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Why are some industries so persistently bad with customers?

“Bruce Temkin, managing partner of Temkin Group, says, “The overall story was not very good. Nearly half of the companies received ‘poor’ or ‘very poor’ ratings. The bottom of the list was dominated by health plans, TV service providers and Internet service providers. In these industries, it appears as if bad customer experience is contagious. And, worse yet, no one seems to recognize that they are infected.”

Forbes (19 April 2011)

The article excerpted caught my eye in Forbes recently. It was discussing a strange phenomenon – that certain industries and types of business are consistently bad at delivering good customer experience and building customer loyalty.

The study quoted is by Temkin Group, which analyzes how American companies interact with customers on a regular basis. The results do not make good reading overall – half of ALL companies are either poor or very poor! That’s bad enough, but the persistent offenders also stand out clearly: health insurance providers; TV companies; internet-service providers; banks and insurance companies.

Surprise, surprise! Or rather, no surprise at all. It’s a shame these surveys are not (yet) run in Kenya, but I am willing to make an unscientific (though educated) guess at what we would find. First, the vast majority of organizations would get a very poor rating; and second, the persistent offenders would be exactly the same every year, just like in the US: health insurance providers; TV companies; internet-service providers; banks and insurance companies. The only category we would add in these parts would be utility companies and government service providers.

Why is this? Why do some industries behave so badly – and keep doing so? Why don’t they change, pull up their socks, realize their bad ways?

This is a mystery, but it can be resolved. For a clue, look at the companies at the TOP of Temkin’s customer loyalty ratings: 9 of the top 10 are retailers. What’s distinctive about retailers? Forbes tells us that retailers know they have to win every customer anew every time that customer shops. In other words, in the very competitive US retail market, every customer must be fought for, and every customer can be lost.

Let’s look again at the serial offenders list: notice something now? This is what Bruce Temkin points out: “Rather than earn loyalty on an ongoing basis, they often try and lock in customers through contracts. This allows them to ignore the underlying discontent with their customers.”

It’s the lock-in factor that is causing this problem. All of the industries mentioned have this feature – they try to ensure you won’t go anywhere else (for a while, at least). ISPs, phone and TV providers try to do this through long-term contracts; insurers through long-horizon policies; banks through high switching costs; airlines through air miles; government monopolies through maintaining their compulsory arrangements. Once you’re a customer of these people, they make sure you won’t go anywhere for quite a while.

There are big lessons all round in this observation. If you’re a regulator who wants to ensure companies think hard about their customers, you have to discourage the practice of lock-in. If you’re a customer, you have to resist organizations that try to lock you in for long periods – it’s a recipe for indifferent service.

If you’re a company boss, you should pay special attention to this problem. If your organization operates on lock-in, you will never see the underlying problem. Customer numbers will look good for quite a while, and discontent will not immediately translate into bottom-line impact. You will miss the signals, and so will your staff. Because you won’t have to fight for customers every day, you won’t learn to fight at all. You will be more insular than customer-focused, and will mostly live at the bottom of the true (underlying) customer loyalty pile.

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