Poor Customer Satisfaction Does Not Always Lead to Churn Behavior

For whatever reason, another survey of consumers shows that Internet service providers and linear TV providers are among the lowest-ranking entities, in terms of perceptions of customer service.

Mobile service providers, airlines and rental car agencies also rank relatively low, a finding other studies also tend to confirm.

But those perceptions are not always directly related to customer churn  rates, even when consumers say they are quick to change suppliers when customer service is deemed inadequate or faulty.

Despite the fact that mobile service providers tend to rank relatively low in satisfaction surveys, churn rates in the U.S. market, for example, are relatively low, at least for some of the leading providers. For AT&T and Verizon, for example, churn rates are lower than one percent a month, a rate many would consider quite low for a consumer service.

Higher churn rates obviously lead to lower customer relationship durations.

Surprisingly, then, AT&T and Verizon mobile churn rates are quite low, compared to some other consumer products, but quite similar to churn rates for many common products.

Sprint and T-Mobile US have higher churn rates, if now approaching the lower rates seen by AT&T and Verizon.

U.S. credit card companies typically have annual customer churn rates of around 20 percent, a monthly rate of about 1.7 percent.

European cellular carriers experience annual churn of between 20 percent and 38 percent, between 1.7 percent and three percent a month.


Even when they say they will switch suppliers within a day or week of a poor customer service experience, that obviously is not how consumers act. They obviously do not act as they say.

Costs of switching likely provide one explanation. While the costs of switching fixed services providers might be relatively low, it is not frictionless, as consumers frequently have to pay install charges, equipment rental or other upfront charges.

For smartphone account owners, especially those which are multi-user or multi-device accounts, switching costs are substantial, including a need, in many cases, to replace multiple smartphones, each representing $600 or more in costs.

That is one reason why mobile service providers now frequently offer payments of up to $650 when consumers switch suppliers. In many cases, even a $650 subsidy does not cover the cost of buying new devices and terminating device payment plans.

For many consumers, there might also be a belief that switching to another provider will not, in fact, lead to better experiences, as all the suppliers--or most--within a category are deemed to be roughly equivalent.

To some degree, the fact that legacy U.S. mobile air interface standards are bifurcated might have something to do with the churn rates. To some degree, half the market uses GSM, while half the market has used CDMA. Switching across air interfaces necessarily entails scrapping the existing devices and buying new ones.

The bottom line is that, at least for mobile services, relatively low satisfaction does not lead to the churn rates one might expect. That is at least partly because switching costs are substantial.

The latest survey tends to confirm that behavior.




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