Intuit Screws Up, And H&R Block Will Profit 29 comments
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Know thy customer… and don’t mess up with him - even less in the Web 2.0 era, in which news spreads like wildfire and disgruntled customers can very quickly come together and turn into a virtual lynching mob against you. In this era, serious, organized, massive boycotts can happen, and can be triggered in a matter of days, if not hours, should consumers are outraged enough. It is a real threat, so companies cannot afford to fail in understanding their customers and taking them seriously.
Case in point: Intuit (INTU), the developer of the –until now - leading tax preparation software, Turbo Tax. Over the years, Intuit has been building a growing and profitable franchise of loyal Turbo Tax users who year after year would buy its new version at tax time. This has been a major undertaking for Intuit: most taxpayers are still skittish about leaving something as important as preparing their tax returns to a software application and are simply not comfortable working on something of this perceived complexity on their own computers. Nope. When dealing with the IRS, most still want to make sure an expert takes care of it and want to see a solid, tangible, black-and-white packet safely shipped to Uncle Sam in a totally certified, absolutely delivery-confirmed, personally-mailed-from-the-post-office parcel.
But this of course is changing, as computers become more pervasive and more and more people are perfectly comfortable with them. Once a customer overcomes his apprehensions and is persuaded to try doing his taxes by himself with the help of tax preparation software, chances are you got him for life. It is not only a superior and more effective way of doing the taxes, but as confidence and familiarity with the product is built in a process that by nature is always complicated and stressful, the users just don’t want to go out and experiment with a different application. In addition, a significant history of transferable data gets built into the software for future use, providing another strong reason to just stick to the application you’ve got to know over the years. So, for Intuit, this was a solid business model. In a society rapidly embracing the digital world as the norm in everything from the way you do your banking to how you find the love of your life, steady growth could only be expected.
But this year, Intuit screwed up. In an attempt to squeeze more money out of their customers, Intuit tried to change the rules of the game on them. In essence, Intuit tried to re-position its business as a provider of tax services rather than that of a software vendor. The first mistake was to significantly increase the price of Turbo Tax, trying to justify it by adding “free” federal e-filing to the package. This backfired badly. Many customers didn’t care about e-filing, so they perceived they were been charged for a feature they didn’t want to start with.
Furthermore, realizing that a portion of their franchise used the software to prepare the taxes not only for themselves but also for other members of their family, Intuit thought they could create a new revenue stream from that. So they imposed a fee for each tax return printed through Turbo Tax. That was the straw that broke the camel's back. Their former loyal customers were infuriated, and many clearly stated their intention to switch to Turbo Tax’s closest competitor, H&R Block’s (HRB) Tax Cut.
Even though Intuit backtracked on its original intentions, eliminating printing fees and slashing their price, the damage was done. As a marketer with a strong, loyal franchise, the most important thing you have to avoid is for your customers to have an excuse to go and try your competitor, lest they like it and leave your franchise for good. Intuit’s ill attempt to gouge its customers left the door wide open for that. And H&R Block aggressively took the opportunity.
They positioned Tax Cut at a lower price point to Turbo Tax, including the free federal e-filing Intuit was hoping to use to justify their hike. In a brilliant, aggressive move, H&R Block even sent out their Premium Federal Tax Cut version for free to tens of thousands of consumers, pretty much eliminating a key barrier for disgruntled Turbo Tax users to try their product. And ultimately, taking advantage of its robust infrastructure as a true tax advisor, H&R Block is backing its software product with the promise of personal support to solve questions and, most importantly, to provide support and representation in case of being selected for an audit.
H&R Block’s advertising campaign, “You’ve got people”, is a superb concept that goes to the heart of the emotional burden that preparing taxes means for most people. It’s a very complex and confusing process that generates a lot of anxiety and a dreadful feeling of cluelessness and vulnerability. “You’ve got people” is a comforting, reassuring message that humanizes the relationship with the company and creates in the target audience the comforting feeling of not being alone in the process.
Bottom line, I expect Intuit’s blunder to have a significant negative impact in its stock performance. For this tax season, the winner will be H&R Block; we should see a positive upside surprise in its tax software business. In an investment decision between these two companies, I bet for the people!
Disclosure: No positions
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This article has 29 comments:
Where are you getting the data your article refers to?
While "you've got people" has a nice ring to it, TurboTax's objective is to create such an easy to use, yet robust software solution that you don't need people. Our interview has been top rated for decades and this Q&A format is what empowers our customers to be confident their return is complete and accurate. We also have people in the unlikely event you need help, but our design philosophy is not built around creating a solution that embraces human intervention.
By the way, only about 25% of our customers will pay more this year. The vast majority of our customers already electronically file, so they will actually see a price decrease. Those who have not used e-file in the past will pay more and they did voice their opinions loudly. We listened to them and made significant changes (in early Dec) to address their concerns. Intuit has a history of listening and responding to its customers, and this is one example.
In these times when every dollar counts, consumers are continuing to select TurboTax in larger numbers because it is the best solution for most taxpayers and it's where we guarantee they'll get the biggest refund. Whether your return is simple or complex, TurboTax has a solution for you and at a price that fits everyone-- from free on up. And when it comes to purchasing TurboTax, retail price competition is sure to provide TurboTax customers with a price likely to be less expensive than previous years.
Bob Meighan
VP, TurboTax
I decided to return it except the address on the website was incorrect and then when I called I received another wrong address. So, today I send it back for the third time.
So, turbo tax is more expensive but it works. Tax cut doesn't work, is not as good as Turbo tax and they work hard to make sure they don't have to stand behind their guarantee of returning your money.
I will never use tax cut again.
lot's of assertions, not numbers.
I'm frustrated enough to try Tax Cut. I wonder how many others feel the same way.
I got my state refund in three days (by paper check).
But I still am hashing out the IRS details four days later. Hoo boy.
But I like it more than Turbo Tax, which I tried out last year. But because there were changes in the state tax that were not in the Turbo Tax program (I receive death benefits which are now tax free as of last year) it's just better for me to work it out, since I'm more of a tax freak anyway.
I can honestly say I and now and will be a TaxCut user. If you have used TurboTax in the past, try TaxCut like I did. You will be so glad you made the switch.
On Feb 02 01:31 PM Bob Meighan wrote:
> Rafael... I appreciate your perspective on the tax business.
>
> While "you've got people" has a nice ring to it, TurboTax's objective
> is to create such an easy to use, yet robust software solution that
> you don't need people. Our interview has been top rated for decades
> and this Q&A format is what empowers our customers to be confident
> their return is complete and accurate. We also have people in the
> unlikely event you need help, but our design philosophy is not built
> around creating a solution that embraces human intervention.
>
> By the way, only about 25% of our customers will pay more this year.
> The vast majority of our customers already electronically file, so
> they will actually see a price decrease. Those who have not used
> e-file in the past will pay more and they did voice their opinions
> loudly. We listened to them and made significant changes (in early
> Dec) to address their concerns. Intuit has a history of listening
> and responding to its customers, and this is one example.
>
> In these times when every dollar counts, consumers are continuing
> to select TurboTax in larger numbers because it is the best solution
> for most taxpayers and it's where we guarantee they'll get the biggest
> refund. Whether your return is simple or complex, TurboTax has a
> solution for you and at a price that fits everyone-- from free on
> up. And when it comes to purchasing TurboTax, retail price competition
> is sure to provide TurboTax customers with a price likely to be less
> expensive than previous years.
>
> Bob Meighan
> VP, TurboTax
I haven't done my tax yet. I have used Turbo Tax for 4 years and it may be time for a change.
On Feb 02 02:35 PM Mark Perlin wrote:
> As a turbo tax user I was distresse by what they did. So, after 2
> years I went back to tax cut. What a mistake that was. I could not
> install the software myself. Then using a supervisor to help me I
> still could not get the software installed.
>
> I decided to return it except the address on the website was incorrect
> and then when I called I received another wrong address. So, today
> I send it back for the third time.
>
> So, turbo tax is more expensive but it works. Tax cut doesn't work,
> is not as good as Turbo tax and they work hard to make sure they
> don't have to stand behind their guarantee of returning your money.
>
>
> I will never use tax cut again.
Also, i dont really like the idea that Turbo Tax is charging clients to e-file, comeon, have u looked at the economy, not a good time to raise prices. Not only that, H&R Block has offices around my house and it is much easier to get in contact with them when i have questions.
On Feb 02 01:31 PM Bob Meighan wrote:
> Rafael... I appreciate your perspective on the tax business.
>
> While "you've got people" has a nice ring to it, TurboTax's objective
> is to create such an easy to use, yet robust software solution that
> you don't need people. Our interview has been top rated for decades
> and this Q&A format is what empowers our customers to be confident
> their return is complete and accurate. We also have people in the
> unlikely event you need help, but our design philosophy is not built
> around creating a solution that embraces human intervention.
>
> By the way, only about 25% of our customers will pay more this year.
> The vast majority of our customers already electronically file, so
> they will actually see a price decrease. Those who have not used
> e-file in the past will pay more and they did voice their opinions
> loudly. We listened to them and made significant changes (in early
> Dec) to address their concerns. Intuit has a history of listening
> and responding to its customers, and this is one example.
>
> In these times when every dollar counts, consumers are continuing
> to select TurboTax in larger numbers because it is the best solution
> for most taxpayers and it's where we guarantee they'll get the biggest
> refund. Whether your return is simple or complex, TurboTax has a
> solution for you and at a price that fits everyone-- from free on
> up. And when it comes to purchasing TurboTax, retail price competition
> is sure to provide TurboTax customers with a price likely to be less
> expensive than previous years.
>
> Bob Meighan
> VP, TurboTax
Is it true, in 2005, TurboTax incorrectly calculated the Child Tax Credit to all of TurboTax's clients?
And consequently, did Turbo Tax have to take out a full page ad in the newspaper to disclose this mistake that cost thousands of clients to lose their valuable tax credit?
Is April 15th, 2009 the last day to file an ammended return to recapture the Child Tax Credit TurboTax missed?
How can someone visit a TurboTax office and file an ammended tax return with TurboTax?
Can you file a ammended tax return online with TurboTax? Does the IRS accept ammended returns electronically. No?
Bob, please address these questions before you spout more false guarantees. We understand it is your job and position to defend TurboTax, but address the mistake on TurboTax's part and stop portraying the company as a solution for every body.
I must admit that for few years, the Interview with Turbo Tax was way more superior than others but that is no longer the case.
The ease of use and support with Tax Cut is amazing this year. It is very easy and simple to use and actually beats Turbo Tax.
For example, I had to use Dependent Child Care this year and Turbo Tax refused to let me E-File stating that IRS is now allowing E filing for 2440 due to that fact that Depdent Care is being forfeited.
Tax Cut allowed the efling and everything is ok.
Also, Tax Act for simple returns is superior in providing information to its users.
If I must pick, I'd go with Tax Cut as you can always find someone to help you and support all year long. Worst case, you can go to an HR Block office and they can help.
On Feb 03 08:36 AM Maharta wrote:
> As concerned stockholders, we’d like Intuit and H&R to respond
> to disconcerting information pertaining to “you’ve got people”. Information
> has it that the same outsourcing company is supporting both Intuit
> and H&R Block products. Do we have the “same people” supporting
> competing products?
And BTW, if you decide you want to have a "live" person prepare your taxes from H&R Block next tax season instead of doing it yourself, the previous year's TaxCut return is downloadable (thus saving lots of preparation time).
PLUS H&R Block stands behind every return through their standard guarantee -- that is, they will pay additional interest and penalties assessed by the IRS if the mistake was caused by HRB. Who else does that? -- not Turbo Tax or any other Retail accounting firm that I know of.
On Feb 05 12:15 PM Matt Kolo wrote:
> TurboTax has a definite problem handling multiple state W-2s with
> the same income (it is doubling the income) this is a software issue.
> H&R Block on the other hand has seasoned "people" that can appropriate
> tax to either state correctly thus averting the whole issue. TurboTax
> has created a mess with the income duplication, not only in border
> state competition but also in the fiasco of amended returns. Oh by
> the way...good luck speaking to someone human to try to resolve this.....it
> definetely is a box. (TT admitted the issue, but no patch exists..how
> about a refund for the software and additional state downloads) ?
>
Last year I received a free copy of Tax cut and was impressed how much easier the interface was and the more streamlined interview process. That year, my father asked me if he could load a copy on his computer and when i went to his house I saw he had already loaded Turbo Tax.
I saw that he loaded it imprperly and after i corrected the installation i was very disappointed at how cumbersome it has become and was glad that i was using Tax cut.
This weekend I went to my local retailer and bought this year's version of Tax Cut. I particularly liked the 5 free federal Efiles and the cost advantage definetly belonged to Tax Cut.
I won't pretend to know anything about Intuit's product but, with H&R Block, "the people" are all us folks who work for Block in any capacity. Our mission is to be your tax and financial partner. If you have a question, we will do our best to answer it for you; online, over the phone, and even if you stop in an office. If you are audited you have access to people who specialize in representation before the IRS: the Worry-free audit support feature.
Any questions about H&R Block try 1-800-HRBLOCK, and if you need help with a tax question, you can reach me at my office at 410-674-4752. If I don't know the answer, I will find someone who does. Just ask for Stephanie.
On Feb 03 08:36 AM Maharta wrote:
> As concerned stockholders, we’d like Intuit and H&R to respond
> to disconcerting information pertaining to “you’ve got people”. Information
> has it that the same outsourcing company is supporting both Intuit
> and H&R Block products. Do we have the “same people” supporting
> competing products?
On Feb 06 01:31 AM Stephanie T. wrote:
>
> I won't pretend to know anything about Intuit's product but, with
> H&R Block, "the people" are all us folks who work for Block in
> any capacity. Our mission is to be your tax and financial partner.
> If you have a question, we will do our best to answer it for you;
> online, over the phone, and even if you stop in an office. If you
> are audited you have access to people who specialize in representation
> before the IRS: the Worry-free audit support feature.
>
> Any questions about H&R Block try 1-800-HRBLOCK, and if you need
> help with a tax question, you can reach me at my office at 410-674-4752.
> If I don't know the answer, I will find someone who does. Just ask
> for Stephanie.
Mr. Meighan: I commend your involvement in the multiple forums I've visited to assess the competitive situation in the tax software business I am addressing in this article. Indeed, you listened to your customers and you corrected many of the issues they raised. But my article is not challenging the Turbo Tax benefits that you enumerate in your comments. That is for the consumers to judge. My conclusion is that the magnitude of the negative reaction -perhaps exaggerated, but absolutely real- from your customers to the attempted changes in the Turbo Tax 2009 model, along with the aggressive marketing of Tax Cut, will erode Turbo Tax's franchise in a significant way. Time will tell whether my estimation was accurate, but from the investment perspective, my point is this is a risk to be seriously taken into consideration.
On Feb 02 10:59 AM Paul Price wrote:
> It doesn't appear you have any figures to back up your assertions
> of lost market share for Intuit.
>
> Where are you getting the data your article refers to?
>
On Feb 02 03:39 PM kylesch wrote:
> I'm not sure why you would say "not that many people care about e-filing"
> as I believe the IRS has reported that over 60% of filings were electronic.
> That number is only going to go up...
>
> lot's of assertions, not numbers.
As far as the "people" that H&R Block have, my sister had to use them last year when she hired an accountant to do her taxes first. He made mistakes and manufactured figures (creative accounting not authorized by her), to the point that she took her CPA-produced form to Block. They continued the process of making mistakes, and my sister had to literally stand over the preparer's shoulder and tell her what to enter into her own software. After several cycles of this, she was really at her wits end, but thinks she ultimately got an error free form to submit. I don't fully trust anyone to do my taxes except myself, although I would go to an accountant for questions of interpretation.
Intuit (INTU): FQ2 EPS of $0.34 beats by $0.07. Revenue of $791M vs. $796M. Sees FQ3 EPS of $1.57-1.68 vs. $1.67, and full-year EPS of $1.78-1.89 vs. $2.03. Shares +6.2%
On Feb 20 07:29 AM Paul Price wrote:
> Where was the Bad news?
>
> Intuit (seekingalpha.com/symbo...): FQ2 EPS of $0.34 beats
> by $0.07. Revenue of $791M vs. $796M. Sees FQ3 EPS of $1.57-1.68
> vs. $1.67, and full-year EPS of $1.78-1.89 vs. $2.03. Shares +6.2%
>
MacMillan writes in a research note that the downgrade reflects new data that suggests the company will see a second consecutive year of declining ASPs in its consumer tax business - as well as unit share losses to its biggest competitor, H&R Block."