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The role of ethics in customer retention

From the Knowledge Centre

Published September 28th 2017 in Customer Contact & Engagement by Caroline Boden

Retaining customers in a world of choice is challenging and complex. Customers have increasing expectations and competing on price alone is often no longer enough to entice many customers. Here, we examine if business ethics has a key role to play...

We live in an age when consumers have more choice than ever as to where to place their custom. And, unsurprisingly there are many different attitudes and preferences driving consumer behaviour. Brands can no longer simply rely on being the company that offers the lowest price; non-financial concerns are also becoming increasingly important when it comes to supplier choice.

For example, the issue of ethical business practice is one which has become more important for a proportion of UK customers. Businesses who focus on this and promote their credentials are seeing higher levels of success. Take the energy sector, where ethically focused companies such as Bristol Energy and Ecotricity are experiencing growth.

"Whether it's implementing fair employment practices or promoting the green agenda, consumers are putting increasing weight behind how a company acts and is seen to react."

Research reveals the role of ethics
Our recent research report "retaining customers in a world of choice" found that 12% of customers said that corporate social responsibility is the number one concern when evaluating which supplier they are going to choose. As the rise of the activist consumer continues, companies that find themselves on the wrong side of a negative headline are more at risk than ever of failing to attract and retain customers.

Those companies that focus on developing a positive public image and commit to doing the right thing are often finding themselves ahead of the competition, even those competitors that base their offering on a low price point. Our research revealed that 16% of consumers would look to move their business elsewhere if their supplier was caught up in a negative story or didn't hold the right values.

"Take the water sector for example, currently a monopoly market, where 20% of consumers told us supporting a greener company would be a strong motivator to switch supplier should they be given the chance in the future."

The commercial impact of ethics
Falling foul of an ethical scandal can present serious financial challenges for businesses, and impact on long term business success.

A recent prime example of this is the emissions scandal at Volkswagen. A plethora of negative headlines were aimed at the car manufacturer after it emerged that the company had manipulated emissions scores for some of its models.

In the months that followed, Volkswagen saw a 1.2% drop in vehicle deliveries, while market share declined from 26.1% to 25.2% with a resulting big hit on cash and revenue. And, the brand continues to suffer the longer lasting effects of the scandal.

A brave new world
Clearly, price and value for money will always be important factors customers consider when choosing a service provider, particularly in a time of austerity when many household budgets are increasingly tight.

But, price and lower bills are not the be all and end all. Customers consider many factors in their search to find the right supplier.

Businesses are under increasing pressure to put ethical concerns and better practices at the heart of their strategies and operations. The rise of social media and the ability for customers to easily share news and opinions on brands only adds further pressure.

Those companies that fail to recognise and act on this may well find themselves falling behind their competitors; and it may not be a situation that is easily recoverable.

- Caroline

Suggested Further Reading

Knowledge Centre: Research

Retaining Customers in a World of Choice

Knowledge Centre: News

The UK is a nation of switchers

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