Tag: customer retention

Vulnerability of Loyalty in Numbers

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Last week I wrote about my unfortunate service incident with Delta Airlines that made me question my loyalty to the company. That got me digging a little deeper into how vulnerable customer loyalty really is. The statistics I found revealed some solid quantitative evidence of how vulnerable customer loyalty can be. I want to share with you some of the numbers that I discovered.

Loyalty is Not What It Used to Be

An Accenture survey of 25,426 consumers in 33 countries reveals that 77% of consumers admitted to retracting their loyalty more quickly now than they did three years ago. More importantly, loyal customers who spent more with a brand switched to another brand or provider 17% more often in the previous year than those who spent less. These loyal consumers were also 9% more likely to retract their loyalty altogether. Similar findings have come from an earlier study reported in Harvard Business Review, where best banking customers may be the first to defect when a new option becomes available.

Not only have loyal customers become more fickle, but many consumers are not inclined to be loyal in the first place. The Accenture survey shows that 36% of consumers consider loyalty to be irrelevant to their spending. In a separate survey of 7000+ consumers by Corporate Executive Board, only 23% of consumers were interested in having a relationship with brands. A study by McKinsey further shows that many retailers’ best customers are indeed just heavy users that spend a lot at competitors too. For a large DIY chain, 45% of lost revenues to competitors were through the chain’s best customers. Continue reading “Vulnerability of Loyalty in Numbers”

Quitting Behavior is Social Too

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When we talk about social networking or contagion effect, we are usually referring to getting good words out about us so that we can engender good will and gain additional customers. In other words, we often focus on positive behavior in the context of social networks. But just as positive behavior can be fostered through social networks, quitting behavior can be social too. When consumers decide to leave a company, even when no particularly negative word-of-mouth is present, that decision can still have a social rippling effect. Consider my recent quitting of Facebook, for instance. That decision was bolstered by seeing 36000+ consumers who also signed up to quit on QuitFacebookDay.com.

 

Exit

Image by Loui Loui from Flickr | CC 2.0

To help understand how this social quitting behavior works, I would like to discuss the findings from a rare academic study on this subject. Published in the Marketing Science Institute’s 2010 Working Paper Series, Irit Nitzan and Barak Libai from Tel Aviv University studied the effect of defection by friends on our own decisions to quit a company. If you are interested in the full report, you can purchase it directly from MSI.

Context

The study is based on the behavior of 853,643 customers of a major cellphone service provider in a Mediterranean country. The communication records and defection behavior of these consumers over the course of one year were examined. Social networks were constructed from the consumers’ call and text messaging records.

Main Findings

  • Quitting definitely has a social effect. Having an additional defecting friend increases one’s probability of leaving the same company by as much as 80%.
  • This social effect is the strongest right after the friend quits, and dissipates rather rapidly as time passes.
  • The stronger the social relationship one has with the quitting friend and the more similar one is to the friend, the stronger the social impact of quitting.
  • Heavy users and loyal customers who have been with the company for a long time and heavy users are more immune to the social effect of quitting from defecting friends.

What Does All This Mean to Practice?

  • Be proactive when a customer quits. If you have access to the customer’s social network (e.g., through online social networks such as Facebook), engage in preventive measures with the customer’s friends, such as sending an appreciation message to the friends, offering a special promotion, or obtaining feedback to address potential issues.
  • Try to respond fast, preferably within the first month, as the social effect of quitting is the strongest at the beginning.
  • Fostering customer loyalty does pay off. Loyal customers are much more resistance to forces that may lure them away from your company. This has been found to be the case from not only this study but also other academic studies as well.

Reference:
Irit Nitzan and Barak Libai (2010). Social Effects on Customer Retention Marketing Science Institute Working Paper Series 2010 Report No. 10-107