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Customer Defection in Service Businesses – Interview with Ben DelGrosso and Matt Selbie

Aug 13, 2022 | Customer Retention, News

Ben DelGrosso and I chatted recently about customer defection on a recent edition of his Safedrive podcast.

Ben is CEO of Safedrive Solutions based in British Columbia in Canada. Safedrive provides dashcams and installations in the Vancouver area. However, Ben does a bunch of blogging, YouTubes and other social media about his business and the industry. He knows that his service needs to be exceptional for him to thrive. More importantly he has an innovative podcast – called “Focus on Customer Experience Podcast.  It is well worth listening to – so I was delighted to participate. More importantly, make sure you check out all his other episodes.

For those who want to skip the transcript – you can listen to the full podcast on Apple – here, on Spotify – here

Focus on Customer Experience Podcast

 

So what did we talk about?

We covered a lot a lot of ground, but mostly stayed on customer defection in service businesses and the importance of customer feedback to improve service experience and retention rates:

Four main questions occupied the discussion:

  1. How important is a USP (unique selling point) for a service business?
  2. What are defection rates?
  3. Why are they critical to monitor?
  4. How can Opiniator help improve defection?

 

Question1 : How important is USP for a service business?

Matt Selbie:

Clearly a business has to have a source of differentiation from its competitors. In a product, this is easier to achieve. For example the unique design lines of a Ducati motorcycle are not visibly present in other brands – hence can be unique. Remember what the definition means:

Unique: being the only one of its kind; unlike anything else.

For service businesses, true uniqueness is much tougher. Perhaps SouthWest Airlines perky staff are an example, or perhaps not – particularly as this one is tricky to maintain. Services tend to have many touch-points hence the idea of being unique across a longer journey is much harder where you have:

  1. Multiple steps (complication)
  2. Variation in what happens at each step (complexity)

Perhaps think about how many touch-points, how much complexity and how many brand and people interactions you have in your business. I think a more useful thought is to think about:

  • Focusing on the the fewer things that really matter
  • Doing these flawlessly
  • All the time

Let us use a tennis analogy. Roger Federer does not win on one big serve. Yet he consistently:

  1. Moves better around the court than his opponents
  2. Hits more first serves in
  3. Hits more backhand winners than others

In summary – forget the word unique. Rather pick a handful of operating features that matter and can be executed consistently and flawlessly.

So how does this affect customer defection in service businesses? Well, for that to be answered, we need to talk about defection rates.

Question 2 : What are defection rates?

Matt Selbie:

A defection is when a customer leaves your business, usually for a competitor. It is a tough one to accurately measure because a customer might want to remain loyal but leave to move to another state, or simply die. Compounding this is that they may only reduce spending (known as wallet share) over time, not defect completely. Nevertheless it has a huge impact on the business as we will discuss.

To set some context here – most businesses don’t know their defection rate, and have no idea of the damning industry data. According to Hubspot, these are the average annual defection rates in the US for a few industries:

  • Retail: 37%
  • Banking: 25%
  • Telecom: 22%
  • IT: 19%
  • Insurance: 17%
  • Professional Services: 16%
  • Food Service: 16%

Now ask yourself: What % of my customers are truly loyal and how long could my business last if I lost 20% per year?

If you want to check out the impact on specific impact on a couple of these – have a look at why customers defect in retail and in retail banking.

Question 3 : Why are defection rates critical to monitor?

Matt Selbie:

From the Hubspot data we know that defection rates in most industries are double digit. By itself, this should be reason enough. However what we have not yet explained is “so what?”. By this we mean – what is the impact to the business of defection. Let us review the data, then show the impact. In particular, take note of the third slide:

91 % of customers who are dissatisfied will simply never return

Customer Defection Impact Causes

With this information, it is straightforward to develop a calculator for any business that highlights the financial and brand impact on any business. A snapshot from such a calculator is shown below. It is available from opiniator via the contact us form.

The economics of bad experience

In more detail, 70% of shoppers have had a recent negative experience in stores. Without a doubt, this is causing customers to defect and a decrease in customer spending for the company.

 

Question 4 : How can Opiniator help stop customer defection?

Matt Selbie:

Opiniator is a digital comment card system that captures on-the-spot ratings, comments and feedback from real customers using their own mobile phone – at any time throughout their experience, then tracks the issues until resolution. Furthermore, this allows the business to collect data, but more importantly to act on that data as the customer is still in the location.

Unlike other feedback methods, the program delivers an ROI based on improving retention rates and a reduction in existing feedback costs.

 

 

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