Poor customer service costing businesses billions

By Adam Turner
Sunday, 20 April 2008 14:32

Strategy

Look after your customers or they'll ditch you - that's a key finding of a recent survey into customer churn.
Churn - the fancy name for customer turnover - costs Australian businesses in the region of AU$1.5 billion a year, according to the BMC Software Churn Index. Commissioned by IT vendor BMC Software, the study of 4000 consumers in seven Asia Pacific countries included 600 Australian consumers. It indicates that 92 per cent of Australian consumers have at some point switched a service, with almost six out of ten having changed suppliers in the past 12 months.

Everyone knows that it's fair cheaper to retain a customer than gain a new one, but the message doesn't seem to be getting through to all businesses. After price-related issues, customer service was the major reason why customers decided to ditch a provider. A service problem (mistake, error or failure) had led 38 per cent of those surveyed to change provider, while 42 per cent had ditched a service provider due to inadequate resolution of a problem.

Customer churn is no longer an issue confined to the banks and telephone companies who have historically had the highest churn rates, but is now affecting additional sectors including mobile phone companies, utilities and broadband suppliers.

"Churn has become enemy number one for business," said Adrian Payne, Professor of the University of New South Wales School of Marketing. "The BMC Churn Index is a clear wake-up call for businesses. They need to know when business services are going wrong and which customers are affected, because, without that insight, they run the very high risk of that customer switching at some stage."

The impacts of poor customer service can be far reaching. Disappointed customers are more than twice as likely to make negative recommendations (70 per cent) than those whose expectations are met, whereas 61 per cent of customers whose expectations were exceeded are likely to make positive recommendations. Consequently, missing customer expectations has a triple impact on businesses; it loses existing customers through switching, it loses potential customers through negative recommendations and it loses potential customers through lost positive recommendations.

Payne said that many factors including financial incentives are used to attract new customers, but the continuous cycle of cost cutting and financial kick-backs are not a healthy long-term business strategy. "Companies spend substantial amounts of money attracting new customers, but often losing them because of poor service, an outage or frustrating experience with the help centre."

According the survey, keys to customer loyalty include;

- Keeping call centres in their home country (75%)

- Having call center staff aware of their service history, so they don't have to explain multiple times (69%)

- Suppliers being more proactive in informing customers about a problem with the service and the resolution of the problem (50%)