HOW TO CONTAIN THE EPIDEMIC OF CHURN IN RETAIL ENERGY

By Jack Doueck

No matter what business you are in, your cost to acquire, or “CTA,” is one of your highest costs.  How much time, money and energy is expended trying to acquire customers? That is your CTA.  Most companies know exactly what that number is.  Now, ask yourself: How much time, money and energy is expended trying to keep customers? This is your “CTR.” (Cost to Retain).  Do you know what your CTR is?

An example from the Banking Industry.

Banks’ CTA is about $300 per customer.  Opening a new bank account is a big hassle: lots of paperwork, KYC, “Know Your Customer,” signature pages, wire transfers, checks, debit cards, bill pay set up, etc. etc.

So you would think that banks have strong customer retention.  However, when we look at the numbers, we may be a bit surprised:

  • 32% of new customers will leave before their one year anniversary. 
  • 20% of these new customers who leave in year one, do so without doing even one transaction. 
  • 50% of them quit in the first 100 days!

It usually takes banks about two years to break even on their CTA.  So, the average bank loses money on 32% of its new customers. 

If customer defection is such an epidemic in the world of banking, where the bottom is everything and the difficulty to open a new account should prevent churn, what is it like in the other businesses, where it is so easy to “make the switch”?

How about cellphone contracts? Are they hard to break?  You bet. They are draconian.  How many customers break their contracts within the first 100 days? Would you guess 21%?

How about the customer experience at auto repair shops?  Does it surprise you to know that 65% of customers will go to an auto repair shop only once and never again? 

It has been recently reported that an overwhelming 46% of new customers to Chuck E. Cheese restaurants will never come back. 

How about Cable TV?  The “Triple Play” bundle was designed to reduce churn. It consists of internet, phone and cable TV combined. Hard to break this contract right?  Nope.  More than 30% churn in the first 100 days. 

The fact is, most businesses in America today lose between 20 and 70% of their new customers within the first year.  Yet, it has been proven, that across a range of industries that just a 5% improvement in customer retention equates to a 25% – 100% increase in annual bottom line profits!

How much does customer retention increase the equity value and resale value of the business?

It is exponential.

So, why do customers say they leave? 

Polls and surveys conclude, in the voice of your customers:

  • “Because we feel neglected!”
  • “It’s not the price.”
  • “We just want to feel special.”
  • “We simply want to feel like you care about us.”
  • “We want to feel good about your company.”

So, what is the problem?

We get the customers attention and we get them to buy. But then we systematically ignore the emotional journey and experience of the customer! How much do we pay sales personnel and how much do we pay account managers, whose job it is to make sure customers are happy? Salesman are incented to acquire customers.  They are the stars in our business. But, who is incentivized to make sure we retain them? It’s an absolute blind spot in our industry. 

Simply put: Energy customers don’t feel special or card for and this is a structural problem.  The average business in America spends 6.9% of revenue on marketing, but less than 20% of that is on customer retention. 

A tell-tale sign of what business people today care about most:

In a one week search analysis of Amazon.com:

  • 311,000 searches were for the word “Marketing.” 
  • 1,313,000 searches were for the word “Sales.”
  • But only 30,000 searches were for the words “Customer Service”, “Customer Care” and “Customer Experience” COMBINED. 

That is a 43:1 ratio.  To put it another way, we, as a country, are 43 times more focused on sales than we are on retention.  Is it any wonder, then why customer churn is such a big issue?

A Parallel Universe

There is a kind of parallel universe going on after a sale is made. The salesman is feeling joy, excitement and euphoria! He goes home to his family and they congratulate him and celebrate his success. Meanwhile, as the salesman is celebrating… the customer is feeling: doubt, fear, uncertainty, “buyer’s remorse”.  She tells her spouse about the decision, and he calls his friends who say that they made a mistake. He becomes angry. An argument ensues. No one in that house is happy!

Businesses aren’t B2B OR B2C. They are H2H:  HUMAN TO HUMAN.  To win in this business – we have to create a remarkable customer experience.   This means, from the sale to the onboarding process, to the flow date, to the first bill, and on – customers have to get the sense that you just didn’t court them, sell them and ditch them – but that you really care about them and appreciate their business.  The 100 day clock starts at the TPV or the contract signing.  That is when we must to start to rally around the customer and make sure he/she is THRILLED with your company and proud to be associated with you.  Then these customers become “raving fans” and refer you to friends.

The vicious cycle of churn

Customer dissatisfaction causes churn, which causes an increase in net customer acquisition expenses, which causes retail energy providers to raise rates, which, in turn, causes customer dissatisfaction, which causes increases churn in a classic vicious cycle.   This vicious cycle is nothing short of an epidemic. 

What’s the solution?

So how do we contain the epidemic of churn in retail energy? Simply put: by creating a remarkable customer experience. The clock starts from the moment the customer answers the TPV or signs a contract. If you can overwhelm the customer with consistent messages of care in the first 100 days, your chances of keeping that customer longer rise dramatically.  There are three messages that you need to give your customer right from the start, and you need to keep sending him/her these messages over the life of the relationship. 

  1. Who are we? We are your retail energy provider. We have been around for a while with thousands of satisfied customers just like you…
  2. What are the benefits of working with us?
  3. We reward loyalty. You have a lot of choices with your energy supplier, and we want to be yours for life. So we will continue to reward you with lots of benefits for sticking with us.

The cadence and consistency is the key to giving customers a happy experience and letting them know you care and what they can expect from you every step of the way.  Every alternating three months, you, must communicate with your customers and let them know you value the relationship.  In an age of ‘email overwhelm’ – direct mail (especially with free gifts) is the simplest and best way to engage customers and foster a strong customer experience.

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Jack Doueck is the principal and co-founder of LED Plus, Advanced Energy Capital and the Energy Marketing Conferences.