That alarming statistic in the title comes from a Satmetrix study of UK customers who left buying relationships in the previous 6 months because of a poor experience.
Here is a breakdown of the customers’ reasons for leaving:
How many of these reasons are beyond the companies’ ability to control them? We don’t know what the 7% "Other" is, so let’s assume the companies were not responsible for those; which leaves us with a whopping 93% of the reasons for defections that could have been anticipated and corrected. While this was a UK study, having lived there for almost 20 years, I can tell you that the British become more Americanized every day; that includes customer expectations and buying experiences.
At a time when every profitable customer is a nugget of gold, what were these companies thinking? Is no one asking why such a large percentage of revenues coming from new customers are going to replace income from those who have defected?
How would your company quantify such recurring losses? In addition to lost revenues that must be replaced, there are acquisition costs and lost opportunity costs when you cannot cross-sell to an existing customer (cheaper than acquiring a new one) and when the defecting customer tells ten people face-to-face and thousands online.
The Satmetrix study also reported that while 49% of respondents trusted referrals from friends and family as their primary source of information, only 2% trusted the company’s advertising; what they labeled the Recommendation Generation. It seems that this might be a budget item that could be revisited in the current economic climate.
So, add it all up, assuming 24% of your customers leave annually or whatever percentage you believe is true for your company:
- Lost revenues
- Lost market share
- Acquisition costs
- Loss of cross/up-selling opportunities
- Lost Customer Lifetime Value
- Negative word-of-mouth
- Ineffective advertising
Now ask your department heads and others:
Why would we spend our budget on advertising instead of improving the customer experience? If you can’t have both, the latter seems to be much more a more effective use of limited resources.
How can we afford to hemorrhage so much money in this economy when most of the reasons for customer defections are within our own ability to change the game? What do you think the cost of a good customer experience is? What is it worth to your company?
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ReplyDeleteBarbara:
ReplyDeleteYour information here not only has general applicability to the business as a whole but specifically to HR. For two different reasons.
First, to think beyond the file cabinet this is an issue that HR should be directly involved in. Customer experience is a people issue, even when it is a technology issue, that involves recruitment, training, engagement, compensation and retention. Talk about earning your "seat at the table."
Secondly, HR needs to think about this in terms of their "customers", the employees and management team. What is their customer experience like? They may not be able to get rid of you entirely by taking their business elsewhere, but they certainly can make an HR department totally ineffective by avoiding them or working around them.
Good stuff. Thanks.
Wow, Mike, too right!! Customers are everyone's concern and we all have customers as you point out. It's one of the reasons we believe in "Engaged Companies" not engagement in silos. HR can play such a pivotal role in improving customer satisfaction and loyalty externally and apply the same tactics in their own function. Those customer metrics have direct relationships with the areas you cite: selection, training, compensation, etc. The more HR asks good questions and creates quantifiable metrics relating to customers, the more their value inside the organization is explicit.
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