It is a known fact that one of the variables which hit the bottom-line of businesses hard is the rate of customer defection. When we talk of customer defection rate, this speaks to the rate at which existing customers leave a brand. This can be a case where the customer stops using this type of product or service altogether. It may also include the likely scenario in which a customer switches to a competitor.
Research has shown that owing to different extraneous factors including, and not limited to, pressures from the internet, celebrities and brand evangelists, loyalty and reward programs, product development, and advertisements, the customer defection rate is higher now in the current market environment. Brands employ and deploy different strategies to win and retain customers. These days, it is widespread to acquire customers through rewards and discounts. However, research has established that customers acquired through deals have half the customer lifetime value compared to customers acquired without any additional monetary benefits.
There are also customers that a brand acquires acquired solely through the company and product value, and this category of customers is more likely to stay with the brand longer. This is the crux of solving the problem of customer defection.
A business that wants to reduce and ultimately eliminate customer defection needs to find out why its customers are defecting from it.
There can be many reasons why customers throw away their loyalty to a brand. These may include;
They don’t like your product
Dwindling product/service quality
Customer service stinks
They want more ‘giveaways.’
Upsetting and frustrating commercial transactions (excess/hidden charges, delayed/inconclusive transactions, unhelpful staff)
Unmet expectations
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The above reasons may appear very vague. However, most customer defections can be traced to one of the above reasons. But if it is your company, you will find that one of the above is amiss in each transaction to cause the defection of customers. Thus, the one factor which causes the most defection needs to be isolated and rectified.
Here are three simple yet most effective ways of reducing defection.
Find out the average retention rate.
To determine the defection rate, first, you need to select the average retention rate. If the average is 90% retention, then only if the average drops down to 70% can you know that the defection rate has spiked.
Without a solid drop from the average, it will be challenging to control defection because there will be minimal brand switching at all times. Thus, finding out the average retention rate is the first step in reducing the defection rate.
Find out reasons for defection.
Why are customers closing the door on your brand and switching over to competitors? For example – Many customers switch smartphones because they want upgraded technology with every new purchase. People go into restaurants expecting better processes, efficient systems, courteous services, and not to forget the most important of all, excellent food. So if a restaurant chain has spread and can be found everywhere, it must not fall short of customers’ expectations in any of these parameters, else it will soon close shop. Without mentioning names, we know of a couple of brands in the Quick Service Restaurants category. Brands like Chicken Republic, Tastee, and KFC are good references in how to do it right.
So if you are a product manufacturer or service provider, you have to upgrade your products and services from time to time. Thus, finding out the reason for high customer defection is the second step to reduce the defection rate.
Cost of retention vs. defection
If you find the reason for customer defection, then the cost associated with bringing back the customer might vary. For example, if the customer wants improvement in customer service, it can be done very quickly by training the existing workforce. But if the customer wants significant design changes in the product, it can be costly and tedious and can be implemented in the long run, but not immediately.
Thus, the customer who requires product changes will defect from your brand because retaining that customer is very costly.
Thus, an understanding of which measures to implement and which ones to postpone can be obtained after calculating the cost of retention vs. the cost of defection. If you can save some customers by making changes through value for money steps, then do it. If, however, the price is not worth it, and the defection rate won’t be too different, then avoid such a step.
Overall, to reduce the defection rate means retaining the customer with your company. As retention is far cheaper than acquisition, you must keep a stringent eye on the defection rate of your company.
Last line
The defection rate is not only for start-ups but larger companies too. A startup would have a higher defection rate because other brands would already be present in the market. Thus it would be advised for a start-up to keep an eye on the defection rate so that the bottom-line helps, in the long run, in building a better company.
