Skip to main content

Customer churn is costing Britain billions

British consumers are switching suppliers in droves, according to a new independent report called ‘The BMC Churn Index’ launched today. It highlights the increasing rate of churn caused by a combination of failing to personalise fault resolution processes and valuing new customers more than current customers.

The misalignment between business services and customer expectations is costing businesses over £5 billion per year, according to the research, conducted by Research NOW on behalf of BMC Software. The report gives a stern warning to UK businesses as the new generation of disappointed consumers is learning to switch at ever increasing rates. It also offers advice to businesses in key service sectors about where and how to focus their business service management.

Bad problem handling is the biggest predictor of churn

The BMC Churn Index has identified that having systems to spot customer problems and then resolve them while delivering a proactive personal service is critical to increasing loyalty. Perhaps surprisingly, the offshore call centre is not public enemy number one. The biggest predictor of churn is keeping consumers in the dark about faults or service problems. Customers who switched suppliers on this basis had a 32% higher churn rate than those who did not switch for this reason.

Professor Robert East, an expert on consumer behaviour at London University’s Kingston Business School, said: “The BMC Churn Index has to be a wake up call to companies that are not managing their business services to allow a personalised and proactive approach.”

Being proactive about fault resolution could cut churn dramatically

In fact, eight out of 10 (81%) consumers would be more loyal if a supplier was more proactive about informing customers about what they were doing to resolve service problems. This is even higher, at 89%, for customers of online services. And we feel so strongly about service issues that six out of 10 consumers would be more loyal if the supplier provided a self-service facility that allowed them to create their own service requests and avoid the dreaded call centre!

Peter Armstrong, Corporate Strategist and creator of the BMC Churn Index, comments: “It’s time to move IT from the back-office to the front of the front office. There is no excuse today for keeping people in the dark about faults but this survey shows that many organisations simply do not know when business services are going wrong or which customers they are impacting. Smart companies, who listen to what consumers are saying via the BMC Churn Index, will manage their business services so they are more personal and more proactive.

“Companies must aim to understand service delivery from a customer perspective and use their IT systems to communicate with customers, prevent service disruptions and deliver better service quality.”

UK Consumer revolt – switching, we are all at it

While 97% of consumers have changed up to four suppliers at some time in the past, two out of three (64%) have changed about one and a half suppliers in the last six months alone – taking the average switching rate per annum to two. And it gets worse when age and geography are taken into account. Businesses targeting the young are now looking at very short customer life expectancy, as those between 21 and 34 are switching twice as often as people over 55 – with southern professionals switching twice as many suppliers as the working class northerner.

Don’t reward people for joining, reward them for staying

While poor fault handling is the biggest predictor of churn, the number one reason (49%) for switching suppliers is failing to reward customers for staying. In fact 98% of consumers would be more inclined to stay if they were rewarded for doing so (100% of online customers).

When asked to name the one thing that a supplier could do to encourage consumers to stay, 57% said ‘make sure new discounts are automatically applied to existing accounts rather than just give them to new arrivals’ and 54% said ‘reward them for staying rather than reward others for joining’.

Insurance firms top BMC Churn Index

We can’t wait to leave our gas and electricity suppliers, with one in five of us doing so in the last six months alone and three times that number (60%+) at some point in the past. But it’s the insurance companies that top the BMC Churn Index, with over one in four of us leaving for another supplier in the last six months.

Mobile phone companies should be worried too as they moved into fourth spot in the BMC Churn Index in the last six months with almost one in five of consumers switching.

Banks receive negative Net Promoter Score

The BMC Churn Index shows that banks can’t rest on their laurels either. Although only 10% of people switched banks in the last six months because it is more complicated to do so, the survey asked respondents to complete ‘the ultimate question’ created by Bain and Company and Fred Reicheld. Over half the respondents (51%) admitted to making negative recommendations about their bank – giving banks a Net Promoter Score of -34%. The UK average for banks identified in a London School of Economics study in 2005 was -4.8%, so there has been a deterioration of 29 percentage points since then, suggesting banks may not be listening to their customers.

Professor East adds: “The BMC Churn Index shows that we have become a nation of switchers. It’s a crying waste for 97% of us to be switching when 98% of us say we want to stay loyal if only we were treated right. BMC’s research is a timely reminder that the most important business processes are those that support customer-facing services.

“If IT teams can deliver the business services needed to keep customers loyal they might avoid the other kind of churn – the move to an offshore IT department!”

Désiré has been musing and writing about technology during a career spanning four decades. He dabbled in website building and web hosting when DHTML and frames were en vogue and started writing about the impact of technology on society just before the start of the Y2K hysteria at the turn of the last millennium. Following an eight-year stint at where he discovered the joys of global tech-fests, Désiré now heads up TechRadar Pro. Previously he was a freelance technology journalist at Incisive Media, Breakthrough Publishing and Vnunet, and Business Magazine. He also launched and hosted the first Tech Radio Show on Radio Plus.