March 10, 2005

News & Opinion: Connecting the dots between failed Follow Through and Customer Defection

By: 800-CEO-READ @ 5:06 PM – Filed under: Management & Workplace Culture

Somewhere between 32 and 94 per cent of your customers are right this minute thinking about switching to your competitor.

If you’re in the insurance industry, about a third of all your clients are ready to make the leap. Over half are at risk if you provide mobile phone or banking services. In a department or specialty apparel store, four out of five customers are contemplating a change. And if you run a fast food franchise, you’re on verge of losing 94 out of every 100 customers who bought a burger last week.

It’s no better in professional and industrial sectors. 55 per cent of enterprise software solutions buyers are antsy and 61 per cent of executives who outsource some part of their operation say they’d “love to find someone else to outsource to.”

How do I know? Customers who are on the edge of defecting (or reducing their purchases year over year) don’t say so in satisfaction surveys. So I had to read between the lines and connected the dots. You can too.

There are several factors that can push clients to think about defecting. Curiosity (when your client asks himself, “Am I getting the best deal?”), inducement (when a competitor asks your customers, “Would you like to see a much better deal?”), or even chance (when circumstances put your clients and your competition in the same place at the same time) – all are known to prompt customer defection.

But one factor is the gateway for all the others. It’s disappointment – the feeling of outrage and regret a company creates when its regulars don’t get what they expected. Disappointment is the catalyst for defection.

Think about it. You are bombarded with about 3,000 advertising inducements every day. They mostly go in one ear and out the other. But the day your credit card company disappoints you, you will actually stop and pay attention to the ad offering a zero percent finance charge on balance transfers from another financial institution. The same goes for your phone service, your software supplier or any other commercial relationship.

Now, everyone knows it’s very expensive to replace an existing customer. Not only does a company have to pay through the nose to find fresh prospects, but also the discounts or other give-a-ways necessary to get people to switch take a big bite out of any organization’s current operating margins. Then, as any employee from the front lines will tell you, that new customer will ask more questions and demand more attention, straining already stretched customer support budgets to the breaking point.

It’s an undeniable fact – new customers cost more and pay back less than existing clients. That’s why the most effective cost-saving, profit building change a manager can make is to stop doing anything at any level that causes current customers to feel disappointed.

So connect the dots. You can’t stop people from being curious or keep your competitors from dangling a carrot. But you can stop all the dropped balls and unforced errors that disappoint your good customers (or key employees and best investors), any of which could become the straw that breaks the back of your long-term, profitable customer relationships.

Following through isn’t critical because of the “Golden Rule” or any high ethical standards. Following through is a way to stem the waste of resources and build revenues by reducing the rate of customer defection caused by disappointment. It’s a profit building, better ROI strategy.