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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