Supplier Churning And Burning Costs Soar


According to the latest BMC Software Churn Index, customer churn is no longer an issue confined to the banks and telephone companies but is now affecting additional sectors including mobile phone companies, utilities and broadband suppliers.

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And says the report, which was conducted by Ciao Research, switching suppliers is costing Australian businesses nearly AU$1.6 billion a year.

 The BMC Churn Index, a study of 4,000 consumers in seven Asia Pacific countries, including 600 Australian consumers, has revealed that virtually every Australian consumer (92 per cent) has at some point switched a service, with almost six out of ten having changed suppliers in the past 12 months.

While price may be the number one reason for switching, the study revealed that service issues and a lack of proactive communication on service problems were also major reasons for customer churn.



According to the report, the route to customer loyalty in Australia is by:

1. Keeping prices, rates or fees low (87%)
2. Keeping call centres in their home country (75%)
3. Having call center staff aware of their service history, so they don’t have to explain multiple times (69%)
4. Suppliers being more proactive in informing customers about a problem with the service and the resolution of the problem (50%)
5. Rewarding customers for renewing their contract / automatically applying new discounts (each 50%).

Adrian Payne, Professor of the University of New South Wales School of Marketing said: “The BMC Churn Index is a clear wake-up call for businesses. They need to know when business services are going wrong and which customers are affected, because without that insight, they run the very high risk of that customer switching at some stage.”

The report also notes that the cost of doing IT poorly can have long term implications, with variable service impacting both current and future customers. Disappointed customers were more than twice as likely to make negative recommendations (70 per cent) than those whose expectations are met, whereas 61 per cent of customers whose expectations were exceeded are likely to make positive recommendations.



The report notes that 92 per cent of Australian consumers have at some point changed a service supplier – on average, they have switched 10.5 times for 4.5 different types of services and about 6 out of 10 (58 per cent) consumers in Australia have churned in the past 12 months for an average of 1.1 different types of services.

Consequently, missing customer expectations has a triple impact on businesses:  it loses existing customers through switching, it loses potential customers through negative recommendations and it loses potential customers through lost positive recommendations.

Payne said that many factors including financial incentives are used to attract new customers, but the continuous cycle of cost cutting and financial kick-backs are not a healthy long-term business strategy. “Companies spend substantial amounts of money attracting new customers, but often losing them because of poor service, an outage or frustrating experience with the help centre”.



In orders of churn, the sectors with the worst record include: Telephone companies, banks, and insurance companies which have the highest historical churn rates with 64 per cent, 63 per cent, and 60 per cent respectively.

However, in the last 12 months other sectors have been playing catch up, with the top five churners being: telephone companies 19 per cent; mobile phone companies 17 per cent; electric utilities 17 per cent; broadband suppliers 15 per cent, and insurance companies 12 per cent.

The BMC Churn Index concludes that Australian consumers probably want to stay loyal – if only they are treated right.


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