IT USED to be said that people were more likely to change their spouse than their bank. Getting a cheque book was the first service relationship and, having signed you up early, the bank could expect loyalty (or inertia) to keep you a customer for the rest of your life.
Today, a person's first commercial relationship is likely to be with a mobile-phone company, and for a third or more of customers it will last less than a year. Mobile phone penetration in several countries, including Britain, is now more than 100 per cent, meaning that a growing number of customers have two or more handsets, and some young ones are so technologically savvy that they reportedly switch Sim cards between phones to take advantage of special rates at different times of day.
So where does that leave loyalty? How can companies retain customers who are so quick to trade in, up and out? This matters a lot to industries such as mobile phones which initially experience such heady growth in an expanding market that defections don't matter. But with every available customer signed up, sometimes more than once, the industry's free minutes have run out. In future, one company's growth can only be another company's shrinkage.
As the retention war hots up, churn rates have if anything increased, now hovering around the 30 per cent mark, even higher in pre-pay, where customers are still more promiscuous. Churn deals operators a crashing double whammy, reducing revenues as it raises the cost of customer acquisition. Last year a report by researcher Analysys found that the cost of winning a new customer could be 12 per cent of the total lifetime revenue he or she brings in. In all, churn in 2003 cost western European operators more than pounds 6.5bn, the report estimated.
In this context, finding loyalty does still exist is both a surprise and something of an indictment of industries such as mobiles that have ignored it. 'Given the death of deference and authority, we wouldn't have expected loyalty to be valued for itself,' says Bob Tyrrell of Global Futures Forum, who researched the issue for mobile operator O2. 'But we were surprised to find very positive attitudes. A comfortable majority say that loyalty matters as much as ever - particularly young people.'
However, that does not mean it is easily given. Businesses lag far behind family and friends, workplace relationships and clubs in evoking feelings of loyalty, Tyrrell found. That might be expected - but less so is the fact that many of the things firms do to serve customers actually make things worse. Loyalty being closely linked to personal interaction, impersonal responses from automated call centres evoke huge hostility (when will they learn?). Interestingly, loyalty marketing can itself be damaging. 'Customer apartheid' - different levels of service for different segments - is resented, and rewards tend to provoke cynicism rather than faithfulness.
'Loyalty is a powerful word,' says Charlie Dawson of The Foundation, a marketing consultancy. He points out that the mobile industry has brought the situation on itself by training customers, in effect, to look for the best deal. 'If you don't switch, you're left on the mug's rate and that hardly makes you feel great.'
O2 says the research is helping it to take these issues to heart. 'As an industry, we haven't served customers as well as we would have liked,' admits customer director Cath Keers. In recognition of the need for a better human touch, the company, Britain's largest mobile operator, hired 2,000 new workers to deal directly with customers and culled 500 managers. It also decided to tackle the damaging perception that serial one-night stands are more advantageous financially than a long-term relationship. Here, as well as rewarding good customers, Keers says it is building on the idea of 'episodic loyalty' - attachments that vary over time. Prolonging these episodes is a matter of keeping pace with the growth of the customer, says Tyrrell, so that when a pre-pay customer moves to a contract they will be happy to move within the company rather than shop around.
The key is to stop resisting what the evidence is saying (that current marketing methods are part of the problem), then be bold enough to simplify hugely overcomplicated products and tariff structures. 'They are completely tied up in their own technology,' Dawson says of most of the operators. 'They just can't see it from the customer's point of view.'
Keers points to the figures to show that O2 is moving in the right direction. In the year to December 2005, churn rate for pre-pay was down from 37 to 30 per cent, and for contract from 30 to 27 per cent. Overall customer numbers were healthily up in the last quarter, and service indicators are improving. It's only the start, she concedes, but given a few more years, maybe the mobile operators will be in a position to teach the banks something about the difference between inertia and loyalty - and not before time.
The Observer, 25 March 2006