So we understand now what churn is and how detrimental it is to the bottom-line of your business, but what brings about customers to leave your company? What is it that drives customers to need no longer your product or service? The following looks to shed light on why customers do churn and what can be done about it.
But every industry is different
At first, it may seem difficult to have a conversation about customer churn that pertains to each and every industry out there. Many would say that the reasons customers leave a company in one industry are entirely different from the reasons within another industry. At first glance, this would appear to be true. While retail customers could be said to flip between fashion brands due to aesthetics or personal taste, customers in the world of insurance are often said to switch companies due to poor customer service.
Although the specificities of why people leave a company may seem quite different, there are overarching themes that pervade all industries.
The four reasons
Why then do customers leave companies? Four possible reasons exist:
- Uncontrollable – pass away, move, simply do no need your product any longer
- Product quality
- Customer experience
So which of these problems causes the biggest churn or does one stand out above the rest? More important is that, although, one of these problems may be considered to cause large churn, it may be completely unrealistic to resolve. Reasons that are both manageable and cause customers to leave in high numbers need to be determined.
The one common mistake
There is a large problem, though, and that is the view that the biggest driving factor behind customers leaving is the price. As a result of this thinking, price becomes a company’s biggest focus.
The problem with focusing on price is two-fold: First, not only is it going to increase customer loyalty but secondly, in being overly focused on price companies destroy the base of loyal customers they have.
The notion of customers leaving due to price is essentially a self-fulfilling prophecy. A circular race to the bottom, where customers that were only attracted due to a low price or sale leave when they find a better price. Which in turn triggers a company to lower their prices to retain these customers. It is true that in these situations customers are leaving as a result of price, but this is only because of the type of customer that being price-focused attracts. Price only becomes a reason for churn because companies choose to make it so.
While being price-focused also gradually changes the focus of what a company is about, gradually shifting loyal customers to more and more think solely in terms of the price of your product. This shifts the view of your company from other values you my offer, such as service or product quality, to simply that of a commodity.
So, what really drives customers to leave?
If transactional customers are an endless game of cat and mouse, what then is the most common resolvable reason that customers leave? The answer is customer experience.
For a US Chamber of Commerce report found that 68% of customers ended their relationship with companies because of poor customer service. While Bain & Company have shown that customers are four times more likely to move their business to a competitor over service related issues than price or product quality. While the same Chamber of Commerce report found that only 4% die or move away, and only 14% percent are dissatisfied with the quality of the product that companies provide.
Poor product quality is not a primary factor in why customers leave a company, and Apple computers prove no better example of this. Apple in the 1990s was far ahead of its competition, providing a completely user-friendly product that was extremely reliable, and yet Apple almost went bankrupt during this period. While conversely, Microsoft’s product took some time to learn, was prone to all kinds of bugs, crashes and system failures and yet steamed on ahead to earn billions. In the mind of most consumers product quality is easily outweighed by other factors that take precedence in their decision-making.
So why is customer experience so important for loyalty then, the answer is simple; it is the totality of the relationship that makes customers want to stay. It is not individual factors such as price, customer service or brand identity but the total experience a customer has when buying, using and disposing of your product.
The difference between customer experience and price or quality is that customer experience is not a single factor, but a reason that includes multiple factors with price and quality being just two factors within customer experience. In this way customer experience does not claim that price and product quality are not important but that they are simply two factors that should be treated on equal footing with other factors.
Customer experience then is a brand’s identity, it is the customer service one receives, the ease at which customers can find information, it is the feeling that the customer is recognized/heard, it is the ease by which a customer can purchase a product, and so much more. In respect to this, research carried out by McKinsey states that 70% of purchase experiences are the result of how a customer feels they are being treated.
Customer experience is every single interaction that customers have with a company and its products. From the first ringing of a sales person, visiting a website or walking into a store, to the moment they discontinue their relationship with a company by disposing of a physical product or needing to terminate a contract through the web or personal contact.
How to create better customer experience
To do so, companies need to show customers that they are loved and in order to do just this, companies need to know their customers; what aspects of their product or service work and don’t work. The goal of reducing churn is to not just rescue those customers who are at risk of leaving, but also reward those who are loyal. Knowing just what customers are thinking so that companies may provide better customer experience can only truly be attained through listening to them.
By listening to customers companies are able to gain an understanding of customer perceptions. Being innovative and assuming what customers need or want may work, but it is essentially a stab in the dark. By talking to customers, querying them, and listening to them companies gain the best possible insight, so that they may show them just how valuable they are to them.
However “how to listen to customers” can be a convoluted field; what kind of questions should one ask, how many, through what medium should one query their customer base? And while there are an array of different methods that measure everything from product quality, to customer service interactions to new market opportunities. I would argue that in wishing to improve customer retention through better customer experience, companies must understand the loyalty of their customers.
Understanding those that are at risk of leaving and those that love a company, and why this is so, is the key to providing better customer experience. Treating customers all as one homogenous group, by not knowing their various degrees of loyalty, means customer experience improvements become far more difficult. Asking one simple question, a question that looks to investigate the loyalty of your customers is the first step to providing better customer experience and a future of greater customer retention.