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Customer Loyalty Case Study in Customer Service

 

Case Study: Reducing Customer Defections

BACKGROUND

Loyalty Research Center (LRC) conducts a series of ongoing research programs for a prominent provider of services to businesses who have a presence on the World Wide Web.  Each of these programs has a different objective, with one specifically designed for understanding and reducing customer defections.  The company has been experiencing a sharp increase in the percentage of lost customers as its competition has been intensifying. 

SITUATION

The analysis below began with an examination of the drivers of value for these customers.  The following is a depiction of the first-order findings:Text Box:  

 

Value, which was the critical determinant of their defection probability, was equally driven by both Price and Overall Quality.  An initial concern was whether this meant that a price reduction was necessary in order to stem the rate of exodus.  However, the analysis (Structural Equation Modeling) also revealed an “interaction effect” between the Price and Quality evaluations.  Specifically, low Quality evaluations contributed to high Price perceptions by these recently departed customers.  It followed that a price reduction would not be necessary if the low Quality experiences could be corrected.

A high percentage (82%) of these lost customers shared the experience of having called Customer Service more than two times in a recent month.  Furthermore, they provided an extremely low evaluation of Customer Service.  The Loyalty Research Center conducted diagnostic path analysis and follow-up research to determine whether this was the bad service experience and if so, why.

IMPLEMENTATION

The analysis revealed that these calls to Customer Service turned out to be a symptom, not the underlying cause of the problems for the customer.  These customers wanted to conduct a specific transaction – a change in their account status – which could only be processed through the company’s website.  This particular transaction on the web was extremely cumbersome and difficult to conduct, leading many to call Customer Service for assistance.  Customer Service also had problems understanding the transaction and guiding the customer through it, forcing the customer to call back more than once.

The impact of this research and analysis was that:

  • The management avoided making the mistake of believing the issue with defections was primarily price and trying to fix the problem with a price cut.
  • Customer Service received specialized training on guiding the customer through the transaction in question.
  • The website transactional process was redesigned to make it more user-friendly.
  • The CRM (Customer Research Measurement) database was examined, and all customers that called Customer Service more than twice in the past three months were ranked by their revenue importance.  Those that generated more than $1000 in annual revenue, about 8% of all customers, received a call from a company representative asking about the experience, apologizing if there was an issue, and asking if it had been completely resolved.

Loyalty Research Center also conducts ongoing loyalty and relationship tracking for this company.  Examining the data from the follow-up study revealed that significant improvements had been made in the customers’ service experience.  These improvements led to a considerably smaller segment of vulnerable customers and a vastly reduced number of customer defections.

KEY FINDINGS
  • Lowering price is not an easy fix, nor the best one, for churn problems.  Issues involving product design and service problems also need to be addressed.
  • The obvious deficiency may not be the root cause of a problem.  While customer service was given poor ratings, it was actually frustration with the website that was leading to dissatisfaction.
  • Customer service representatives must be given the tools and knowledge necessary for assisting customers.  Having representatives who cannot assist with problems not only negatively impacts the company, it also leads to greater likelihood that customers will take their business elsewhere.

For more information contact:
Loyalty Research Center
931 East 86th Street, Suite 120
Indianapolis, IN  46240
Tel: (317) 465-1990
Fax: (317) 465-1991
Email: LSeibert@loyaltyresearch.com
web: www.loyaltyresearch.com
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