Do your customers really love you or your products and services? Maybe they do. Then again, maybe you’re just a necessarily evil. In this case, they feel more like a hostage than a customer and will bail out the moment they get the opportunity. So which is it? Are your customers experiencing loyalty to you? Or just Learned Helplessness? Do you have a bright future delighting or at least satisfying your customers? Or are you just a sunk cost fallacy waiting to be realized? (I’ll explain the sunk cost issue in a moment or two.)
During the evolution of COVID-19, a lot of marketplace issues have emerged. All manner of experts from varying business categories will be studying the effects for years. But from the perspective of this topic of product switching, we’re continuing though a period when consumers are choosing to, (or have been forced to), re-evaluate product and service choices. This has sometimes been due to simple availability, but potentially also affordability. People have also had several changing or new needs. Some will be temporary, others more permanent; from home office setup, through childcare, and the list goes on and on. All this change has has dumped a variety of seemingly stable brands in a big blender where all of a sudden, they’re up for review. And if you don’t have a customer retention strategy, even if you’re company can survive a brand switch here or there, you’re likely going to leave a lot of money on the table.
Why do customers switch products or services?
There’s lot of obvious reasons of course, (and we’ll get to a list soon), but a simple one that I think gets missed is just this: “Your brand or your product are actually someplace between being average or outright lousy.” They’re just staying with you because you’re just above the usefulness vs. alternatives threshold.
Now at this point, any thinking person would probably push back with “Well, then why did anyone ever buy or use this product in the first place then?”
Fair question. The answer is sometimes within the idea of a concept called “satisficing.” Basically, they have a challenge for which your product works for them, (a so-called Job To Be Done), but you just barely pass an acceptability threshold. (Maybe it’s function, maybe price, whatever. Or you just really are the only solution, possibly due to some historical protectable patents, local access, or other reasons.) There are obviously other positive value reasons for brand or product loyalty, from real satisfaction though just some psychological attachment. (E.g., “THIS is the toothpaste I had growing up. It gives me comfort and happiness to continue to have it. After all, it’s what Mom used to buy.”) These positive experiences are great, but we’re here to look more into what happens when the relationship goes bad.
So… even if your product or service is somewhat lame, your customers probably don’t want to switch. Switching is sometimes hard. It may be costly. Or scary. Or just a hassle. Maybe even outright dangerous. Possibly all of the above and more. They may need to learn new workflows and button presses, etc. They may be somewhat locked in to your data formats and have to find a way out. In some cases, a company may have to re-train a whole lot of people. Or build new receiving platforms, and so on. But right now, (for the moment), it’s your customer. It’s your marketplace battle to lose.
There’s another theory that may apply here, which has more to do with why customers might stay with you even if they don’t love you. So we’re going to take a moment to look at behavioral economics.
Behavioral Economics & Sunk Costs
Behavioral Economics offers us clues into what’s going on a bit deeper than simple utilitarian choices.
Before continuing, I’d like to point out that over the past several years I’ve become a fan of studying behavioral economics. All the classic macro and micro economics we learned in school may very well apply to the world. But they seem to fall under the category of “All models are wrong, but some are useful.” That is, they often seem directionally correct, but if there’s one thing we’ve learned for sure from that past, it’s that we’re not really great about predicting the future. Economists in general seem really, really good at – after the fact – explaining exactly why they were wrong. And pure economics don’t seem to always apply to a messy world. Especially with all these… people. These people, with their seemingly irrational decisions. Their emotions sometimes, (often?), overriding their common sense. The problem being, there’s not a lot common about sense. Or maybe there’s some other things going on here? If you haven’t read it yet, go find Dan Ariely’s book, Predictably Irrational, The Hidden Forces That Shape Our Decisions.
Behavioral Economics is basically about the psychological and emotional aspects involved in our otherwise ‘rational’ economic decision making. And Sunk Costs are generally thought of as an economic concept. It’s a cost that’s happened, that you can’t get back. No use crying over it. You’d better just make decisions based on what you think the future looks like, not due to what you’ve already spent if that investment just isn’t going to pay off. Generally, sunk costs are thought of in terms of investments. And the “Sunk Cost Fallacy” is when we keep going with something for which we’ve invested a lot, even if it’s all but certainly clear the benefits really aren’t there any more, and are unlikely to show themselves in the future. This is when we should just take the loss and move on. Why do we so often hang on? It’s a bias that likely has basis in a number of concerns. Perhaps largely due to commitment bias and loss aversion; people generally don’t tolerate loss well. In fact, when we evaluate loss vs. gain of a similar magnitude, we typically think of the loss as a worse loss than the gain would be thought of as a positive gain. (Example: Research shows things like if we lost a dollar, we feel bad about it. But when we find a dollar, we don’t necessarily feel the same level of upside as we did downside on the loss.)
If some of these reasons are the only reasons you’re keeping your customers; because you have some kind of artificial or temporary moat, then you’re likely at rather high risk to new competitors or substitutions.
Top Reasons Customers Switch
Note: This is about customers switching; not simply abandoning because they no longer have a true need. E.g., a patient who’s recovered from a broken leg doesn’t need better crutches, etc. And if I’m just not wearing suits to go into an office anymore, a less expensive suit or discounted dry cleaning isn’t going to be a compelling driver either. This isn’t about abandonment and business model pivots; that’s another discussion altogether. This is about switching; dumping one solution for another. Neither Tower Records, (old vinyl, cassettes and CD music), nor Blockbuster Video, (rental tapes / DVDs), were going to survive digital delivery. (Though ok, you could argue Blockbuster should have seen it coming and become Netflix. But again these are other stories as well.) And yet, what about Sports Authority? Maybe poor management and online plus big box pressure, but other retail still persists in this category. There’s plenty of examples. Business history is littered with them.
So, as to reasons for actually switching brands… Your planning should likely encompass – at the very last – some awareness monitoring of risks along each of these dimensions such that you’re ready to respond. Many of these, (competitive cost, customer service), are obvious and most companies do monitor and respond to changes. And yet, we continue to see incumbents sometimes take big hits. And remember that lagging indicators are not nearly as useful as predictive ones. (Just what is considering lagging or predictive may vary somewhat by category, so you have to decide on which trends suggest the strongest signals of concern.)
Core Reasons for Switching List
- Cost / Value
- This is perhaps the most obvious one… the cost / value equation changes from customer’s perspective. This could be that they find a better price or quality, but it’s got to be to such a greater degree that it overcomes switching costs.
- Poor Customer Service
- My favorite definition of brand is… “A Brand is a Promise made over time.” When a customer has a poor experience or encounter of some sort, that’s brand erosion. Remember loss aversion theory… bad experiences get higher weights that good ones. Customer Service may most often be seen as a cost center. Regardless, having at least a certain satisfaction threshold here is a table stakes item these days.
- Changing needs.
- Not much you can do here. Maybe if you anticipated life stage evolution and have evolving or adjacent products, great. But the older male customer that’s gone bald most likely simply no longer needs your shampoo.
- Much better / cheaper new competitive product / service.
- `The good news for you is that there’s usually some form of switching costs that the new entrant has to overcome above and. beyond just utility value. But you’re on thin ice now.
- Technological Obsolescence or Leapfrog
- This may be partly a variant on just “Much Better,” but is subtly different. For example, there’s an old meme with a picture of a 1980s Radio Shack newspaper ad. (Radio Shack being an old electronics retailer that’s just barely still around some places.) Close to every item on the page, (cassette tape player, radio, etc.), has functions available in a smartphone. Most of these items are outright replacement, but there’s also fuzzier adjacencies. For example, mapping functions. These are fine in a smartphone, but there’s still specialty uses for some GPS units. Video may have killed the radio star, but we do still find radio useful for some things. And cameras. As good as smartphone cameras have gotten, pros still have use for even more capable dedicated camera and video units. So some progress here is a clear ‘above and beyond’ replacement for some use cases. Whereas others… you may still have a chance to find a niche.
- If you’re ever not there for your customer in their time of need, that’s a great opportunity for others. The Holy Grail for some new brand entrants is first time trial. But getting someone to even try something new can be challenging. The easiest way to open the door for someone else? Just don’t be in stock during their time of need. (Pro Tip for snack makers: If you want me personally to buy your new snack, sample it at Costco. History shows there’s about a 40% chance if you can get me or kid to try one, I’m going to buy one!)
- Social / Political
- Are you at risk of boycott / cancel culture from some direction or another? Even if so, this sometimes isn’t as bad as it seems as it might not last very long. It’s easier to just virtue signal with a hashtag on social media than actually change your favorite brands. So perhaps take care in overreacting with a response that’s going to alienate some of your customers. Consider the example of the Green or Sustainable customer. Maybe they’ll switch for environmental reasons, but for many, probably only if it’s congreenient.” See The Elusive Green Consumer. (By the way, this doesn’t mean don’t have some core values, ok? Just take care you’re not making multimillion dollar mistakes based on a short term yelp from a small vocal group.)
- Brand Fatigue
- They could be just tired of you. This may or may not be your fault. If you’ve overdone the frequency thing past a certain point, you may have triggered some malaise. Remember that there may be utilitarian costs to switching that impact emotional choices. But, there’s also something called Hedonic Motivation, and this can push consumers elsewhere if you get too boring too often. See How customers search for hedonic versus utilitarian purchases and WTF Are Hedonic Shoppers and Why Should You Care?. This might happen naturally, but you could maybe even force it via physical channel stuffing / trade loading, or just advertising.
- Poor Communication / Understanding
- If you’re not present in the marketplace, you could lose your rent free space in consumers’ minds. Besides physical availability of your product, you need to maintain top of mindshare when the need for your category of product or service comes up. Without overdoing it, making sure your customers don’t think you’ve just left them alone is probably a good thing. Remember that Brand Attachment is an Emotional thing, not just utilitarian.
Can You Avoid the Switch?
So of course you can avoid the switch. Or rather… maybe.
The fist thing you have to do, obviously, is to be listening. Really. I know you say you are. But are you really? There’s all manner of talk about KPIs and Analytics, and yet… are you making sure you’ve got the right ones on your dashboard? As business managers have tried to move to rolled up dashboards and simpler “North Star” KPIs, some of the warning signals here may be deeper in to the product or brand manager stack than the high level report. Are the brand or product people who are directly responsible for product tuned in to the correct data for their level of listening need? Is their day-to-day all about firefighting, playing arbitrage games with SEO/SEM or dealing with content management for their new DTC ecommerce solution or one of 10 million of the other relatively low value production tasks we all seem to end up with at least a little? Well… there might be some larger scope hidden risks coming. You know, out there. Out on the retail shelf. Or the long tail of the infinite ecommerce shelf. Or not. Maybe things are just fine. Maybe not. The thing is… It’s not even enough for you to be listening in the right place at the right time. You have to really hear the signal. You have to take it to heart and make sure your feedback mechanisms are actually responsive. More simply, make sure the yellow and red lights are installed and working, and if something actually starts blinking, look into it.
Anyway… There’s obvious numbers like the Net Promoter Score, or other customer satisfaction ratings. And radar charts, (or other brand perceptual maps), where you can plot brand perception along multiple continuum. But are you really getting to how customers are using your products or services? In person observation is potentially the most expensive, even more so than focus groups, but if you can observe your customers actually using your wares in their usual places, that can often be revealing. (And admittedly, during periods of infectious disease prevalence, this might just not be possible.) The Story of the Invention of the Swiffer is a great example of in home research bearing fruit.
And now, after all this paying attention… if you’re lucky, (and smart), you can perhaps detect an emerging issue. Or an old issue you missed. Or – best of all – predict a future threat or opportunity before it shows itself in the form of a brick falling on your head.
What to do about it will of course depend on you. But often, finding solutions isn’t nearly as hard as getting to the right problems/questions/challenges anyway. If you’re interested in trying to crunch some actual numbers on Customer Retention costs, this is an interesting writeup. It may have been written specific to SaaS products, but seems applicable across the board.
Can You Get Switchers Back?
It seems like about 50% of couples get back together after a breakup, so maybe there’s hope for you too. Maybe it will be easy. Because perhaps they never wanted to leave. If the switch was just a temporary availability problem, you’re fine. They never really left. You’re lucky in that you were an anchor point so the unfamiliar maybe seemed a bit off somehow. Then again, if the new product overcomes that and they say, “wow, this new thing is great, I can’t believe I never tried this before,” well… not quite so lucky.
But if you do get them back, you may have to work harder to keep them… 7 Reasons Exes Get Back Together. Am I joking when I link to relationship advice here? Yes. Sort of. But maybe not that much. Product selection for solving consumer pain points may be clearly rooted in utility. The initial impetus for a product search is probably based on some form of real need. But after that realization of need, there’s obviously a whole lot of psychology that goes into selection and retention as well. Like any relationship, there’s some nuance. As we’ve collectively gotten more sophisticated about the Customer Journey, and specifically the path to purchase, the Zero Moments of Truth, and so on, we’ve realized there’s a lot of twists and turns. And, depending on the level of investment, there’s a whole lot of emotion potentially involved. You may even have a better product, but if you’re battling with someone who just “really wants the blue one anyway,” that can be a challenge.
Since you’re not just dealing with feature, function, benefit, but also emotional attachments here, it’s about brand attachment. This might be challenging for some steely-eyed product managers living in a spreadsheet. But in this case, behavioral economics demands some emotional intelligence to try to understand some of the customer mindset.
Basically, as with so much else these days, the bar is higher. You have to get all the benefits right, and also remain compelling. But you’re suffering with some deficits. You have a lot of confirmation bias. And you probably don’t know your customer as well as you think you do. The good news? Most of these issues are potentially fixable.