Less than half of consumers trust U.S. companies
Trust operates on two sides of the customer equation. On the one hand, it is tied to greater loyalty, higher purchase and retention rates, and more referrals. On the other hand, trust means lower customer acquisition and marketing costs.
Yes and no.
Accenture Strategy has done a good job of quantifying trust for enterprise companies. Accenture Strategy combines growth rate, profitability, and trust in a "Competitive Agility Index." Of the three factors, trust is most important
Although growth rate, profitability, and trust each account for one-third of Accenture's Competitive Agility Index, trust has a disproportionate influence on revenue and EBITDA. The impact of a drop in trust is mitigated by the two other factors, growth rate and profitability. A company with a low growth rate and profitability will suffer more severe losses from a trust incident than a healthier company.
The correlation between trust and brand strength and, ultimately, revenue is supported by the results of the 2018 Temkin Trust Ratings. No surprise, low-trust brands like Sears underperformed high-trust brands like Amazon.
It is more difficult to assign a value to brand trust when talking about small- to midsize businesses. Partly, this is because smaller companies often have less clearly defined brand identities. On the other hand, smaller businesses are more hands-on and personal. Studies have determined that consumers trust family-owned businesses more than corporations.
Brand trust can be measured indirectly using surveys, focus groups, and other research tools.
Trust is typically measured by conducting surveys and focus groups. At one extreme, you have trade groups and research companies who conduct massive consumer studies. At the other, you have small businesses who request feedback from their customers.
There is a science to doing market research and getting valid results. National Business Research Institute is on of many vendors that designs and deploys custom surveys for large organizations.
If you are a small organization, you can use a cloud-based service like Outgrow, which deploys your survey to an audience based on your criteria. Centiment can do both B2C and B2B research. Of course, take the results with a grain of salt. Are you really going to get an audience with $125K in household income that has signed up to do paid surveys for $1?
There are many tools you can use to survey your own current and past customers. Survey Monkey and Typeform are two DIY survey platforms for small businesses. Because many customers have survey fatigue, response rates may suffer or be weighted toward angry customers who want to vent.
Companies such as Customer Thermometer provide fast, one-click surveys to get accurate customer feedback for their clients. Qualtrics does the same thing for enterprise clients.
Customer retention is an indirect measure of customer trust. Presumably, if you retain a customer, that customer trusts you.
Customer retention is not an easy metric, though. A retail customer may make purchases just a few times a year, yet be loyal over the long term. It can be difficult to know when a customer has left the fold in some industries.
Customer retention may be low in some subscription-based businesses, yet the profitability of new customers in those businesses is very high.
In general, though, customer retention is important because it is much less costly to maintain a customer than to acquire one.
Research by Bain & Company shows that increasing customer retention rates by 5% increases profits by 25% to 95%.
You can and should look for broad consumer studies in your own industry. This will give you a framework for evaluating your company's performance.
For example, a 2019 FoodThink study found that nearly half of all consumers don't trust the food industry and one-fourth actively distrust it. Likewise, a YouGov NY survey found that only 10% of consumers trust insurance companies "a lot." A whopping 46% actively distrust them.
Sometimes, the results of one study will contradict those of another. For example, a trade group, the American Bankers Association, found that consumers trust and are happy with their bank. A survey by the FDIC found many Americans don't trust banks. A lot depends on who you ask, what you ask, and how you ask it.
I'm not upset that you lied to me. I'm upset that from now on I can't believe you.– Friedrich Nietzsche
Most business execs believe their customers trust them. In reality, only 48% of the U.S. public trusts businesses. (2018 Edelman Trust Barometer). A mistrusted brand will lose more customers and spend more to replace them.
Accenture Strategy conducted a landmark study of 7,000 companies across 20 industries. It found that 54% had experienced a drop in trust, resulting in an aggregate $180 billion loss of revenue. The impact of negative trust events varies by industry, but the global average across all industries is a 5.8% drop in revenue for every 2-point drop in the Competitive Agility Index. Accenture defines the threshold for a meaningful trust event as a 5% loss of trust.
So, for the sake of argument (and because I don't have access to Accenture's proprietary formulas), let's just say that on average a 5% loss of trust will decrease revenue by 5%. In banking and retail, this will be closer to 20% but consumer goods, insurance, and manufacturing will be closer to 2%.
A B2C company with a healthy Competitive Agility Index score saw a 8% drop in trust due to a publicity stunt that backfired. Revenue declined by 2.4% ($400 million) and EBITDA dropped 4.1% ($200 million).
A B2B with a lower Competitive Agility Index score was harder hit by a 9% drop in trust surrounding a financial scandal. Revenue plunged 33.6% ($1 billion) and EBITDA slid 60.7% ($700 million).
On average, U.S. small businesses lose 15% of their customers per year. In large firms, that number approaches 20%. Lowering customer attrition by 5% can increase profitability by 25-125%.
The leading reason customers churn, or leave a company, is poor customer service, including a failure to respond to online reviews. Customers also leave if they feel a company is indifferent to them. Surprisingly, price is very rarely a reason for attrition.
The loss of a customer has direct and indirect costs. The loss of a customer translates into forfeited purchases (revenue). The average global value of a lost customer is $243, according to NG Data.
Indirect costs include lost new business. Half of unhappy customers share their experiences on social media. A single negative review can cost a company an average of 30 new customers.
Customer lifetime value (CLV) is the value of a customer over the length of their relationship with your business. When you lose customers, you are losing the total revenue these customers represent. But not all customers are equal. It is a rule of thumb in service industries that 20% of customers produce 80% of revenue. In tech, the loss of an early adopter has more profound consequences than the loss of a late adopter.
A Harvard Business Review article pointed out that the cause of high attrition rates is often faulty acquisition. Groupon is a classic example of an acquisition method that brought in high-churning customers; they were motivated solely by a good deal. So, your retention efforts begin with targeting the right customers and setting the right expectations in your marketing.