Thursday, April 25, 2013

Customer Sentiment Survey – Why Are Customers Switching?

This week we’re taking an in-depth look at the switching issue. We’ve already analyzed switching trends by demographic segment, but it’s important to focus on the reasons. A customer who “switches” to a service chain because her car broke down nearby is different from a customer who switches because he felt his dealer was dishonest.

Carlisle’s Consumer Sentiment Survey identified six main categories of reasons for switching:
  1. Location: Going to a closer/more conveniently located provider
  2. New/Unforeseen Circumstance: Vehicle broke down, was on vacation, etc.
  3. Price: Found a cheaper provider or used a coupon
  4. Service Quality: Unsatisfied with quality of service, technician’s attitude, perceived up-selling, store schedule, etc.
  5. Availability of Parts and Expertise: Service provider did not have the part or was unable to perform the job
  6. Trust/Word of Mouth: Followed recommendation of friends/family, perception that another provider is more trustworthy
The chart below shows the percentage of customers who cited each of these six reasons in the combined 2012 and 2013 surveys.

Of these six categories, two (Location, Circumstances) should be classified as “unavoidable,” since they are out of the provider’s control. If your car breaks down while you are vacationing or if you move away from your provider, chances are that you will have to pick a new provider. For the last two years, 33% of customers who switched fell in these categories. Since these “unavoidable” reasons are unpredictable, we would expect this figure to change year-on-year.

The remaining 67% are customers who switched for reasons of Price, Service Quality, Availability of Parts/Expertise, and Trust. These “controllable”reasons are related to a provider’s performance (whether in marketing, quality of service, schedule, etc.). This 67% is our focus.

Analyzing the “controllable” reasons will illustrate the dealers’ problems. Overall, 22% of all customers who switched providers, ended up switching to the dealer. However, if we look only at those who switched for “controllable” reasons, then the percentage of customers switching to the dealer drops to 19%. Why is this happening?

As you might expect, customer perceptions of price drag down the numbers. 38% of customers switched based on pricing, and in 2013 only 5% of these customers switched to a dealer. This was a four point drop from 2012, meaning the situation is getting worse.

The numbers might appear better when we look at the other “controllable” reasons. In 2013, we see a two point improvement in the number of switchers choosing the dealer for these reasons. Yet, it’s troubling that dealers only attract 36% of switchers in categories that are more likely to be considered dealer strengths.

Bottom Line: Dealers attract only 19% of customers who switch for a “controllable” reason. Customers looking for lower prices will rarely switch to a dealer. Finally, dealers have not been able to capitalize on their areas of perceived strength, such as service quality and availability of parts/expertise. Why is this happening?

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