Futility of Chasing Zero Defections

While working with a private school to address their customer churn issue, I looked for reasons why parents decided to switch schools.  The customer research was done in two steps:

  1. A focus group  of parents and a number of one on one in-depth interviews
  2. A survey of parents in the city and quantitative analysis

Here are some high frequency reasons parents cited:

  1. It was the beginning of the economic downturn, people were worried or lost one of their income streams. Private school was no longer affordable.
  2. Their second child was starting day-care and it was not anymore possible to pay fees to two children.
  3. Parents moved just a few miles and found it hard to schlep the child to the school and get to their work.
  4. Until a the early childhood care or the initial grades the school served the needs well but parents were convinced that it simply was not the right choice for the higher grades.
  5. The public school lottery they were waiting for came through.

None of these are related to the product itself and nothing the school could have done to increase the loyalty.  It was clear that chasing zero defection would have been completely futile and the resources were better spent increasing the funnel and attracting new parents. This is the case for a product which naturally encourages loyalty, whose selection is not made that lightly and definitely no parent would switch schools on whim. In some of the cases the parents rated their previous schools very highly and yet they chose to switch – exhibiting a large attitude vs. behavior gap.

Businesses must accept that customers switch for reasons which are simply not under their control:

  1. Businesses fail, move, change direction
  2. Business got acquired and the acquiring company has a preferred vendor
  3. Economic shocks
  4. Technology shifts
  5. Price issues
  6. Changing in their needs as they grow
  7. Variety seeking – simply interested in trying new products
  8. Availability of alternative that was not an option before

None of these can be controlled by any loyalty program or five star customer experience your business can deliver. In fact blindly focusing on increasing loyalty without understanding the reasons will simply take away the resources that could be used for new business development and customer acquisition efforts.

There are a lot of unsubstantiated theories about increasing customer lifetime value by reducing churn – but these are simply models stating the obvious without taking into account such exogenous factors and the costs required to keep price sensitive customers.

[tweetmeme source=”pricingright”] So why should businesses focus their resources on loyalty when the reasons customers switch are completely out of their control?

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