UK businesses face £2bn war for customers, claims service body

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UK firms fear losing 10% of their customer base over the next three years at a cost of almost £2.25bn, according to a study by the Institute of Customer Service (ICS).

Business leaders warn of an impending war for customers and claim customer retention and acquisition are critical to success; as cash-strapped customers spend less and shop around more amid continuing economic turmoil, the study found.

The study is based on research among senior decision-makers at 250 of the UK’s largest consumer firms plus 1,000 consumers. 

According to researchers, the difficult economic climate leaves businesses with little room for growth, exacerbating the fierce battle for customers.   

The majority of consumers are spending less (65%) and taking more time to shop around (86%) and research the best deals (76%). Almost half (47%) describe themselves as more likely to switch companies in the future.

At the same time, two fifths of business leaders (41%) suggest the scope for organic growth is limited in the current climate. The same applies to growth by acquisition, according to 54% of senior decision-makers, the study found. 

As a result, 41% of leaders expect the war for customers to intensify this year. 

Forty four per cent describe customer retention as critical to their ability to achieve growth, while 58% describe customer retention as critical to the sustainability of the business itself. More than a third (35%) identify customer churn as the greatest threat to their business, said the ICS.

Jo Causon, chief executive of the ICS, said: “As consumers spend less and shop around more, senior leaders need to consider how their business strategies and operating models reflect the needs of their customers.   

“Firms that differentiate on the quality of their customer experience will be best placed to achieve their growth ambitions.”

Business leaders expect competition for customers to erode almost 12% of their current custom over the next 12 months alone, and some 10% on average over the next three years, the study found.

Executives predict this level of customer churn will hit turnover by almost 11% over the next three years – threatening some £2.23bn of revenues, said the ICS.

This is before the cost of replacing lost customers – estimated at more than £6,500.00 per customer by senior managers – is taken into consideration. Leaders admit it takes a staggering 58 days on average to replace a lost customer, reports the Institute.

In light of an impending war for customers, two thirds of business leaders (65%) agree customer service will be a critical market differentiator, said researchers.

Leaders identify customer service as the most important factor – alongside price – in driving the customer loyalty that will be critical to success. Almost three quarters (71%) single out service as a key loyalty driver, ranking it above product and service quality, brand reputation and effective sales and marketing.

Their customers agree: the large majority (83%) identify the quality of service they receive as an important driver of loyalty.

In this context, two thirds (64%) of firms are planning significant investment in customer service this year to ensure customer retention, reports the Institute.

Despite plans to invest, firms are facing significant service challenges as they battle to retain customers, the ICS found. 

Almost half of business leaders admit cutting back on service operations during recession (47%). Cuts have damaged the quality of customer service in close to half of organisations (48%), with only a quarter (27%) preserving service levels through the recession. 

A third (31%) believe the quality of their customer service has been impaired by a short-term focus on prioritising sales over service, the study found.

Worryingly, less than half (45%) of executives feel their board understands the importance of customer service, while the same number believe their board affords it inadequate priority, said the ICS.

Causon said: “A quarter of the organisations we spoke to understood cutting back on customer service is not an option. These are the firms that will succeed in such a fiercely competitive environment.

“Service drives bottom line performance, and will be the critical differentiator in a business environment marked by intense competition for customers.”