Much has been made about why customers switch their allegiance. Numerous studies have been done on the matter. Weighty tomes have been written on it. Lengthy speeches have been made on the subject. And there is good reason why. To know why customers switch to the competition, referred to as customer churn by some, is information that is critical for the success of any business venture. Therefore, it makes sense that every business would want to have this piece of valuable information.
With that information, a business is able to prevent or, in the very least, curb the movement of its customers to the competition. Successfully done, preventing customers from switching would lead to customer retention which, in turn, has a direct effect on the profitability of the business. It has been widely claimed that a 1% increase in customer retention has the potential to increase profit by as high as 5%. The switching behaviours of customers would also then lead to a decrease in the profits of the business.
One way that customer switching affects a business is that it gives a bad image to the business. When a business is known to lose a lot of its customers, it tells badly on the business. One question will come into the minds of everyone. If the business is any good, why would it be haemorrhaging customers? Even when the real reason is not known for the exodus, it does not look good on a business when its customers keep moving to the competition. This is why many businesses are always on the lookout for ways and means by which they can curb customer switching and, by extension, reduce the churn rate.
Interestingly, it has been known that customers switch for a variety of reasons, with some of these reasons not being the fault of the business in question. Sometimes, a customer simply relocates and that means it becomes almost impossible to keep patronising that particular business. In short, the competition wins, by default. Sometimes, the customer just loses interest in the product or service. Tastes and preferences are known to change over the lifetime of an individual.
There are even times when it is not a switch to the competition at all. Sometimes, it is a more of a total switch off from the product. This is when the customer has no more need for the product at all. For instance, ever since my kids grew up, I have never bought a single bottle of baby food. I used to be a regular baby food customer at a supermarket in the neighbourhood. I am no more. As a family, we outgrew that particular product.
But then there are those times when the business can, and should, do something about the reason why the customer is no more coming over for the product or service. This is even more important when the customer has a continual need for and thus still uses the product or service in question. It is critical for the survival of the business to ensure that it gets and keeps as many customers as possible.
Researchers have argued that one of the surest ways to keep a customer stuck in a relationship with a particular business is to get the customer to “invest” in the said business. This is what is referred to in some circles as “customer engagement”. In this particular sense, customer engagement is not defined as how firms interact with or “engage” with their customers. In this particular usage, customer engagement is rather defined as the extent to which customers invest their physical and non-physical resources in the relationship or interactions with a particular business.
Among the non-physical resources can be emotions. A customer can be so emotionally invested in a brand that he or she would defend that brand as if he or she owns that particular brand. Sometimes, a customer can even offer valuable advice or unique information that can be vital to the fortunes of the business. At other times, a customer can invest time, talent and effort to help the business win more customers.
It goes without saying that customers who are invested in their relationship with a particular business are more likely to stay than to switch. Those who have invested very little, i.e. those with nothing to lose, are those that will switch without thinking twice. It is therefore in the interest of every business that intends to stay in business for long to become very much interested in how to get its customers to get a bit of their skin in the relationship. Customer engagement is so important that some experts have even defined it as having “strategic value”.
In the February 2023 edition of the Journal of Services Marketing, researchers reported on a study that sought to find answers to some of the questions surrounding customer switching behaviours. Titled, Why switch? The role of customer variety-seeking and engagement in driving service switching intention, the study introduced a rather interesting concept that could also account for why customers sometimes switch to the competition. According to the researchers, sometimes customers switch because they are seeking diversity in their choices, something that the current brand or business might not be able to offer to the customer. They termed this tendency “customer variety seeking”.
According to the authors of the report, customers who love variety are natural “switchers”. They will move when they get tired of getting the same thing from a particular organisation. In other words, it is hard to hold on to such customers. The variety-seeking customer is also less engaged with the business. Such a customer will invest little to no resources in the relationship. Those are the kind of customers who will struggle to give you information about themselves beyond the very basic information that would be needed to initiate the transaction.
The implications of this for businesses are quite interesting. A business must either have an almost unending array of variety to attract and retain the variety-seeking customer or the business must be prepared to let go of such customers eventually. There are sectors or even industries where it is next to impossible to have any kind of variety. In such circumstances, the variety-seeking customer tends to curb the variety-seeking tendency, especially if the offering is a necessity.
However, it is the ultra-competitive fields, with so many options available to customers, the variety-seeking tendency of customers come out. Take the online betting field, as an example. They are so many options available for customers that betting companies are better off not being too bothered about losing customers now and then.
As a matter of fact, it is argued that variety-seeking customers get frustrated when they stay with only one brand or business. Variety-seeking customers view staying with one business as a cost. When they imagine what they could gain elsewhere, variety-seeking customers see switching as a benefit. It is important to note that no matter how variety-seeking a customer is, if the one is highly engaged, the one will lower the variety-seeking tendency.
Another concept, introduced in the above study, which has an impact on the switching habits of customers is what the researchers refer to as “customer relationship proneness”. This is explained as the propensity of some customers to maintain a relationship with a firm. The more prone a customer is to maintain a relationship with a firm, the greater the tendency of the customer to stay and not to switch. The study found that the extent to which a customer was prone to maintain relationships with a firm affected the extent to which that customer would be more or less engaged with the business.
Businesses were better off having customers who were more relationship prone than those that were not. In the study, it was suggested that relationship prone customers had a greater customer lifetime value. In other words, these were the customers who will stay longer with the businesses and therefore their value to the business would be higher than that of the customer who will switch sooner rather than later.
In a quest to ensure that the quality of their customer service is always top-notch, firms invest heavily in manpower and infrastructure. But from the preceding paragraphs, there are other factors that influence whether customer would stay or switch, factors that can be as equally important as the quality of training a business gives to its front line employees. Or as important as the quality of the product or service.
In summary, when a business losses a variety-seeking customer that is not engaged, there is only so much that the business can do. If the business is unable to get a variety-seeking customer to commit resources to the relationship, it is only a matter of time before that customers goes looking for the next new thing. Then there are customers who, by their natural disposition, have very low relationship proneness. They are just not wired to be the relationship type and they will not commit to any long-term relationship.
A good business must know its customers well enough to know those who are more likely to switch along the way. On too many occasions, businesses spend valuable resources chasing a lost cause, resources that could have better been put to use in winning customers who will be more profitable. In the world of business, you win some; you lose some. The best organisations know this and so will not spend essential resources on customers who will switch, rather than stay.