Red flag: Poor customer service costs businesses £37bn

A new report from the Ombudsmen Services reveals poor customer service costs businesses £37 billion in 2016. Are good deals and convenience enough to keep customers from switching?

A new report from the Ombudsmen Services reveals poor customer service costs businesses £37 billion in 2016. Nick Lee, professor of marketing at Warwick Business School sees this as a red flag for businesses that needs to be addressed now.

“While these figures should be seen as a serious challenge to businesses, it’s also necessary to think carefully about whether or not consumers really follow through on their intentions. There is, of course, a significant industry effect going on here, and consumers can only act on their stated intentions if there is a genuine choice,” he said.

“We see this with train companies, where consumer dissatisfaction has only a small effect on actual business since many commuters have almost no choice but to use the service which is providing dissatisfaction.”

According to Lee, there’s less choice in most marketplaces than you’d think. For example, unless the actual product or service is directly comparable, then consumer switching behaviour is likely to depend on complex weightings of benefits, set against service experiences such as dissatisfaction.

“As well as this, over time, episodes of poor service often lose their ‘heat’, and become less intense, thus influencing the actual purchase decision at a later point in time less than they might. So, while consumers may say that they will change their behaviour in response to poor service – because it certainly feels like the ‘right’ thing to say – their actual behaviour may be less changeable than they think.”

Cost and convenience are the biggest factors for customer retention

In terms of financial products and services, a five year study from Experian suggests that digitally savvy customers are more likely to switch based on what makes a better deal. This group consists of 12.8 million people in 5.5 million households. Mapping the percentage of switchers, Experian research also highlighted the regions in the UK most prone to sussing out the best deals.

In retail, however, a separate study from Stuart shows that eight in ten consumers across the UK would switch from shopping at their favourite high street retailers if they didn’t offer same-day delivery, suggesting price alone may not be a factor in retaining customers.

Related: Top tips for improving your customer service

Communication channels make a difference

Even with deals and ease of transaction, brands are struggling to hold onto customers more now than ever before, according to a global study of more than 24,000 consumers from 12 countries by Verint and analyst firm IDC. Consumers in the UK are particularly prone to switching, with only half of Brits staying with their providers for more than three years.

The study also shows a clear link between communication channel preferences and retention. Consumers who prefer to engage brands through digital channels are more likely to swap providers than those that engage with businesses by phone, via the contact centre or in-store.

The Verint study also showed that UK banks lead the way in terms of customer retention, with almost three quarters (73 per cent) of consumers sticking with their bank for more than three years.

Data from telephone answering service CALLCARE suggests that customer service via phone is still in demand, despite brands dabbling with customer service chatbots and other digital methods. Based on CALLCARE’s statistics, taken between 2014 and 2016, 7am is the new 8am and Saturday is almost as busy as a normal working day for customer service advisers.

According the company’s head of corporate services, Gemma Harding, the way people interact with businesses and their customer service departments is rapidly changing. “They no longer fit their lives around completing admin like calling a company; they expect that company to work around their own schedule. This is, of course, the way that it should be,” she said.

“With the huge amount of competition out there it is easier than ever for an unhappy customer to take their time and money elsewhere. Businesses will be surprised at the big difference that such small changes, such as staying open later or dealing with queries on a weekend, can make to the happiness of their customers.”

The quality of customer service matters

Research has shown time and again that bad customer service hurts the bottom line. A 2016 study by New Voice Media, for instance, revealed that it costs UK businesses around £12 billion a year and leads to half of customers going elsewhere. And it follows brands online, too. One in three busy Brits confess to abandoning in-store purchases because of poor service, while a further 57 per cent say they’re less likely to shop with the brand in the future, according to a Barclaycard study.

Yet lousy front-end customer service is only part of a bigger problem: namely, a lack of focus on customer experience, or CX.

Despite this, very few British businesses are seriously addressing CX, and even fewer know how to begin implementing it across their company. That is, according to Alan Pennington, author of The Customer Experience Book.

“Intuitively, most employees from the front line to the boardroom accept that focusing on customer needs and delivering against those needs is a ‘good thing’ to do, yet companies are still consistently delivering sub-standard experiences, heavily impacting the bottom line. Many businesses have no clearly-defined, company-wide plan about how to convert brand expectations into a customer experience that delivers or exceeds those expectations,” Pennington said.

“The language used is wrong. Pure customer centricity is a pipe dream for 90 per cent of businesses and in many cases just delivering their basic brand promise will elevate their standing with customers above their competition. Businesses are starting to wake up to CX, however, and this concept will only continue to grow in importance as more organisations realise that it is a key component of sound, modern business strategy and a critical differentiator in increasingly crowded markets,” he added.

According to Pennington, huge transformation programmes are absolutely not the answer, even though they still remain the go-to solution for businesses looking to plug a hole quickly.

Warwick Business School’s Nick Lee believes that a key issue is not so much in terms of eliminating service failures, but in improving response to them. “It’s impossible to totally eliminate all problems in customer service, and most people understand that. However, handling those episodes of service failure well, with sympathy, courtesy, and with an appropriate remedy – can actually improve perceptions of the brand. This is why it is so baffling why so many companies seem to only grudgingly accept responsibility, and offer so little in response to service failures.”

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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