Why customers are switching, and how to reduce churn

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By: Wise Marketer Staff |

Posted on May 24, 2007

Competitors are making it easier than ever for consumers to defect and find new suppliers, according to a customer loss study conducted by customer loyalty expert Jill Griffin and research firm CustomerSat.

More than half (59%) of sales executives and 43% of marketing executives surveyed reported using switching tools to reduce the hassles customers encounter when moving their accounts across from a competing supplier.

Hook principle failing
"In many industries, such as retail banking, firms have long relied on the 'hook principle' to retain customers," explained Griffin. "For example, direct deposits of social security and pension cheques, and automatic monthly withdrawals for insurance, telephone and utility bills have long kept customers tied to a bank when they would just as soon leave."

But now, increasingly so, competitors are doing everything in their power to make it easier for customers to switch to their products and services, and even offering switching assistance services as a 'sweetener'.

Switching services increasing
In the survey, which polled over 500 senior executives with selling, marketing and corporate buying responsibilities, a host of high-use switching services were reported.

Among the marketing and sales executives surveyed, 51% reported using incentives for switching (such as fee waivers or welcome gifts). Almost as many (44%) reported helping customers complete any paperwork required for switching, and 30% reported the use of 'switch kits' that clarify the steps customers need to follow to move their account.

B2C and B2B affected equally
Executives surveyed were from a cross-section of industries including insurance, banking and other financial services, food manufacturing, electronics, technology, professional services, healthcare, telecommunications and pharmaceuticals.

Both business-to-business (B2B) and business-to-consumer (B2C) marketing and sales executives reported using switching tools to lure customers away from the competition.

Preventing defections
The study found that, while many companies are aggressively targeting competitors' customers, the smarter organisations are already taking steps to prevent defections.

According to Monica David, vice president of professional services for CustomerSat, "Comparing the cost of adding new customers to that of retaining existing ones, it makes sense to understand and respond to the requirements of the existing customer base. We already see our own clients taking a variety of proactive steps to ensure high customer satisfaction and retention rates."

Proactive steps taken
Examples of steps that companies are taking to help prevent defections include:

  1. Some collect regular feedback from customers across various touchpoints;
  2. Some conduct 'lost customer' surveys to understand why customers left, where they went, and why they chose specific competitors;
  3. Some take immediate action with disgruntled customers and prioritize strategic process, technology, and personnel changes based on the feedback;
  4. Some communicate often with their customers, letting them know how important their feedback is, informing them of action plans, and notifying them after actions are taken.

Griffin concluded: "Never before has it been more important to deliver real value to customers at every touch point, and to address at-risk customer concerns. Your competitor is making it easier than ever for customers to leave you, and no customer is safe from defection."

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