Customer Retention Research

Customer retention is all about profit.

The gap between Customer Satisfaction surveys and understanding Defection

Organisations who have invested heavily in customer satisfaction surveys are now beginning to realise that satisfaction levels can be misleading and do not translate directly into customer loyalty. General Motors in the US is an example of a company that has seen overall customer satisfaction levels rise year-on-year, yet, market share has been steadily declining.

A study published in the Harvard Business Review revealed that 90% of US industry customers report being very satisfied or satisfied during customer surveys. However, re-purchase rates remain at the 30-40% level. Across all industry sectors, 60-80% of lost customers reported on a survey just prior to defecting that they were very satisfied or satisfied. By relying on broad sweep customer satisfaction surveys, companies are letting too many customers slip through the net.

Understanding Customer Defection

Broadly, there are two types of customer defection:

  1. Natural or inevitable. A customer ceases trading, moves out of a company's geographic patch or has no further need of the service (such as a mortgage).
  2. Caused by the organisation itself. In short, by the way it treats the customer.

The first group of reasons are largely beyond the control of an organisation. The second set of factors can be influenced and controlled. To address these factors, in-depth research is required to pinpoint reasons for defection.

For most companies, little is known about why customers switch from one service provider to another. In-depth interviews with customers who have recently defected are essential to profile the defection process and identify the reasons for leaving.

Initial reasons offered by lost customers have to be treated with caution as there is a tendency for respondents to post rationalise. Intricate interview design and skilled interviewing techniques are critical to uncover true causes. A number of research tools such as critical incident technique and root cause analysis have been developed to address this fascinating research area.

Usually, the main lesson to be learnt from defection and dormancy research is that the majority of defection triggers are factors that an organisation can control.

The Clayton Reed Associates defection research process involves: