Customer Churn Rate not always about Dissatisfaction

by Matt Klassen on February 17, 2014

In a completely saturated American mobile market, one where some 95 percent of available customers are already locked into some sort of wireless agreement, there’s not much hope in attracting truly new customers, but instead most carriers focus their marketing efforts on attracting their competitors’ subscriber base. It’s this turnover, called churn rate, that has many carriers pulling out their hair, frustrated not at their inability to attract customers, but at their inability to retain them.

It’s a problem not isolated to the mobile sector, however, as every service industry in the world struggles with retaining their client base. The traditional thinking has been that there is a direct correlation between strong customer service and steadfast customer loyalty, but it seems that isn’t always the case.

In fact, figuring out the intricacies of customer loyalty is a complicated puzzle, and as one recent survey found, customer defection is not always linked to customer service or dissatisfaction, but instead a key factor in maintaining one’s customer base is how many other options are there, and how easy is it to switch.

In a recent poll across several business sector conducted by customer service solutions provider Kana it was found that an industry’s churn rate is not always linked to customer satisfaction, but instead the perception of choice. For instance, the utilities sector, an industry often seen as cold and uncaring, ranking off the bottom of the charts in customer satisfaction, experiences one of the lowest churn rates simply because customers don’t see any other options: they feel trapped, and so they stay loyal.

But strangely enough a lack of choice isn’t the only motivating factor in retaining clients, as the banking industry, one where customer service is often seen as low and there is a startling amount of choice, also sees a low turnover rate. In the financial sector most customers feel trapped by their banks, not because there aren’t other options, but because switching is perceived as overly onerous and so not worth the effort.

The strangest of all seems to be the pharmaceutical industry, though, a sector that often boasts high satisfaction and one that offers a myriad of competitive options. While one would think that quality customer service would rule the day, this sector experiences the highest churn rate, with customers constantly switching between different service providers.

So what do we make of all this? As CRM Buyer writer Erika Morphy explains, “There is rarely a straight line between many competitive options and good customer service,” meaning the path to successfully customer retention traverses not only customer service, but differentiation in the market and competitive pricing.

While I would never recommend trapping your customers , if your business is able to set itself apart in products, services, and pricing customers, even in an ultra-competitive market, your company is ostensibly removing the choice to defect, as there simply won’t be anyone else that offers what you give your client base. Of course you’d never want to treat your customers as if they didn’t have a choice to leave, but if you take a multi-faceted approach to retention you won’t have to.

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{ 1 comment }

Hilton B February 18, 2014 at 7:10 am

Nothing particularly new in this survey result candidly. There is certainly a correlation between service and retention but the notion that barriers to switching is a key factor is also well-understood. That’s why Telcos and Banks incentivize bundling of services. The more hooks they have into you the more onerous it is to leave. The same way loyalty programs build up a volume of points that you’re then compelled to spend with that provider. Having gone through several hoops to gain those Starwood/Aeroplan/Hilton Honors points, are you really going to switch? Rogers Bank has publicly announced that it will offer incentives based on the number of other Rogers services you have, besides Banking.

I’ve no doubt some MBA financial wizard has calculated that the margin loss on offering “reduced pricing” on bundled services is far less than investing more OPEX into improving customer service and satisfaction.

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