Sep 2014

22 September 2014

Exit, voice, and commitment

Entropy isn’t just a central concept in the Second Law of Thermodynamics—it’s a central concept in the business world, too.  Decay—meaning lapses, even breakdown, in performance—is a constant threat, and management vigilance against this ever-present danger is an obvious requirement of the job. 

Managers typically find out about lapses in product/service performance in one of two ways:  exit or voice.   Customers stop buying the product or drop the service—that’s exit; or customers express their dissatisfaction with the product or service via whatever mechanisms are available to them—that’s voice.  In today’s world both exit and voice are typically assessed via a combination of systematic surveys and analysis of “big data” focused on current customers (voice) and former customers (exit).1

Exit and voice, however, are not necessarily equal partners in prompting management action.  Signs of growing customer dissatisfaction (voice) will typically get management attention—and action, but signs of growing exit will most certainly move management to remedial action.  Dissatisfaction typically hurts the pride but not the wallet; churn invariably hurts the pride and the wallet.

Management customarily responds to both exit and voice with corrective action:  see the problem, act on the problem, remediate the problem (or at least reduce its deleterious effects).

There’s a missed opportunity here, because corrective action is by definition after-the-fact action.  The missed opportunity is that of preventive action, and that’s where customer commitment comes in.  The more committed to your brand your customers are, the less their need to express dissatisfaction and the less likely they are to consider exit as an option. 

If you recall from our recent post, customer commitment comprises a combination of satisfaction, engagement, and investment.  Satisfaction isn’t enough—customers need to be fully engaged and fully invested in your brand in order to see no alternatives as more attractive than your brand, and in order to feel that they would have simply too much to lose by choosing an alternative over your brand.  That’s a committed customer base, and the more committed customers your brand has, the stronger reservoir of support management has in the face of the constant threat of a lapse in performance. 

We have recently completed the data collection phase on a study to measure the level of customer commitment among competitors in one specific sector—pay-TV service.  Stay tuned.

1 The foundation of the line of thought throughout this post comes from Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States, Harvard University Press, 1970.  This book is very seldom on its shelf in our company library, and it has been read and marked up so many times in its 44 years of existence that it’s falling apart at the seams—literally.

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