If they chose you just because of your prices, they will leave you just because of them

Igor PauletičSales

There was an article in last week’s Finance (Slovenian financial newspaper) stating that 55,481 households changed their electricity supplier last year. Since I’m well aware that not even 10% of this can be attributed to new construction, I can safely say that someone had to lose a customer so someone else could gain one. If the pool of customers that need electricity stays roughly the same, customer turnover is one of the largest costs for electricity suppliers. The biggest problem is that most suppliers invest heavily into aggressive expansion. It would cost them less to focus on retaining the existing customers, but such an approach would require some thought. The cost savings that could result from such an approach are measured in millions.

Bargain hunters are an important unnecessary cost for service suppliers

By my calculations, the number above represents around 6% of all Slovenian households. This percentage roughly corresponds to the usual percentage of bargain hunters – such customers respond really well to benefits that subscription service providers offer for switching to their service. My prediction is that these customers will just wait until their contract period expires, and immediately start looking for a provider that is prepared to subsidize them in exchange for committing to their services for a certain time period. They don’t do this only with their electricity supplier. They switch their health insurance company, mobile phone operator, bank – maybe even their car insurance company as well as their cable company and internet service provider even if these services might be a little more complicated when it comes to constantly changing providers. All of these activities are commodities where only the price and partially the customer service level count. If everything works as it should and you don’t need customer service, they are almost identical.

Take care of your loyal customers instead of chasing the “bargain hunters”. Click To Tweet

Loyalty means being prepared to pay more than you ought to be paying

Unfortunately, prospective customers can always get better conditions than your existing ones, since they have more leverage. It would be great if a provider rewarded loyalty by lowering the price for long-term loyal customers. Can you imagine your electricity supplier notifying you that they upgraded you to a more affordable plan that will save you 50 EUR every year? They don’t do it because it would cost them much more than shuffling bargain hunters costs them. Bargain hunters would not change their modus operandi even if you did this for them and would probably still be on the lookout for benefits that they could get from your competitors. The hunt wouldn’t stop, it would just lose some intensity.

Discontent with customer care is probably the main factor why loyal customers switch providers. Click To Tweet

If we continue focusing on subscription services, it is more than clear that some customers are not in the least bit interested in chasing the best deal. Most people probably pay more than the current market price if we take all the available limited time offers into account. They probably only think about switching because they had multiple (above average number) contacts with customer support and the service they received wasn’t completely satisfactory or it even disappointed and angered them. They might want to explore other options because they are disappointed with the level of service or they might even be emotionally determined to leave. I personally feel that the performance of customer service is crucial if not the only motivation that drives customers who are not price-sensitive to leave their provider. The level of customer satisfaction with customer support is not hard to measure.

The “fight” for bargain hunters costs providers millions of euros

The data analysis of past buying decisions shows that customers who changed their electricity supplier in the last year are most likely to switch again next year. The longer customers stay with the same supplier, the less likely they are to leave soon. But we are limiting our perspective by only focusing on the group that switched their supplier in the least year. The customers who haven’t changed their services in a long time, have been “overpaying” for their electricity and had an above average number of contacts with customer support are dangerous as well. I’m certain that this theory could be confirmed by carefully processing statistical data that covers business with existing customers.

Can you recognize the customer that is about to leave you tomorrow? Click To Tweet

I find all other data about previous business dealings with the customer quite unimportant in looking for customers with the potential to leave. The key question is how to recognize those that are actually thinking about leaving. You can find out who is going to leave you only if they tell you so or if you track their behavior on your website. Luckily that isn’t impossible anymore. Marketing automation can be much more useful for keeping your existing customers than in the battle for new ones.

Marketing automation can help you recognize existing customers “on the move” who need special attention and a proactive approach

I see no problems with segmenting customers based on tracked activity such as researching online content on special offers, contract termination conditions, contact termination costs… If a customer from the group that is at high risk for leaving (past business data) joins the “researching special offers” group, they are probably not only turning to you for this information, but are actively researching it at your competitors’ websites. I would understand this as a red flag that requires me to do something about it. If we take a look at it from a technical perspective, a task should appear in CRM and instruct the salesperson to call this customer and prepare a special offer for him/her.

Bargain hunters are the most engaged customers – they will gladly recommend you if you offer them a reward

It is highly likely that only “attention” can help you keep such a customer in the right moment. You just need to be proactive and offer them the same benefits that they would get for switching to your competitor. Extending the benefits if we gain a new customer through their recommendation in the first 6 months of signing the contract could provide them with some additional stimulation. This would of course incur costs, but it would bring significant savings in advertising costs that are currently more or less the only channel for communicating benefits for new customers.

Only the one who first uses the technology for defending their customer portfolio can win. Click To Tweet

The technology that tracks the behavior of individual customers is the only way to switch to proactive marketing of commodity services

If you want to have a better overview of customers that have the highest potential to leave, you need technology that tracks their behavior online. This provides you with much more valuable data than the analysis of your business relationship in the past. If you could overcome the limitations of standardized service packages, automatize some processes and offer a personal touch to the small group of price sensitive customers, you could do a whole lot better at defending your portfolio. The savings and the business effects will only benefit the provider who first uses technology for defending its customer portfolio in this way. Unfortunately, this will work only until every provider starts doing it. The first ones work with us. Will that be you?

 

igor.pauletic@frodx.com

About the Author

Igor Pauletič

Founder and CEO of FrodX, who uses his rich experience to assist customers to transfer the latest technological, operational, and social trends into their business operations. He mostly focuses on new product development, omnichannel sales architectures, and go-to-market strategies. As a team member, he fills the role of the idea generator and constantly challenges the status quo and established decision making patterns.