New research covering the top 1,000 UK companies has found that customer defection rates in key UK consumer industries have increased from an average of 16.9% in 2003 to more than 19% in 2005, according to Group 1 Software.
The company's research report, entitled 'The Danger of Defection', suggests that the British consumer is becoming more mobile and that companies' retention strategies need to improve to deal with this phenomenon. The attention of marketers is now being focused on existing customer development rather than new customer acquisition.
Major changes have occurred in the traditional view of customer defection rates, most noticeably in the banking industry, where churn has now increased from levels of under ten percent in 2003 to almost twenty percent in 2005.
The mobile telecoms sector still holds the crown for the highest average churn rate - some 33%, although some companies are now achieving churn rates of less than 25% per year. Those sectors with the lowest churn rates are power utilities (with 13%) and mortgage finance providers, with 13.6%.
Research from Pitney Bowes indicates that by the end of 2005 a watershed moment in marketing will be reached: more effort will be going into marketing to existing customers than to winning new customers. The authors of the report point out that retaining customers is just part of the battle; in addition it is vital to be able to develop the value of those customers.
The importance of customer profiling is now paramount. The community of habitual switchers (also known by names such as "rate surfers" or "card collectors") need to be identified so that retention effort is not expended on those who will defect anyway.
At the other end of the spectrum, high inertia customers should be made to feel special and products relavent to their needs can be cross-marketed to them. Every communication with the customer needs to be consistent, relevant and develop customer satisfaction and value at the same time.
CRM breaking through
A Spring 2005 survey by CDMS highlighted the steady progress organisations in different industry sectors are making. CRM is gradually breaking through its bottleneck and achieving end-to-end marketing. Over half of top UK companies are now able to translate sophisticated database analysis into highly personalised and segmented campaigns, where creative, message, and enclosures are varied for different types of recipient.
Barriers to CRM are falling:
- A 2005 study from TotalDM found that 44% of the UK's top 500 companies have appointed a Head of CRM. That indicates that CRM initiatives have been taken, hard bottom-line results measured, and ongoing metrics put in place, before CRM management is afforded senior status in those companies.
- There have also been significant advances in cheaply and quickly drawing customer information out of legacy systems like billing, finance, order management, EPOS, and stock management. This used to be cumbersome and expensive and sometimes placed undesirable strain on the legacy system. That barrier no longer exists, thanks to a relatively new software category called 'extract, transform and load' (ETL). This software allows non-technical people to inexpensively build new data input filters on-the-fly.
- 'Print streams' for statements, bills, order confirmations, customer letters and so on, can now be manipulated to include marketing messages tailored to the individual recipient, taking advantage of all the sophisticated analysis and segmentation that takes place at the database level. Incremental cost for the marketer is minimal, yet recent research shows it can produce response rates akin to stand-alone direct marketing campaigns.
- The upfront cost of investing in CRM has fallen, making it more acceptable to careful CFOs at larger organisations and financially more feasible for smaller organisations. A range of CRM package options have arrived, including the hosted, charged on a service rental basis, low-cost de-featured start-up packages, and even charging per transaction (like a database bureau traditionally does).
- Outsourcing of the whole CRM business processes has also grown. The traditional outsourcing focus has been on the call centre. Recently, however, database bureau businesses have transformed themselves into outsourced analysis departments, campaign management back-offices, or database hosts. According to data management specialist CDMS, campaign management outsourcing is used by over one third of top UK corporations.
Actual churn rates
The actual churn rates for 2005, as identified by the research, are: