Poor customer service really carries a high cost in many ways. One way is through customers that defect. In an article by Kana Software that appeared in Loyalty Magazine, I was struck by some numbers he quoted. Let me share them.
One large insurance company with an 11% dissatisfaction rate reported a loss of $476 million per year due to customer defections. Another study, cited in the same article, reported that the average cost of finding a new customer was $118.16 while retaining a current happy customer was $19.76. Yet, there is little evidence to suggest to suggest a broad scale improvement in customer service. If you look at the historical scores from The American Customer Satisfaction Index you see very little improvement in customer satisfaction (some industries such as airlines are getting worse). From my personal experience I have far more stories about poor customer service that service that causes me to be loyal.
What are some of the reasons for this lack of focus on customer service and customer retention? There are several key reasons:
—Management not aware they have a customer defection problem. In my years of consulting I cannot recall a company that measured customer defection. They perhaps were aware of the big customers that went away but many other customers just drifted away without anyone realizing it. Over the years I have had several strategic planning engagements where I analyzed customer turnover. In most every engagement when shown the list of customers who had quit buying management was surprised.
—No one is accountable tor retaining customers. In too many companies the incentive for salespeople is almost totally on finding new customers/ business and not on. As I work with most organizations there is no one area that has the explicit responsibility for retaining customers.
—It is easier to talk about new customers who have come in as opposed to those that are loyal. When you land a new account there is usually much celebration. How many times is the celebratory bell rung to acknowledge that a customer has been with you for multiple years.
I return to the numbers cited in the first paragraph. They vary from industry to industry but my guess is the cost ratio between keeping a customer and finding a new one is quite similar from one industry to the next. What are you going in your company to keep customers from defecting. Let me know.
Lynn Daniel
