Bottom Line: How can service-based companies woo customers away from their rivals? A new study provides some insights on the strategies firms use to convince consumers to join them, and points out some areas that still need to be addressed.
We rely on our relationships with service providers as a matter of course—think of the way your cell phone plan or an airline can make or break your day. As a result, consumer-oriented companies contend with both the constant threat of losing disgruntled customers to their rivals and the enticing prospect of poaching other disgruntled customers. Indeed, the high switching rates that run rampant through service industries can snowball into dwindling sales, shrinking market share, and steeper marketing costs for struggling firms; those that excel at persuading consumers to sign on with them, however, can reap the benefits of expanding their customer base and hurting their competitors in the process.
In recent years, many firms have acknowledged the turbulent nature of the service sector by emphasizing some type of switching-is-easy mantra in their advertising campaigns. Alongside companies’ prevalent use of contracts intended to tie customers down for the long term and their widespread use of perks and bonuses to keep them loyal, companies have increasingly sought to emphasize how quick and effortless it can be to ditch an existing business relationship and join them.
A new study is the first to explore what service companies do to lessen the potential headaches and costs for customers who are considering swapping one firm for another, and how these strategies are emphasized in marketing campaigns. There’s a lot of room for improvement, the analysis suggests, and firms can enhance their chances of pilfering customers by looking beyond the mere switching process and underscoring how consumers can use their services once they join up. They should also target specific demographics with different types of emotional or informational appeals.
Among service industries, the retail banking segment features particularly low levels of customer switching. A 2012 report from J.D. Power and Associates found that only 11.3 percent of bank customers swap institutions each year in the U.S., compared with a 30 percent annual rate for telecommunications firms. After all, changing banks, unlike leaving one cell phone plan for another—not the most arduous task, especially once a contract expires—typically requires a lot of effort from consumers. They have to investigate different banks’ charges and services, complete paperwork to apply for a new account, and ensure that their automatic deposits are transferred over. Most importantly, they have to trust their new bank with their savings. So the banking sector is particularly ripe with opportunities for companies looking to steal customers from their competitors.
The banking sector is particularly ripe with opportunities for companies looking to steal customers.
About 70 percent of the banks employed switching language, the author found, but they varied widely in how they entreated consumers to switch and in which aspects of the changeover process they emphasized. For example, slightly more than a quarter of the banks provided no information on how long it would take to complete the move, whereas another quarter promised they could wrap up the transaction in less than four weeks.
There was more consensus on emphasizing the steps in the process. About 84 percent of banks mentioned the tasks involved in the transition, and 68 percent went into detail. To that end, several also appealed to consumers’ varied preferences for how they could make the switch: 31 percent of banks allowed customers to initiate the procedure in a branch, online, or by phone, whereas 21 percent insisted on an Internet-based application.
Remarkably, only 21 percent of banks told potential customers the process would be free. Although the lack of fees seems as though it would be a strong selling point, the author posits that financial institutions feared their own dissatisfied customers would flee if too many became aware of the no-cost aspect of changing banks.
To ease consumers’ economic concerns, most banks promised a smooth, hassle-free transition, and a couple of them extended special offers or rewards for new customers. About 36 percent also addressed the headache of evaluating a new bank by outlining how easy it was for consumers to access information about the company; several provided downloadable files, an FAQ web page, an instructional video, or customer testimonials about the simplicity of their transition process.
But there’s still plenty of room for improvement, the author found. Most banks focused on only a single aspect of the switching process, and astonishingly, none of them offered details about how customers could actually use their new account. “This finding is particularly unexpected in the online banking realm, where customers often have to learn new procedures and to accommodate to the new service space,” the author writes. Likewise, only 15 percent of banks underscored the stress-free nature of the switch, despite the fact that research—grounded in the telecommunications sector—has discovered that customers can feel great anxiety about the process.
Despite the preponderance on bank websites of keywords such as easy, quick, and straightforward, the author warns that consumers might see through these terms and require more personal communication. Indeed, the dearth of information about how consumers can actually use a bank’s services once they’ve joined suggests that banks that can effectively inform potential customers about their products, plans, and processes could fill a communication gap and scoop up consumers thirsty for this knowledge. But people have only so much bandwidth for wading through information, the author writes, so giving them too many specifics and details could prove counterproductive.
The findings should be relevant to a wide swath of service industries in which customer relationships form the bedrock of business, the author notes, including telecommunications and insurance as well as hotels and rental companies. To that end, it’s also vital for service-oriented business to tailor their messaging to certain groups. For example, older customers with longer relationships with their previous bank might be more attracted by emotional pleas, whereas their younger counterparts might judge whether they should switch purely on getting value for their money.
Source: “‘Switching Is Easy’—Service Firm Communications to Encourage Customer Switching,” by Doreén Pick (Freie Universitaet Berlin), Journal of Retailing and Consumer Services, July 2014, vol. 21, no. 4.