Very few companies escaped last year's downturn unscathed. But for a handful, it was business as usual.
Take CSG Systems (Nasdaq: CSGS), for example, which handles billing and other services for cable and satellite TV providers like Comcast (Nasdaq: CMCSA) and Dish Network (Nasdaq: DISH). The company gets paid to mail out monthly statements to roughly half the households in the United States, and it processes about $3 billion in transactions every month.
Setting up the firm's complex billing infrastructure can cost millions and take months to complete. Once a customer like Time Warner (NYSE: TWX) has made that type of commitment, it is usually very reluctant to take its business elsewhere. Most sign long-term multi-year contracts. As a result, CSG Systems has money coming in the door rain or shine.
Despite a sharp plunge in consumer and business spending, the company posted a healthy +13% increase in revenue last year. Those improvements help explain why CSG Systems swam when the rest of the market sank like a rock. The shares delivered +19% in 2008, while the S&P 500 nosedived -38%.
The stock is a prime example of how a sticky customer base can keep a company's stockholders happy in any environment.
"Switching Costs" Are a Headache
We all know that neighborhood gas stations have basically zero pricing power. It takes almost no effort to pull in next door to save a few cents a gallon, so pricing is cut-throat and margins are razor thin.
At the other end, there are well-placed firms like CSG Systems that can milk their customers. Clients aren't going to throw away millions in upfront installation expenses and then spend time and money retraining its employees on a new system just to save a few bucks.
As a result, the business tends to be highly stable.
Banks and asset management companies often benefit in much of the same way. It's not that we couldn't find a cheaper checking account or better performing mutual fund somewhere else, but the headache of signing papers, transferring assets, filling out new direct deposit forms, etc. is enough to dissuade most of us from jumping ship.
Simply put, these "switching costs" usually outweigh any benefit associated with moving to a competitor. |
