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Customer churn costing Australian business $1.5 billion a year
- — 21 April, 2008 12:54
Customer churn is spreading beyond the banking and telco sectors costing Australian business more than $A1.5 billion a year.
It is now affecting utilities, travel, insurance and a host of other industries, according to a survey of 4000 consumers in seven Asia Pacific countries.
Around 600 of the survey respondents were from Australia with figures showing 92 per cent of local consumers have at some point switched a service with almost six out of 10 having changed suppliers in the last 12 months.
It shows that switching suppliers is a national habit for Australians with those in the 25-34 year old bracket the worst offenders - switching 50 per cent more often than any other age group in the past year.
The highest income bracket in the research also switched the most often indicating that something other than price, as a proportion of disposable income, is the driver for churn.
According to the BMC Software Churn Index for the Asia Pacific, this switching merry-go-round is costing Australian business around $A1.584 billion per annum when the cost of a single customer is multiplied by the average number of churns per annum (1.1) and the adult population (13.2 million).
The number one reason for switching is price followed by service problems which highlights IT's role in fostering customer loyalty.
Commenting on the results, University of NSW school of marketing, professor Adrian Payne, said churn has become enemy number one for business.
"The index results are a clear wakeup call for business; they need to know when services are going wrong and which customers are affected," Payne said.
"Without that insight, they run the very high risk of that customer switching at some stage."
The index found that the cost of poor IT can have long term implications.
Payne said that many factors including financial incentives are used to attract new customers, but the continuous cycle of cost cutting and financial kick-backs are not a healthly long-term business strategy.
"Companies spend substantial amounts of money attracting new customers, but often end up losing them because of poor service, an outage or a frustrating experience with the help centre," he said.
"Optimising the IT infrastructure can make a difference, utilising automated service assurance and help desk processes can make a marked difference in the customer experience and drive greater customer loyalty."
Telephone companies, banks and insurance companies have the highest historical churn rates with 64 per cent, 63 per cent and 60 per cent respectively.