Will you buy again?

Will you buy again?

Thursday, April 11, 2013

Of course I will! Do I have a choice?

Is customer retention a good measure of customer loyalty? A typical customer survey asks various questions to assess a customer loyalty. One of the common loyalty questions asked is “Will you continue to buy from us?” or usually framed as “How likely are you to continue buying from us?”

While this question may un-cover some attitudinal perspective of the respondent, it may not accurately reflect the loyalty of that respondent. Only in rare situations where a customer has an abundance of choices in a level playing ground with a low switching cost, such question would be meaningful. In such cases, asking this question would accurately determine the customer’swillingness to continue doing business with you.

However in most cases, customers are held in a monopolistic or oligopolistic market with little or no choice.  It is welcoming to see such market is reducing as the bargaining power is drastically shifting towards consumers.  Consumers are beginning to experience more choices. This has a positive effect that brings about better product and better customer service.

Additionally, some companies introduce heavy exit barriers. Such barriers appear as high switching costs that tend to stop customers from defecting, unwillingly. Some common switching costs are un-reasonable registration fee, early settlement penalty, long and confusing termination process and in some cases ‘shaming’ defected customer. 

In a ‘no-choice’ situation, asking customer if they would continue doing business with you is akin to asking an acquaintance at a gunpoint if he or she loves you. While some developed markets may have better framework to provide customers with more choices, many other markets hardly want to introduce choices.  Being Malaysian, let me quote some examples in this market.

There is currently only one active pay TV here. Not only they are monopoly for a long time, they tie customers with long-term contracts and lousy customer service. The pay TV often comes up with a variety of packages that is not flexible and confuses customers with differentiated pricing. Often, customers end up paying for channels they never watched and had to pay a premium to watch high demand channels such as sports and new movies. I am sure these customers would leave for a better value, when there is a choice. 

Next, look at phone services. Telephone companies lure customers to subscribe to mobile services with ‘free’ or pay a small fee for gadgets such as the Smartphone. But in return, companies leech customers with a long-term contract enabling the companies to trap and maximize revenue throughout the duration of the contract.  

These big operators manage their subscription business by churn rate (number of customers leaving them in a given time). Churn or retention rate is one of their key metrics that is used and published as their loyalty index. But they do not (and sometime deliberately) identify the reasons why their customers continue to stay. Are the customers staying because they like you or because of high exit barrier?  

If a customer stays with a mobile operator not out of loyalty, that customer is likely to leave after the contract expires. But some companies have learned to be good at bridging the contract with another freebies and hold the customer further with a renewed contract. Though these customers may be excited temporarily with such freebies, over time they will realize the high total cost of ownership (TCO) when compared to just buying a service and the devise separately.

Internet service is another good example of how such providers trap customers into continue using the service. Heavy incentives motivate independent sales agents to get new customers. Because of their overzealousness in getting a customer, these sales agents sometimes over promise with features and price concessions that are non-existent. Unsuspecting customers sign up for the service with un-favorable conditions in fine prints that you need a magnifying glass to read. By the time the customer realize this, it is too late to retract from the service. Service providers conveniently would deny over-selling and blame it on the agents and customer’s for not reading the contract carefully.

Can you imagine the percentage of customers giving a “yes” for “will you continue buy from us?” question from your utilities companies such as electricity or water? What other choice do one have other than buying these utilities from the monopolies? Such utility companies enjoy the privilege if being the ONLY provider and top that up with terrible customer service.  

Until such monopolies are eliminated, we will continue to experience bad customer service as such companies have no reasons for improving service when they know customers will continue coming back however bad the customers are treated. 

There is hope! Someday utility services such as electricity and water may have more competition and consumers will have more choices and better bargaining power. It is already happening in some developed market. Monopoly will not hold for long and if it does, it will only create overall dissatisfaction among customers that will force the change.

Companies relying on customer behavior alone with no regards to how they feel will not be able to assess the future behavior of the customers. Many companies live by short term goals of meeting their profits, revenue, shares price and cost. The tactics of capturing customers and milking them will surely help meet such goals. Such tactics will not help in the long run for a company.  These companies will have no place in the market when they continue to rake customers with bad profits. Customers don’t forget easily. 

Satya Narayanan