Many organizations today are in a position of advantage. They have significant market share, weak competition, and strong pricing power. They can maintain their customer bases through sheer size, lack of competition, or high switching costs.
As discussed in Chapter 21 of Be Your Customer’s Hero, industry consolidation trends are having a negative impact on customer experiences. Many industries are dominated by a few large players, and those industries dominated by monopolists and oligopolists tend to deliver bad customer service yet still keep their customers.
Why invest in customer experience the thinking goes? The customer isn’t leaving.
However, this approach is often shortsighted, and many organizations don’t seem to understand that while they might not lose the customer, they can easily lose the customer’s business.
What Would It Take for Me to Leave Amazon?
Amazon, with its sheer reach and breadth of services, does not fit the traditional monopolistic/oligopolistic model we so often think of (health plan provider, cable company, wireless provider, etc.). Amazon is an Internet retailer, an entertainment company, an IT company, and many other things. In addition, Amazon is known for having strong customer service.
Amazon is unique because it faces high levels of organized competition in many of its lines and businesses, yet at the same time stands alone as an industry of one. There is no other significant company that comes close to being Amazon; there is no Pepsi to Amazon’s Coke, so to speak.
I have been an Amazon customer since 1999, and I shudder to think how much I’ve spent with the company in 17 years. I am officially addicted to Amazon Prime and haven’t really considered canceling it since the first rocky year.
So, I ask myself, what would it take for me to leave Amazon?
Would I leave for any of the reasons I might normally leave a company? For a terrible customer experience? For being treated rudely by a customer service rep? For receiving a shoddy product and not standing behind it?
The answer is no. I would likely not stop being an Amazon customer; however, I could easily change my buying behaviors with the company.
How Amazon Could Keep Me — And Still Lose Me
Hypothetically, let’s say I had a bad experience with Amazon’s warranty program. The first impact would be that I was less likely to purchase the warranty on items purchased through Amazon. Warranties are super profitable, so it would be a loss.
Further, a lack of faith in the warranty program could cause me to take my large purchases elsewhere. Television sets, expensive electronics, or anything else I would want to warranty, I would no longer buy through Amazon.
Now, my average ticket price with the company is lower, making me less profitable as a Prime member, and my customer lifetime value is reduced, making me less valuable as a customer in general.
Amazon would keep me as a customer, but they could still easily lose a lot of my business.
(Again, this is hypothetical. Love you Amazon! xoxo)
About Those Banks and Wireless Providers
Since Amazon is so unique, let’s look at a more traditionally consolidated, poor service industry: banking. While banking has a more competitive landscape than many consolidated industries, large banks are often able to partially insulate themselves from competitive pressure through economies of scale and, more importantly, switching costs.
My wife and I patronize a certain mega-bank. We have both business and personal accounts there, and while the bank is large enough that we have had a range of customer experiences over the years, overall the customer service has been pretty bad.
I wouldn’t think twice about moving our accounts, and my wife (who deals with them most of the time) doesn’t have a week where she doesn’t ask me, “When can we dump bank X?”
My answer is the same every time: “Do you have time to deal with that right now?” And then another week, then month, then year goes by with us remaining as customers.
Because, as we discussed in this post on banking customer service, the switching costs are too high. It would take so much time to change all of our direct deposits, business auto-deducts, auto-payments, etc., that we simply can never justify the time.
So, they have kept us as customers much longer than they should have, but they have lost almost all of our additional business over the years.
- As we’ve opened new businesses, opened new personal accounts, or gotten new credit cards, that business has gone elsewhere.
- We’ve done no investing with them and would not even consider using their brokerage or investment advisory services.
- When we bought a house a few years back, our mortgage went to another bank as well.
In short, they’ve kept a few checking and savings accounts and haven’t gotten a single bit of additional business from us.
Perhaps they look at us as a success story. On some report, it likely shows that we’ve been with the bank, holding numerous accounts, for many years.
In reality however, they’ve kept us as customers but lost our business. And eventually, as opportunities present themselves or as our schedules get more manageable, they’ll lose us as customers as well.
Millions of people across the world can say the same thing about their wireless provider or their cable company, but big businesses are not the only ones at risk with this phenomenon.
It Can Happen to Small Businesses Too
While small businesses generally do not enjoy the lack of competitive pressures that say cable companies do or the high switching costs that banks or mobile carriers do, they can sometimes replicate those effects via early market entry or real estate conditions.
For example, a small business could be…
- The only pharmacy in a small town
- The first coffee shop on a major morning commute route
- The only gym close to a mega development
In cases like these, companies can often get away with lower levels of service and still keep their customers.
Until they can’t.
Eventually, the customer decides he’s ticked off enough to get set up with an online pharmacy, a Starbucks opens down the highway, or after two years of monopoly, another shopping center goes vertical near the large development and has a gym concept in it.
For small businesses, these types of monopolistic-type situations are almost always temporary. As the power declines, so will the level of the customer’s business and eventually the customer herself will move on to greener pastures.
Why Customer Experience Is Always Important
As we noted in the post, How Customer Service Can Save Cable: technologies can shift, and market conditions can change. In addition, switching costs can also decrease. When this happens, a disloyal customer base that has been held captive will leave at the first chance it gets.
However, while customers are still around, bad customer experiences can easily cause them to change buying behaviors and to spend less money with the organization.
Customer experience isn’t just an investment in the future; it’s a strategy for the present. TWEET THIS
By focusing on delivering Hero-Class® customer experiences, you can make sure you always keep the customer and never lose their business.