Retention is Not the Same Thing as Satisfaction

Last year I posted about the research Dennis Campbell and I did in financial services where we found the surprising result that self-service can increase costs (the article was just published in Management Science.)  Dennis and I have been working with Ryan Buell, a fantastic doctoral student at HBS, on additional research about self-service.  This new research shows, unsurprisingly, that online customers have higher retention than customers who are exclusively offline.  The goal was to determine whether the increased retention is due to greater satisfaction (customers love being in control and using all those convenient online tools) or greater inertia (it’s too painful to re-enter all those billpay addresses).

The winner? Greater inertia — the aggravation of switching  is just too high for online customers.  Even more troubling, it turns out that online customers are less satisfied than offline customers.  So even though online customers stick around longer, they’re not at all happy about it.  Why is this a problem?  Because these customers are a ticking time bomb for banks.  Once a competitor figures out how to reduce the pain of jumping ship, they’ll be first to exit.

It’s tempting in any competitive environment to conclude that “loyal” customers must be satisfied ones.  But we’ve found that even when customers keep giving you their money, they still might be miserable.  All those familiar faces may not be placing a particularly high value on your products and services — rather, they may simply be placing a higher value on the time and energy it would take to leave you.  My advice is to start scanning the horizon for competitors who can give your customers a better experience without exacting a high price for the privilege.  Or better yet, play it safe and become that competitor yourself.

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