for me and their service has been reliable for almost two years now.


54 posted on 02/11/2006 8:02:40 AM PST by baseballfanjm
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To: discostu

No, I said they represented themselves to customers in such a way as they could come up with whatever copies is needed to fulfill "unlimited." The customer could care less how they do that. Going back to the beginning of this vicious circle, how does the customer know they don't do with Paramount and their ilk for movies what PC vendors do with Microsoft for Windows. You're a street sweeper you don't know boo about what the company you are dealing with has to do to get okays from the publishers they deal with. Nor should you have to know boo.


55 posted on 02/11/2006 8:05:45 AM PST by drlevy88
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To: drhogan

But was that intentional delaying or limited supply? I know when I get some of my low demand movies they take longer to get to me, when I look at the envelop I see they didn't come from the fulfillment house nearest me but came from somewhere else. It's probable for these low demand movies they don't have copies at every fulfillment center. I've been with NetFlix a long time, mostly they're fast, sometimes they're slow, sometimes one movie is slow while everything else is going fast. I don't sweat it, I have enough other entertainment options that whether I get my NetFlix movies on Friday, Saturday or Monday I'll still be fine.


56 posted on 02/11/2006 8:05:45 AM PST by discostu (a time when families gather together, don't talk, and watch football... good times)
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To: yankeedame

I have noticed the same problem. I am allowed two at a time. I returned two DVDs in the same mailing on Monday. The nearest facility is just ten miles away. They acknowledged receipt of one the very next day, the other not until five days later. I got one replacement on Thursday, but the other will not even be shipped until Monday. It has become a pattern: they almost never have one day service. Might as well go down to one at a time.


57 posted on 02/11/2006 8:06:49 AM PST by RobbyS ( CHIRHO)
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To: yankeedame

the problem with netflix is that it attracted all the movie addicts (like myself) but couldn't make money because of our compulsion to view movies at such a high rate.
it would be like a liquor distribution company offering a fixed-price plan. they would have to screen out the alcoholics to make any money.
netflix used throttling to get us to quit.


58 posted on 02/11/2006 8:08:01 AM PST by drhogan
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To: discostu
You said they should just print copies,

Liar

59 posted on 02/11/2006 8:09:20 AM PST by drlevy88
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To: drlevy88

But they didn't represent themselves like that. They outline quite explicitly that they have a limited number of copies of everything. In your queue they even included an Availability column that tells you if it's available now or after a short or long wait. So they're very upfront with the fact that it's a library lending out a predetermined number of copies, not an on-demand service making copies as necessary.

It's not the average customer I'm talking about. I'm talking about the customers that know a little more, that maybe worked for one of the distributors and can eyeball it, or maybe even "customers" that don't really exist but are fake people made by distributors to try to sting the rental services. Most of the time when a piracy ring gets busted it's because of the non-average customer who looks and says "huh, that don't look right".


60 posted on 02/11/2006 8:11:14 AM PST by discostu (a time when families gather together, don't talk, and watch football... good times)
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To: discostu
and now they even describe the throttling in the terms

They didn't before, and that got them in trouble

61 posted on 02/11/2006 8:11:35 AM PST by drlevy88
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To: discostu
They outline quite explicitly that they have a limited number of copies of everything

Show where that was in the OLD tos, not the NEW

62 posted on 02/11/2006 8:12:41 AM PST by drlevy88
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To: discostu
They outline quite explicitly that they have a limited number of copies of everything

Show where that was in the OLD tos, not the NEW

63 posted on 02/11/2006 8:13:12 AM PST by drlevy88
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To: drlevy88

The Availabilty column was in the queue from the first day I got there which was 2000 or 2001. That's a clear indication of a limited number of copies, because if they were making copies as needed then all disks would have the same level of availability.


64 posted on 02/11/2006 8:14:59 AM PST by discostu (a time when families gather together, don't talk, and watch football... good times)
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To: Admin Moderator

why was this thread pulled?


65 posted on 02/11/2006 8:16:11 AM PST by Clovis_Skeptic (Islam is a religion of peace my as@)
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To: Clovis_Skeptic

This thread was not pulled.


66 posted on 02/11/2006 8:19:24 AM PST by Admin Moderator
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To: yankeedame

My Brother in Law got tossed from a Chinese restaurant once, because the place advertized "All You Can Eat", and Dave decided to find out if they really menat it. He lasted three hours and cleaned them out of all of the good stuff before they asked him to leave and never come back...


67 posted on 02/11/2006 8:20:19 AM PST by Bean Counter ("Stout Hearts!")
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To: yankeedame

Newsflash! They are a business.

They have make $x on every DVD shipped. SInce you pay a fixed monthly, their profit from having you as a customer depends how many DVDs they ship you.

People who rent a Lot of DVDs a month are costing them money. They've taken the obvious step to correct the problem.


68 posted on 02/11/2006 8:20:59 AM PST by rcocean (Copyright is theft and loved by Hollywood socialists)
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To: Chuck54

Blockbuster does it too.


69 posted on 02/11/2006 8:24:44 AM PST by schmootman
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To: bwteim
no commercials on it; no paid programs, just movies and great features

I remember that promise, too!

70 posted on 02/11/2006 8:28:36 AM PST by Flyer (Send Beer)
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To: discostu

there seemed to be a couple of delays. it would take them a day or 2 after i returned the film (directly to the post office on their return address) before the dvd would be logged in on the computer as having been returned.
then another day delay before sending out the next one.
this was a few years ago. the delay times seemed to be pretty constant (unlike what other people are reporting), so i assumed the delays were intentionally built into their system.
it had the appearance of intentionally limiting the number of videos i could get each month, so i quit.
however, intention is pretty hard to guage accurately--i'm making an assumption based on the consistent time pattern


71 posted on 02/11/2006 8:34:26 AM PST by drhogan
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To: yankeedame

It seems like a reasonable business practice. I'm a Netflix subscriber.


72 posted on 02/11/2006 8:38:43 AM PST by TheDon (The Democratic Party is the party of TREASON!)
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To: yankeedame

a friend told me that three people created a group and started ordering the movies and sharing them with each other...two years ago. So teh big tears in this story may be hiding a sharing idea that is popular among the geek world of music and video.


73 posted on 02/11/2006 8:49:23 AM PST by q_an_a
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To: discostu

Until recently (according to the article we are presumably posting about) it was not disclosed that people were being selected for slowdown. Nowhere does it say that this was due to limited supply of workers! This was only to limit costs of mailings. They disclosed because they got caught -- like Bill after semen was found on Monica's dress.

Anyway I have a food bar idea for you - a separate line for FAT people with limited replacement of food in their bins. But advertise unlimited salad bar for all! This way you stay profitable, you can have the dressed cleaned of all traces, and nobody's the wiser.



74 posted on 02/11/2006 9:47:09 AM PST by BagelFace (BOOGABOOGABOOGA!!!)
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To: schmootman

I would think so but one advantage is the free weekly rental with a printable ticket. I only live about 8 miles from the closest Blockbuster rental store and can drive down and pick up the free rental.

I am watching free for another week and then will see how I like the service. Got to be an improvement over Netflix I would think.


75 posted on 02/11/2006 9:55:14 AM PST by Chuck54 (SCOTUS - Us 2, Them 0. Who's next?)
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To: BagelFace
a separate line for FAT people with limited replacement of food in their bins. But advertise unlimited salad bar for all!

Everyone knows fat people don't eat salad.

76 posted on 02/11/2006 10:08:05 AM PST by bigeasy_70118
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To: bigeasy_70118

That is true up North and certainly out West - but here down south they deep-fry salad in bacon fat.


77 posted on 02/11/2006 10:27:55 AM PST by BagelFace (BOOGABOOGABOOGA!!!)
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To: Bean Counter
My Brother in Law got tossed from a Chinese restaurant once, because the place advertized "All You Can Eat", and Dave decided to find out if they really menat it. He lasted three hours and cleaned them out of all of the good stuff before they asked him to leave and never come back.

I cracked up and called the wife over to read this. We had a married couple come with us to an eat-all-u-can breakfast buffet. Among the usual stuff, there was a monstrous bowl of boiled shrimp (this was Navarre Beach, FL).

The woman vacuumed up the bowl and when they refilled it, she asked her husband to reload for her. He was embarrassed and said "No", so she did a repeat Hoover job. Thereafter, the bowl remain unfilled for the remainder of our visit. We talk about that to this day. Thanks for a trip down memory lane.

78 posted on 02/11/2006 10:40:36 AM PST by Oatka (Hyphenated-Americans have hyphenated-loyalties -- Victor Davis Hanson)
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To: frankjr

You can get 8 at a time from Blockbuster for $48 a month.


79 posted on 02/11/2006 10:46:07 AM PST by ican'tbelieveit (Join FreeRepublic's Folding@Home team (Team# 36120), KW:Folding)
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To: ican'tbelieveit
You can get 8 at a time from Blockbuster for $48 a month.

Man, your DVD burner must be REALLY slow!

;)

80 posted on 02/11/2006 10:48:09 AM PST by freedumb2003 (American troops cannot be defeated. American Politicians can.)
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To: drhogan

Well, if you like new releases, I would suggest red box at McDonalds. New releases for $1.00. Also, customer service rocks, my bf got a bad copy of Sky High and got 2 special promo codes to get a replacement copy and another movie as well.


81 posted on 02/11/2006 10:59:38 AM PST by chae (R.I.P. Eddie Guerrero He lied, he cheated, he stole my heart)
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To: BagelFace

Well of course workers had something to do with it, you only have a finite number of workers and machines, with them you can stuff and mail a finite number of envelops. It's simple logic, no reason to mention it. There was nothing to be "caught" at, it's all a matter of simple logic. Anybody that's bothered to learn even the most minor concepts of running a business know they were going to wind up in a situation where they would want to favor some customers over others on the turn around, it was bound to happen and their logic was the right on.

What an idiot example, completely lacking in any of the most basic recognition of the reality of the situation.


82 posted on 02/11/2006 1:38:12 PM PST by discostu (a time when families gather together, don't talk, and watch football... good times)
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To: dawn53
if people get dissatisfied, they'll just switch to a different service

Exactly, ain't America grand! I've done the same with my ISP.

83 posted on 02/11/2006 1:41:51 PM PST by Navy Patriot (At times like this, it is a pleasure to support Free Republic.)
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To: ChadGore
what's the best peer to peer program... I've tried some recently and they don't work on my win98 machine?
84 posted on 02/11/2006 2:26:52 PM PST by Dick Vomer (liberals suck......... but it depends on what your definition of the word "suck" is.)
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To: ChadGore

Those are illegal.


85 posted on 02/11/2006 2:29:57 PM PST by jude24 ("Thy law is written on the hearts of men, which iniquity itself effaces not." - St. Augustine)
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To: George from New England

If I wanted to watch clean flicks I'd rent G rated movies.


86 posted on 02/11/2006 2:33:16 PM PST by sabe@q.com (Yes, I'm a SW freak!)
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To: rcocean

"People who rent a Lot of DVDs a month are costing them money. They've taken the obvious step to correct the problem."

Which makes sense, if only they didn't insist on using the hook "unlimited". I am happy with Netflix so far. Access to such a huge catalogue of films cannot be had any other way at this point.


87 posted on 02/11/2006 4:07:26 PM PST by avenir
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To: freedumb2003

I wish I had that much time. Between work, kids, dogs, I can barely handle the 3 at a time. And, then, if the movie isn't very good, it gets sent back unwatched. One of the reasons I like the mail service.


88 posted on 02/11/2006 4:10:33 PM PST by ican'tbelieveit (Join FreeRepublic's Folding@Home team (Team# 36120), KW:Folding)
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To: chae

thanks--that sounds like a much better deal.


89 posted on 02/11/2006 4:35:01 PM PST by drhogan
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To: BagelFace

yum, yum!
the stampede will soon be coming your way!


90 posted on 02/11/2006 4:37:23 PM PST by drhogan
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To: discostu

a sleazy operation is a sleazy operation.


91 posted on 02/11/2006 4:40:05 PM PST by drhogan
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To: discostu

what people are objecting to is netflix's redlining the heavier users, not the issue of actual availability of dvds. if they are offering different levels of service, they should have said it up front, and maybe had a price differential.
they advertised one type of service and provided a lower-level service.


92 posted on 02/11/2006 4:44:34 PM PST by drhogan
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To: discostu

but triaging in hospitals is (hopefully) not being done based on how often the service is used. if hospitals did that, they might get into serious trouble.
now that netflix has disclosed what they are doing, there is no real problem. the problem was back when they didn't disclose, and simply delayed the turn around.
how about if we all had a credit card that would slow down payments to "frequent billers" without disclosing. then we could use it to buy products and services from your business. you would be out of business before you ever collected the money owed to you.


93 posted on 02/11/2006 4:55:19 PM PST by drhogan
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To: discostu

A wise man once said: "Admitting you're wrong is a good thing, it shows character and places you above most of the rest of the world." Actually, it was Bozo the clown who said it, but even a clown gets it right once in a while (albeit in a run-on sentence with excess prepositional phrases).


94 posted on 02/11/2006 6:06:26 PM PST by BagelFace (BOOGABOOGABOOGA!!!)
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To: goresalooza

Post #7 well said. Netflix is overrated, IMO. Either I buy the classic DVDs that I want outright or I can just rent the favorites at Family Video for $1 apiece. Besides, Netflix is already obsolete. Cable and satellite companies already offer pay-per-view.


95 posted on 02/11/2006 6:24:26 PM PST by Extremely Extreme Extremist (Tagline removed by Moderator)
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To: drhogan

OMG...I did the same thing! LOL!!!!!!!

GMTA..hehehehe.


96 posted on 02/11/2006 6:58:01 PM PST by goresalooza (Nurses Rock!)
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To: Extremely Extreme Extremist

"Cable and satellite companies already offer pay-per-view."

But not in the original aspect ratio, HD and DD. DVD can offer that.


97 posted on 02/11/2006 7:00:06 PM PST by sabe@q.com (Yes, I'm a SW freak!)
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To: drhogan

They need to protect profitability as well as attempt to satisfy the customer. There was always a conceptual limit, depending on how fast you watched things and the rate of turn around. That's what they advertised that's what they're providing.


98 posted on 02/11/2006 7:09:44 PM PST by discostu (a time when families gather together, don't talk, and watch football... good times)
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To: BagelFace

Oh that's so cute. Don't bring an idiot parallel to a discussion of facts. Even all you can eat restaraunts can set limits on all you can eat, it's perfectly legal and reasonable. Even with next day turn arounds it's hard to get up over 12 movies a month with a max out of 3, if you want more than that in a month then change your rental to a higher max out limit. That's all you need to do, NetFlix is trying to maintain profitability, it's not a charity it's a business, they exist to make a profit, if a certain type of customer is damaging that profit they either need to get rid of those customers or find a way to make them profitable. And there's absolutely nothing wrong with that.


99 posted on 02/11/2006 7:12:48 PM PST by discostu (a time when families gather together, don't talk, and watch football... good times)
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To: BunnySlippers
I am with you in feeling quite disgruntled.

I have had periods when I fired them back pretty quickly but, overall, I do not average out as a fast returner. But the rate of shipment seems to have slowed.

I am quite surprised that they acknowledge this practice. I consider it bad faith, if not fradulent. I pay them money each month and their represnetation gave me no hint that that this was the deal. Forgot to have my lawyer take a look.

Although I agree with majority sentiment on this forum that businesses are free to set the terms of their offerings, I am surprised that most would find this underhanded maneuver to be a fair practice. To me, it is like an all-you-can-eat-buffet insisting on clean plates for return visits to the buffet but deliberately making it difficult for a customer to get a clean plate...i.e., requiring that a waiter bring it and then telling the waiters to take their time. (I've never seen any such thing in an eatery...just trying to construct a daily life analog.)

100 posted on 02/11/2006 7:28:05 PM PST by LK44-40
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