Industry Customer Churn Rate increases 15 percent

08 January 2008, 12:56pm

Pitney Bowes Group 1 Software has released new research which found that customer defection rates within the Mobile Telecoms sector have risen from 33.4% in 2005 to 38.6% in 2007 – an increase of 15.3%.

Having studied the phenomenon of customer defection, or ‘churn’ in Britain across the last four years, the 2007 edition of the Pitney Bowes Group 1 Software Customer Churn Report decided to collect data which compare and contrast the situation in key European economies and in the United States. A representative sample of over 1,000 consumers in each country was interviewed by email and telephone questionnaire. They were asked (1) whether they had switched supplier over the previous year in each of a number of sectors, (2) how likely they were to switch over the coming year, and (3) what the principal reason for switching was/is.

The overall results toppled a number of pieces of received wisdom. The primary findings of the research are as follows:-

* Britain is the customer defection capital of the West (22% churn per annum), possibly because of its crowded geography, its national wealth per capita, and its high levels of deregulation across all sectors studied.

* Mobile Telecoms retain the highest average customer churn at 38.6% (33.4% in 2005).

* The industries experiencing the highest levels of growth in customer defection rates since 2005 are Supermarket and General Insurance providers, with both seeing a 7.6% point increase in churn rates.

* In Retail Banking, where most assumed sub 10% annual defection rates, is now in the league of one in five European customers defecting each year, rising to one in four in the US.

* The three key reasons why people change supplier are consistent across Europe and the US. They are:-

1. not being recognised as a valuable customer (all countries average – 55%)

2. unhelpful staff (all countries average – 47%)

3. ineffective call centres (all average – 42%)

The findings indicate that the UK consumer is becoming more mobile and that companies’ retention strategies need to improve to deal with this phenomenon.

Andrew Greenyer, VP International Marketing, Pitney Bowes Group 1 Software comments, “The world is becoming generally more mobile and less loyal. Yet despite all the effort and investment going into customer retention and loyalty, the effective strategies implemented by well known success story companies are not yet the norm.

“Mobile Telecoms remains a very fluid area. Here, strong brands are evidently having an effect, with the issue of content provision likely to be a key factor in future churn (or indeed inertia) patterns. 3G provision has initially disappointed consumers, leading to massive churn. Nevertheless, the sector is so volatile that this situation may easily reverse after its initial customer relationship difficulties. The US experiences far lower rates of churn, but this probably reflects the closer link in North America between cellphone carrier and handset. In Europe, the two are independent of one another, allowing the SIM card to be fairly portable between models. However, this also helps network operators use attractive handset ranges to persuade customers to switch. Also, number portability is relatively new in the US. The UK got portability in 1998, Spain and Sweden in 2000, and Italy in 2001. Americans didn't get it until the end of 2003. Finally, there are the factors of overall mobile penetration and pre-paid penetration. Mobile penetration in Europe now exceeds 100%, with 666 million connections.

“US has 70% cellphone penetration compared with over 80% in France, more than 100% or more in Germany, Spain and the UK, and over 120% in mobile-mad Italy. 25% of US cellphone users switch plans each year. However, there will only be 40 million prepaid customers in the US in 2009 (17% of forecast total market). This compares with over 50% prepaid penetration in Europe, and prepaid churn is on average three times higher than postpaid.”

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Geo: International