What is the true cost of losing a customer?

2009 May 4
by Kate O'Neill

well... goodbye
Creative Commons License photo credit: Mac Babs – Bárbara Bessa.

How much money does your company spend on advertising? On marketing activities overall?

And how much customer trust does your company lose from allowing deceptive practices to get in the way of a long-term relationship with customers?

Most of what constitutes branding is about defining the ideal customer experience and seeking to embody it in every way possible. How many executives would actually go through the exercise of defining the company only to put it in terms of “deceptive” or even “hoping for apathy?”

Seth Godin makes a lot of great observations in his books and in his blog, but this one from last September is one of his best on how customer trust can be (and so often is) eroded little by little:

My car insurance bill has been steadily rising, year after year, despite the fact that I have a clean record. The logic, I’m sure, was, “well, let’s raise it a little and see who quits…”

If revenue increases enough to make up for the few who quit, you come out ahead. So, quarter after quarter, year after year, repeat the same process. Raise it a little, check to see if revenue rises in aggregate, and repeat.

I’d get the bill, sigh about the fee, consider the hassle of switching, pay the bill and move on.

Until last week. Last week the number was too high. Something in my relationship with the insurance company shattered. After all, it’s not like they had done anything for me, not like I knew anyone there. It was just momentum. And the number was suddenly enough to make me take action.

19 minutes later, I was at Geico.

The problem for my insurance company is that a whole bunch of people will do this at once. When you hit the breaking point with one person, it might be 1,000 or 100,000 people who do the same thing at the same time. And you don’t get a second chance. They’re gone.

Some magazine companies do this. They start subscribers out at low introductory rates, only they don’t call them that, and then gradually step up the pricing for the subscription each year. Of course the best case scenario for the company is that the customer doesn’t notice, but even if the customer notices, the company is counting on laziness or apathy, but as long as the incremental revenue is greater than the cost of attrition, they consider it a winning formula.

But how can you know the true cost of attrition?

Are these companies factoring in the ill will these customers now bear towards them, and the possibility that they will tell their friends, and the possibility they will cancel multiple magazines (in this scenario) at once when the tipping point comes, and the possibility, ever more likely, that they will post their experiences on a blog or on Facebook or on Twitter where dozens if not hundreds if not thousands of customers and potential customers will read what a sneaky practice the company employs?

They may be factoring all of that in. There may well be valid metrics that can be used to measure the effects of each of those considerations. But it’s kind of like the adage that telling the truth is easier than lying; the effort expended to track those considerations seems far more difficult than simply doing right by the customer. And doing right by the customer has all kinds of upside, measurable and less so.

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One Response leave one →
  1. 2009 May 5

    Yes, it is very expensive to lose your most valuable asset – your customers. If you are losing countless deals and money you need to act now. And some of the most successful sales organizations in the financial sector have been doing exactly this for years. I recently published a book within this subject: The Lost-Trade System. You might want to read more at: http://www.lost-trade-systems.com

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