Captive Customers: When Customers Want to Leave You But Don’t

We’ve all heard it, and probably even said it: “I’m never shopping there again!”

But is there a tipping point, a ‘red line,’ that once crossed means customers will leave you for good? It turns out that things are not so simple. The point where customer dissatisfaction actually impacts repurchase intent varies from industry to industry, and to make things even more complicated, ‘never’ is not always forever

How lack of choice affects customer behavior
Certain industries appear more immune to customer defection than others, as an example, think of your bank or airline you choose to fly. In these industries, customers perceive there is a limited choice between suppliers, and that other supplier alternatives are just as flawed.

Customers may believe that their provider’s problems are endemic to the industry, and are truly not fixable. So why bother going through all the hassle to switch a provider if the alternative isn’t any better?

An obvious example is the cellular provider market. Most customers believe there are only a handful of viable alternatives. And most would say that those suppliers shared common issues (cryptic billing, excessive data charges, etc.) And virtually all customers would say that cellular providers are unable — or unwilling — to find fixes for these issues.

In these cases, the level of friction between a customer and their supplier can reach very high levels before the customer is ready to jump ship. In research done by The Verde Group, 90% of wireless customers reported having at least one problem with their provider in the past 6 months. More likely, these ‘captive customers’ will carry on in the relationship, unhappy but unwilling to make a change.

The problem with captive customers
Marketers in these industries shouldn’t be complacent, however. Captive customers pose at least two risks — including one that could strike a non-recoverable blow to the business.

The first risk involves cross-selling and up-selling to these customers. True, they buy from you today, but they don’t really want to. As a result, your ability to sell new products and services to them is minimal and requires a tremendous amount of marketing dollars to get a little bit of lift in sales. This is not good news for providers looking to grow their business by way of their installed base.

That pales in comparison to the second risk — disruption. Those unhappy customers will be quick to embrace non-traditional alternatives when they emerge. And that can have devastating effects.

Just ask Yellow Cab, once San Francisco’s largest taxi company, who filed for bankruptcy protection in 2016 — largely thanks to Uber. And what about Airbnb’s impact on the hotel industry? Morgan Stanley forecasted that in 2018, due to Airbnb, U.S. and European hotels’ revenue per available room would decrease by 2.6 percent.

Problem frequency and category killers
So when do customers actually leave a supplier? Again, it varies by industry, but The Verde Group research shows that across industries, problem frequency is a strong predictor — the incidence of a specific number of problems, regardless of what they are, tends to be the tipping point. In retail, for example, our research indicates that after just two issues, things are at their worst point with customers. That’s when they’re most susceptible to defection.

Another type of issue that leads to customer loss is a ‘category killer’ problem — one that happens infrequently but does maximum damage to the customer relationship. These problems tend to be related to your core value proposition.

For example, a delivery company who cannot reliably deliver, or an insurance company who doesn’t pay claims properly. These types of issues have one thing in common —they tend to sever customer loyalty completely, and recovery is almost impossible.

Never say never again
Although ‘never’ is not really a relative term, different industries use different timeframes to measure customer loss. In retail, for example, a customer who stops shopping for three or four months is the equivalent of a 100 percent loss. They may return after six months, but at that point, they’ll be considered a ‘new’ customer.

If you’re in the agricultural industry, the measurement is different. It’s an annual cycle, so if a farmer doesn’t purchase from a supplier for a year, they’re deemed to have left. If they return in three years, they’re classified as a new customer.

They may come back — but when?
While some customers never (and I mean never) come back, many do. And often it’s the type of problem they encountered that determines the length of time before they return. This is known as ‘the ‘decay’ period.

Core business problems or egregious issues typically have a much higher decay window. In other words, don’t hold your breath. Those customers aren’t coming back anytime soon — if ever.

Peripheral issues (such as customer support, stock problems, or delivery challenges) can have shorter decay periods. Customers may in effect put their suppliers in the penalty box, but some eventually come back, and do so in a shorter period.

Understand your customers’ issues
It’s critical for companies to develop a complete view of customer problems. They need to monitor frequency, resolution, and customer perception. They also need to be vigilant in guarding against catastrophic, category-killer issues.

Finally, even if doesn’t appear that customers are ripe for defection, companies can’t afford to be complacent. After all, the next Uber could be right around the corner.

Paula Courtney is Chief Executive Officer of The Verde Group and Product Founder at WisePlum.

 

 

 

NPS is Just Part of a Much Larger Toolkit

The Verde Group Customer Experience Risk

The Net Promotor Score (NPS) is a loyalty metric that measures how willing customers are to recommend a company’s offerings to others. As an alternative to traditional customer satisfaction research, it’s widely believed to reflect revenue performance.

Virtually every Fortune 500 company uses the Net Promoter Score (NPS) to measure customer loyalty — if you don’t believe me, check out how they stack up here. Most invest heavily in improving their scores, and many tie executive bonuses to the results.

There’s only one problem. Customer satisfaction in general and NPS, in particular, are poor predictors of customer behavior. And that means that a good NPS score does not necessarily translate into customer loyalty, increased revenues, or a bigger market share.

The problem with NPS scores
While NPS can serve as a decent barometer of customer satisfaction, it doesn’t give you the bigger picture. It doesn’t provide the backstory of why a respondent would or would not recommend your company.

That story — particularly the negative experiences that frame it —  is what really helps predict future customer behavior. The simplicity of NPS can at times, overlook the complexity of company-customer relationships.

Some companies are lulled into a false sense of security by their NPS scores. If they see a year-over-year improvement, they celebrate, but don’t sense the potential dangers that could be lurking right beneath the surface.

This is primarily due to the fact that NPS is a description, not a cause, and measures an outcome without a deep understanding of the actions leading to this outcome. Alone, NPS does not tell you what you need to do to change the rating outcome.

For example, you can have great NPS scores and have flat or declining revenues. You can have a strong NPS result right now, but be ripe for disruption — think of what Uber and Lyft have done to the taxi business.

Because NPS scores don’t provide a complete picture of the relationship you have with your customer and their loyalty to you, you can’t afford to rely too much on those scores.

Still, NPS is not dead, despite reports to the contrary. As the American Marketing Association states, NPS does have its benefits — it’s simple, its findings are easy to understand, and it can be benchmarked.

However, the AMA acknowledges that employing NPS may create tunnel vision for companies, and recommends that it ‘shouldn’t stand alone.’

And that’s the key. NPS represents only a single data set in measuring the customer experience. Customer surveys are another, and inbound feedback provides still more. In isolation, each is incomplete, and almost sure to offer only a partial (and potentially misleading) picture. Taken together, they form a more detailed view of the customer.

However, companies need to dig even deeper to understand customer experiences, particularly the negative ones. Customer response to negative interactions is strong, and those customers with negative perceptions are more likely to take action, such as shopping somewhere else and telling their friends.

Get out your toolkit
With NPS only partially measuring customer sentiment, companies must ensure they have additional, complementary processes in place to help further develop the customer insights they require.

Use Multiple Inbound Data Sources
Call centers, sales, social media — all provide excellent sources of inbound customer feedback. Organizations need to take a broad, holistic approach when managing these different ‘listening posts,’ consolidating, assessing, and actioning the collected data as a whole.

Be Proactive
As I’ve written about previously, many customers won’t share their negative experiences when providing inbound feedback. Companies need to reach out to those customers through interviews or other live interactions — building trust through conversation to uncover, acknowledge and explore underlying customer issues.

Deeply Understand Problem Experiences
Companies need a purposeful and deliberate method of getting an understanding of problems. Our research shows that problem experiences negatively impact the likelihood to recommend a retailer.

We also know that one out of two online shoppers will experience a problem before they even make a purchase. Ongoing measurement and tracking of problem experiences is a valuable and impactful tool in understanding the drivers behind the NPS ratings.

Take Action
Once companies have discovered and acknowledged a customer problem or negative experience, they need to resolve it as quickly as possible. Customers expect a resolution and aren’t concerned if that fix falls within your company policy or is expensive.

Following up post-resolution is also critical. You need to confirm that the problem is resolved and the customer is happy — from their point of view. We see time and time again that when a problem is resolved to the customer’s satisfaction, loyalty and spend actually increase more significantly than if there were no problem experiences at all.

It appears the debate over the value of NPS will continue for some time. Is NPS the best way to measure customer satisfaction, or is it hopelessly flawed?

Our position is it’s neither. It’s just another tool used to capture and assess customer satisfaction. Used alone, it’s flawed and incomplete. Deployed with the rest of the toolkit, it can provide valuable insight into the overall customer experience.

Michael Tropp is Vice President, Business Development at The Verde Group.