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So You Think People Leave Because Of Price? Think Again!

If you don’t know why your customers leave you are doomed to continously lose customers; a very expensive exercise if you have to recruit new customers to replace them. Rather find out why they leave and fix the problem before they leave.

I remember when I was in sales, if a sales person lost a customer the reason was always because of price or the customer didn’t need our services, never about how badly we looked after the customer. This seems to be the most common excuse, blame it on price so you don’t have to do a lot of painful introspection and change. But insanity is doing the same thing over and over again expecting a different outcome. So if you want to reduce customer churn it makes sense to find out why customers leave and fix the problem.

When it comes to profitability, it is vital to understand why customers stay or leave. This way companies can increase customer loyalty and reduce customer churn (remember, it is ten times more expensive to get a new customer than it is to keep the existing one). Adopting a customer-centric stance will inform management about what motivates customers’ behaviour, thereby enabling the company to proactively develop a profit-generating customer focused strategy.

In one survey, when customers were asked why they left, 74% said bad customer service was a major factor in their decision. Poor quality was the second-most frequently mentioned problem (32%), and only 25% said they defected because of price issues. Only 14% referred to the functionality of the product as a major factor for defection.

The survey then asked the companies why they thought their customers had left and the results were completely the opposite. 49% of business managers thought price was the primary reason their customers left. Only 22% cited customer service as the cause, as is shown in the graph below. This research demonstrates companies should check their assumptions and invest in research to understand the true reasons for defection or loyalty.

Companies can use surveys to uncover these truths. However, companies can’t always survey customers that have already left, and if they do, it is often too late. (But if you do, 95% of unhappy customers will buy again if their problem is resolved completely and quickly, so don’t think because the chicken has flown the coop all is lost.)

What makes customers stay?

When looking at what makes customers stay, a survey in the IT industry revealed that loyal customers were primarily driven by:

  • Customer experiences – with product quality, purchase process, technical support and consulting;
  • Attitudes – regarding brand, quality and customer focus;
  • Brand images – as an industry leader, trustworthy company and innovative supplier.

According to the study, while price contributes to how customers view the value of what they buy, price alone does not contribute a great deal to customer loyalty.

Happy customers are loyal customers

Emotions play a greater role than price in the decision to defect, and poor customer service is the most likely cause of generating the negative feelings that motivate customer to leave. In today’s free market, customers can generally acquire similar products at similar prices, from a range of local and global suppliers, so why stay with a supplier that provides poor service? One survey found that in 83 percent of cases of defection, a ‘triggering event’ caused customers to end the business relationship and emotion was a critical factor.

Most customers leave a company because they feel they have been mistreated or ignored. While management usually thinks price is the reason for defection (which may be true in some cases, especially now in the current economic recession) customers usually leave because they have been neglected or abused somehow. When they write a letter, send an email or make a phone call – often no one replies or takes them seriously.

Today’s market offers customers choice. If customers have a problem regarding how your company interacts with them, it may the only reason they need to look elsewhere. So why give them an excuse?

You don’t have to be a big company to implement a loyalty programme. According to business CRM guru Jay Curry, conducting customer interviews with top customers can elicit information about the relationship. Interviews and surveys, whether done face-to-face, on the telephone or via the web, can provide useful information which managers can use to make decisions about changes in product or service offerings, post-sales customer service, or pricing. Issues can therefore be addressed before customers defect.

While this methodology may not be statistically detailed, its strength lies in a personal approach that can create a positive frame of mind with the customer. The process of asking for feedback generates loyalty, provided the company is committed to taking action regarding what it learns.

To understand why customers leave or stay, take the customer’s point of view; develop a solution from the outside in; earn the customer’s trust by demonstrating that you are recognising and responding to how they feel about you.

Customer Relationship Auditing can determine your customers’ needs and measure how well you are meeting them. Our process identifies potential defectors so you can take immediate action to make sure they stay; we have proved this time and time again.

References

  • Bob Thompson; The Loyalty Connection: Secrets to Customer Retention and Increased Profits
  • Arthur Hughes, The Customer Loyalty Solution
  • R.P. Cooley, Excelling in the 1990s: CEO Perspectives
  • Walker Information

Douglas MacGregor

Customer Relationship Auditing

“Building superior business relationships through client intelligence”

+27 (11) 805-3588 (direct)

+27 (82) 414-9394 (cell)

douglas@cra.co.za

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