Somewhere between 32 and 94 per cent of your customers are right this minute thinking about switching to your competitor.
If you’re in the insurance industry, about a third of all your clients are ready to make the leap. Over half are at risk if you provide mobile phone or banking services. In a department or specialty apparel store, four out of five customers are contemplating a change. And if you run a fast food franchise, you’re on verge of losing 94 out of every 100 customers who bought a burger last week.
It’s no better in professional and industrial sectors. 55 per cent of enterprise software solutions buyers are antsy and 61 per cent of executives who outsource some part of their operation say they’d “love to find someone else to outsource to.”
How do I know? Customers who are on the edge of defecting (or reducing their purchases year over year) don’t say so in satisfaction surveys. So I had to read between the lines and connected the dots. You can too.
There are several factors that can push clients to think about defecting. Curiosity (when your client asks himself, “Am I getting the best deal?”), inducement (when a competitor asks your customers, “Would you like to see a much better deal?”), or even chance (when circumstances put your clients and your competition in the same place at the same time) – all are known to prompt customer defection.
But one factor is the gateway for all the others. It’s disappointment – the feeling of outrage and regret a company creates when its regulars don’t get what they expected. Disappointment is the catalyst for defection.
Think about it. You are bombarded with about 3,000 advertising inducements every day. They mostly go in one ear and out the other. But the day your credit card company disappoints you, you will actually stop and pay attention to the ad offering a zero percent finance charge on balance transfers from another financial institution. The same goes for your phone service, your software supplier or any other commercial relationship.
Now, everyone knows it’s very expensive to replace an existing customer. Not only does a company have to pay through the nose to find fresh prospects, but also the discounts or other give-a-ways necessary to get people to switch take a big bite out of any organization’s current operating margins. Then, as any employee from the front lines will tell you, that new customer will ask more questions and demand more attention, straining already stretched customer support budgets to the breaking point.
It’s an undeniable fact – new customers cost more and pay back less than existing clients. That’s why the most effective cost-saving, profit building change a manager can make is to stop doing anything at any level that causes current customers to feel disappointed.
So connect the dots. You can’t stop people from being curious or keep your competitors from dangling a carrot. But you can stop all the dropped balls and unforced errors that disappoint your good customers (or key employees and best investors), any of which could become the straw that breaks the back of your long-term, profitable customer relationships.
Following through isn’t critical because of the “Golden Rule” or any high ethical standards. Following through is a way to stem the waste of resources and build revenues by reducing the rate of customer defection caused by disappointment. It’s a profit building, better ROI strategy.
Posted by Laurence Haughton at March 10, 2005 11:06 AM | TrackBackConnecting the dots is child’s play when the dots are all there and all in their rightful places. It is a dangerous game when you are supplying the dots as you go.
It is unlikely that so many customers are ready to bolt their favourite grocery, burger joint, insurance company or telcom.
You cite curiosity, inducement, chance and disappointment as drivers to defection.
People choose to shop at stores because they are conveniently located and have a selection and price range that is appropriate for them. People stay with utilities over time because of the fear and inconvience of change; they will stick as long as possible with the devil they know. Convenience turns into habit, habit into loyalty and loyalty into inertia.
Curiosity and inducements are door-openers, but do not have the power, in and of themselves, to create or destroy long-term loyalties. Disappointments will put loyalties at risk, but only if the disappointments pile up. They put chinks in the armor, buy loyalties do not break down easily.
All that said, there is no question that, if those at the front lines who deal directly with customers, fail to do their jobs, do not treat people with respect, or do not take pride in themselves, their work or their employer, all the goodwill built by the company over time will erode. This is the real danger for companies; their investments in brand is for naught if the promise of the brand is not delivered in the field, where company and customer intersect.
And you are also absolutely correct in highlighting the (monetary) value of loyalty and the cost of losing and replacing customers. Most companies do not assess the lifetime value of customers, but a little work on understanding the core of its customer base would prove very enlightening for any company. This is connecting the dots. I am always astounded at how little knowledge even large companies have of their most loyal, and by extension, highest return customers.
I work for a company that does well, almost by default. It is a master at navel-gazing and star-gazing, but is generally poor at seeking out, watching and listening to its customers. Or its own people, for that matter. But it is large enough that, like a Timex watch, it can take a licking and keep on ticking. It is a Dilbert-like comedy that manages to continually amuse or amaze those who follow its exploits. It is populated by high-level wackos who prove that truth is stranger than fiction…and almost always much funnier. Free advice and running editorial comment accompanies. For a peek, I invite you to visit bigpicturesmalloffice.blogs.com.
I'm not supplyig the dots, companies who fail to follow through are.
I'd love to give you the sources and methods I used to come up with those numbers but I can't find any contact info. There are many reliable sources for my estimates. All you have to do is be willing to see the connection between disappointment and defection.
And if a company isn't, it's all the better for its competetors who can steal the first company's disappointed, inertia-bound customers.
Thanks for your comments. I'll take a look at your blog.
Sorry... my email link didn't work the first time. Try this one.
Posted by: Laurence Haughton at March 14, 2005 09:24 AM