Every business loses customers, regardless of whether you’re a major telecom, a large bank, a popular retailer or even just a small local business. Sadly, it’s one of those universal truths like death and taxes. And just looking at the average churn rates across industries is enough to send chills down any finance director’s spine: retail has an average churn rate of 37%, finance and banking have a churn rate of around 25%, and telecom customers churn at a rate of 21% churn rate.
And because churn directly hurts your bottom line, and the cost of retaining customers is reportedly between 5 and 25 times less than acquiring new ones, you probably fixate about losing customers and spend a small fortune on Net Promoter Scores trying to find out what your customers really think about you. No doubt, like many businesses, you know your customer churn rate off the top of your head and have regular discussions with your team about how to reduce churn and boost retention (and maybe even a couple of recurring nightmares over the issue).
But unfortunately, it’s not going to get better any time soon, as customers are becoming less loyal, with the proliferation of deals websites and price comparison websites like Uswitch, ComparetheMarket and Honey;switching costs are constantly tumbling and, in some cases, regulators are even requiring businesses to advise their customers that their contracts will soon end and that they should look for better deals elsewhere.
So, while you will never entirely eliminate churn, as not all customers churn for negative reasons, there is some good news. Some customers are happy with what you offer but just simply no longer have any use for your product or service. For example, if you sell baby clothes when your customer’s children have grown up, or your crammer course already helped a student ace their University entrance exams. Or simply your customer could be moving abroad and no longer needs a local utility or phone contract. In these circumstances, ex-customers can often be enlisted as Brand Ambassadors to help you win new ones.
But you can also win back customers who left your brand for negative reasons, like concerns over your pricing, poor customer service, issues with the quality of your products or services, or even issues with your brand ethics. Of course, where you have a genuine problem, it’s not something a press release or a new advertising slogan will simply change. The first step is actually fixing the root of the problems: improve your products and services, fix customer service issues, make your offer competitive and pricing transparent, solve issues with your supply chain, and so on.
But once you have done that, how do you convince ex-customers that you have changed, that they should give you another chance? Well, that is where your existing customers come into play.
So let’s investigate these two key questions: Why do customers churn, and how can you win them back?
Why do customers churn?
Customers today have more options and more information than ever before. A competing deal is just a couple of clicks away and low switching costs make it easy to hop from your brand to a competitor’s. While, as mentioned above, not all churn is due to negative reasons, reasons for losing customers range from poor customer service and user experience to the more esoteric reasons, like a brand’s history of corporate social responsibility.
Let’s just take a look at three key verticals here: Retail & Ecommerce, Financial Services & Banking, and Telecoms & Streaming.
Retail & Ecommerce
Contrary to popular belief, price sensitivity isn’t the main culprit when it comes to losing customers in the retail and ecommerce space; that title goes to customer service. In fact, poor customer service is responsible for more than 66% of retail customers switching brands. And it doesn’t necessarily require a pattern of poor service, it can just be one bad experience that leaves a sour taste in a customer’s mouth and prompts them to leave. So when retail brands have poor customer service, whether that’s via their frontline staff, call centers, support channels or even just unforgiving return policies, customers won’t hesitate to take their business elsewhere (and they’re not afraid to explain their reasons for leaving in online reviews or customer forums, either).
Another key factor is poor user experience, in other words, not creating a shopping experience that is streamlined, easy to navigate and satisfying to interact with. A good user experience provides a smooth, integrated experience across your website, mobile app, in-store, and anywhere a customer can interact and shop with you. Ultimately, retail and ecommerce customers want convenience and the more streamlined you can make the shopping experience, the more likely they are to stick around.
And speaking of sticking around, let’s talk about loyalty programs (or a lack thereof). Loyalty programs can be the difference between a strong base of brand evangelists and fickle customers who think of you and your competitors as interchangeable. Something to remember: 20% of your existing customers make up 80% of your future revenues, so a well-designed loyalty program is invaluable.
So if you are suffering high attrition rates in retail or e-commerce, the first steps are often to look at how to improve your customer service and user experience, and consider whether you should implement a loyalty program. Of course, you will also want to monitor social media and customer forums as well as get feedback from customers on their perception of your product or service and, if there are quality problems, fix them.
Financial Services & Banking
Much like retail and ecommerce, customer service is a major contributor to customer attrition in finance and banking. In fact, it could be argued given that most financial products and services are intangible, customer support is the main thing your customers will perceive when holding an insurance policy or savings account. According to the Qualtrics Banking Report, customers cited poor customer service as the number one reason for leaving a provider, and 56% of those who left their provider claimed better customer service could have changed their minds.
In the financial services space, customer experience is particularly crucial for companies like banks, insurance agencies, credit unions and credit card companies that have non-binding or short term contracts, as there are many occasions for a customer to switch. So if your website is difficult to navigate, your customer support channel is tricky to find or you don’t have a mobile app, you are giving your customers plenty of reasons to look elsewhere.
Obviously, dissatisfaction with your products and services, and by that, we mean high fees, high late fees, unfair contract terms, sparse branch locations and a limited product offering, is a major reason your customers often start looking elsewhere. And, with the proliferation of fast-growing fintechs and startups, often offering to do the looking and matching for your customers, switching alternatives are almost limitless, with everything from no-fee checking accounts to high-yield investment portfolios competing for your customers’ business.
So while customer service and customer experience, much like retail and ecommerce, are the ultimate decider in a financial customer’s decision to abandon their bank or financial service provider, if there is dissatisfaction with your products and services, that is where you should start looking at how to improve things.
Telecoms & Streaming Services
It should come as no surprise at this point that the main reason customers leave their telecoms provider is customer service. Data shows that more than 39% of telecom customers that canceled their contracts and signed up with a competitor, cited customer service as the primary reason, specifically; companies wasting their time, requiring customers to reach out more than once, having untrained or incompetent agents, or unsatisfying self-service options as being their biggest issues. But it can often mean more than just losing a single customer, as telecom customers may take out lines for a whole family and can end up taking themselves and the rest of the family off with them, representing a significant financial loss. And as if to add insult to injury, 79% of customers admitted to sharing their disappointment with others, and 73% discussed the company negatively with friends, family and colleagues, meaning you’ve not only lost those customers but possibly future customers, too.
But it’s not just poor customer service that makes telecom customers liable to seek out alternatives, excessive pricing also plays a key role, particularly in North America, where wireless data prices are among the most expensive in the world. Within the hyper-competitive telecoms market, the proliferation of attractive low-cost alternatives, offering contract-free plans and attractive promotions, combined with number portability, makes it easy to switch to a different provider. So no matter how valuable you may think your service is, there are plenty of fish in the sea for your price-sensitive customers, and they love to fish.
Also in the telecoms space, customer experience is one of the most cited reasons customers left a former telecom service provider . In fact, 53% of telecoms customers state that good customer experience plays an important role in their decision making, and 54% of customers say they would consider alternative providers if their current provider’s customer journey was difficult or taxing. In the telecoms space, that means brands need to:
- Be digital-first and user-friendly
- Provide integrated offerings across all customer touchpoints
- Engage and be customer-centric
- Offer a friction-free and satisfying sales experience.
Again, if you have a high churn rate, you should look first at fixing your customer service, making sure your pricing is competitive and focus on delivering a smooth and satisfying customer experience.
How do you win back customers who already left
So here’s a scenario: You’ve uncovered the reasons behind your high churn rates and taken actions to improve your products and services, made your pricing more competitive and fixed customer service and UX problems. Now your current customers should start to notice the difference and, hopefully, you will start to see an uptick in your NPS survey results.
But what about those customers who already left and swore never to come back? The good news is that brands have a 20-40% chance of winning back a lost customer, compared to a 5-20% chance of converting a brand new one.
After all, you have changed. You have fixed all the problems that caused them to leave in the first place. So why shouldn’t they just come back, maybe with an introductory half-price offer for returning clients? Well quite simply, you have probably burned up all of the trust that you already had stored up with that person due to your poor customer service, predatory auto-renewal pricing or any of the other issues identified above. The old “Fool me once, shame on you. Fool me twice, shame on me” principle can take hold.
So you can run an expensive ad campaign, change your brand name, logo and strapline, and even write a letter to every old customer from the new management saying ‘we have changed, give us another chance’. But that is unlikely to work, as customers know full well that the new brand is just the old brand with a new name, and memories of the bad experience tend to linger.
The key to this is to understand that if you have changed for the good, it is not credible for you to tell people that fact. They need to hear that from credible third parties, people that they know and trust, like their friends, family and colleagues.
And here’s why.
Central to referral marketing’s influencing power is the trust and credibility of word-of-mouth. With a reported 92% of customers trusting recommendations from friends and family above traditional marketing channels and 74% of consumers citing word-of-mouth as a critical influencer in their purchase decisions, your existing customers can help convincingly communicate the improvements your brand has made, and help churned customers overcome barriers they may have to return.
Think about it this way: If a customer stopped shopping with your retail brand because of a disappointing customer experience, a referrer can show them your brand-new, sleek mobile app. If a customer switched banks because of a poor customer service experience, a referrer can show off your new live support chat function. Or, if pricing was the reason a telecom customer decided to find a new telecom provider, a referrer can direct them to special promotions to get them to reconsider.
As mentioned above, the reality is that your lost customers won’t listen to you. Once a customer has churned, the likelihood of them trusting your brand’s promises of change and messages of improvement is slim to none, regardless of how true they may be. But, the words they do trust come from their friends, family and colleagues, which is one of the major reasons that refer-a-friend programs, when well crafted, are so effective at winning back lost customers.
Unique promotions & offers
So while a recommendation from a current customer can be the key to convincing a former customer that you have changed, you still need to convince that former customer to take action and come back to you. That’s where the rewards and incentives your program offers come into play. The rewards and incentives you employ play two key roles: they convince your existing customers to recommend you to their friends and family, and they incentivize new customers — or, in this case, your ex-customers — to come back.
Well-designed rewards and incentives should equip your referrers with unique promotions that aren’t available elsewhere. And those rewards and incentives should be able to not only incentivize conversion but also overcome other the costs associated with recommending; including the effort required and the potential social cost of a referrer being responsible for that recommendation. The incentive should also be enough to convince the ex-customer to move from their current supplier.
To wrap up
As set out above, churn is inevitable and no business can completely eliminate churn, particularly as not all customers churn for negative reasons.
But just because your customers will or have churned for negative reasons, it doesn’t mean they’re gone forever nor does it mean you’re powerless in winning them back. Of course, the first step is to investigate and uncover the reasons customers left you in the first place and, when you have found out why, make sure you take action to fix these problems. You can test how effective your action has been with regular NPS surveys and other forms of customer feedback.
Once you have fixed the problem, then your current happy customers will be one of the most effective channels for getting out an effective and credible message that you have changed and merit being given another chance. So a well-designed refer-a-friend program will be just what’s needed to convince them to give you another shot.
Interested in winning back customers with a refer-a-friend program? Don’t hesitate to get in touch to speak with one of our referral experts, we’re always happy to help. Our team of referral experts are ready to help.