Reducing customer departures and defections has become a chief priority for most communications service providers as markets mature and competition intensifies. So why do high levels of customer churn persist?
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In the past these companies thrived as customer acquisition machines, built to grow through rapid penetration of the digital television, Internet and voice products they introduced. They still invest more in advertising and marketing than they do in service technicians or set-top box capabilities that would delight or at least retain customers.
As a result, churn tends to hover around 2% to 2.5% per month. For a wireline company with 5 million customers, that means an estimated 1.32 million people and $2 billion in revenue walk out the door each year.
We see five common fallacies about churn that hinder breakout performance.
Fallacy 1: One or two poor episodes cause churn
Competitors’ promotional offers do sometimes lure customers to switch, but it’s typically after a long period of eroding trust, which results from a series of misadventures ranging from a poor installation to spotty network performance to a faulty bill.
To counteract churn journeys in progress, some companies are experimenting with event-triggered service escalation. For example, multiple trouble calls within a week trigger an outbound service call from an elite troubleshooting unit, which has the authority to schedule an immediate service visit if the problem can’t be resolved quickly over the phone.
Fallacy 2: Intervention at any point can save the day
After a few negative episodes, it becomes increasingly difficult and expensive to intervene successfully. It’s futile to make an offer of expanded services or lower prices in an effort to “save” the customer at the moment the customer is attempting to quit. These bribes sometimes avert defection in the moment, but they’re ineffective and costly over the longer term.
Fixing the problem early on, or taking time to create a great initial experience, goes a long way toward building equity with customers. Verizon, for instance, has learned that the installation of its FiOS package in the home is a moment of truth. Instead of taking the standard approach of doing the installation as fast as possible, Verizon’s well-trained staff often spend four to six hours in a customer’s home, running through how the system works and making sure that every application is functioning well. That makes the experience memorable for the customer and also sets up Verizon for fewer technical troubles later on.
Fallacy 3: One silver bullet will stop churn
Given that churn results from a chain of episodes, the chain is only as strong as its weak links. Fixing one link at a time merely extends the time it takes to see results. Instead, it pays to attack on multiple fronts, after teasing out the root causes of a problem. This starts by soliciting customer feedback about all of the important episodes they experience and cataloging any problems by type and frequency. The company can then take remedial actions, which help turn customers into loyal promoters.
One provider we worked with had been focusing its churn-reduction efforts on back-end saves and price concessions. After it started to solicit customer feedback and analyze the root causes of dissatisfaction, the provider uncovered issues with product performance, which it traced back to a lack of investment in the network. Using that information, the company then doubled down on investing in repair and maintenance of its physical plant.
Fallacy 4: Satisfying customers is good enough
For some executives, the lack of churn among customers suggests that an unruly few cause most of the problems. If customer satisfaction scores are reasonable, the thinking goes, there’s no systemic problem.
But the bar for satisfaction is relatively low. Fixing service defects might satisfy the customer yet still not engender active advocacy. Companies must also emphasize “wow” moments that delight customers, especially high-value customers.
For each moment of truth, it’s critical to take the customer’s point of view. In a fiber-optic installation, the field technician can do everything by the book, but if after the technician’s departure the customer is not able to receive email, that will cause major frustration requiring an expensive follow-up call. Taking a customer-centered view, the technician would sit with the customer to walk through email and other applications, making sure they work as promised.
Fallacy 5: Success hinges on installing the right technology and processes
The best infrastructure won’t be enough to stem the tide of customer defections. Companies need highly engaged employee teams with the right data and feedback from customers, and a culture that focuses first on customers’ priorities.
Such feedback helped a European telecommunications provider reduce the excessive flow of customer inquiries to its call center. Among the persistent complaints were confusing bills and product installation guides, limited call center hours and long phone wait times. Armed with solid data, the company set about revising each of these areas, which helped to sharply reduce the volume of calls and increase customer loyalty scores.
Most customers will tolerate mistakes if they perceive the company acts in good faith. And they’re willing to give their advocacy to companies that win them over early on. For service providers, improving customers’ overall experiences will be far more effective than bribing unhappy customers to stay.
Learn more: Breaking The Back Of Customer Churn
Tom Springer is a Boston-based partner and Charles Kim is a New York-based partner of Bain & Company.