Customer Service - Churn

Customer Service Strategy turned upside down

By Nils Randrup

Fixing churn is better than providing excellent customer service. It has been a rule of thumb for my and other consulting companies for some time and it is now also a proven scientific fact. Many companies have a Customer Service Strategy of striving for outstanding customer service which exceeds the customers’ expectations and grow general customer satisfaction. The problem with this strategy is thatit does not typically grow sales or increased profitability thru increased customer loyalty for most companies. What we have seen however is that removing the customer’s efforts by lowering their irritation points and need for service does increase profitability and customer loyalty. Our practical insights is now also supported by new research which document that it is 4-5 times more profitable for companies to work on fixing service irritation and thereby churn, than to try to exceed customer expectations. Furthermore, the research indicate that using standard customer satisfaction studies or the Net Promoter Score does no longer seem to be the best way to measure customer service efficiency, which is for sure a controversial finding.

If you work for a company, which has a Service Commitment to your customers, about exceeding customer expectations, and you think that this will give you a competitive advantage and drive your sales and profitability, then think again. And if you work for a company who uses customer satisfaction surveys or Net Promoter scores, it is time to rethink your KPIs and performance management system. The second larger study[1] of the relationship between customer service, customer loyalty and sales has been published recently by 3 colleagues from Customer Contact Council. This study is now the largest study Customer Satisfaction and Loyalty study of its kind which took place over 3 years and included questionnaires and interviews with approx. 76,000 B2B and B2C customers, who interacted with customer service functions by phone, e-mail, chat, voice response and/or internet based self-service. The conclusions of the study correspond to earlier studies by other researcher about the same thing, including Fred Reichheld recent studies, which also supports the fact that customers punish bad service with changing supplier and telling their colleagues and friends about their experience to a much greater extend that they reward excellent service beyond their expectations with more sales, longer loyalty or positive voice of mouth. In fact, the research indicate, that delighting customers does not translate into higher sales and profitability at all.  Interestingly, the study also proves, that using customer satisfaction survey based index has a virtually no correlation with increased sales, the Net Promoter Score has some correlation with increased sales (no. of “ambassador” customers minus no. of “terrorist“ customers), but the Customer Effort Index, which is based on removing the irritation points to lower the level of customer efforts in using/consuming a product, had the highest correlation with increases in sales.

So excelling in customer service is not the best strategy choice and focus areas for Customer Service. But focusing on Churn is. Churn rates tends to be quite high in some companies, typically ranging from 10-35% across different industries. Customer Service is one of the most important drivers of churn. What causes churn from the Customer Service has now been researched thoroughly, and the major churn drivers found are these irritation points:

1.       Having to repeatedly contact the company to resolve an issue (62%)

2.       Being transferred one or more times (59%)

3.       Spending moderate to high effort to resolve an issue (59%)

4.       The need to switch from internet self-service or other web services to the phone service (57%)

5.       Re-explaining an issue one or more times (56%)

What companies should do is to measure the scope of these problems for their customers, and the work diligently to remove the irritation points listed above, instead of trying to exceed customer expectations, focusing blindly to increase standard customer satisfaction dimensions, and offer special monetary or otherwise expensive compensation as a standard operating procedure. When the irritation points are removed, this will alone create significantly higher profitability coming from lowering churn. For every 1 out of 100 clients the customer service department can help keep, so they don’t churn, the customer service department can add 1% of sales value and approx. 2% to the profit. So be smart, go for “putting the plug in the bathtub” instead of “pouring more water into it”. It is smart business and will pay off immediately.


The bottom line:

It is more important for improving customer relationship and profitability to fix churn by e.g. removing irritation points and removing the reason to call a supplier multiple times about a problem, than it is to diligently pursue excellence in customer service conversations and interactions with customers.

For more information on Churn see Matthew Dixon e.a. “Stop trying to delight your customers”, Harvard Business Review (6/2010)

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