Does an apology help with customer retention?

January 23, 2019

In your family, friendship circle, amongst work colleagues, apologies are part of what maintains trust.  It seems common sense that if you let someone down or fail to deliver what you have promised, you need to apologise. This applies just as much to a brand and its customers as to our private relationships with friends and family.

Customer satisfaction surveys and exit surveys in particular, confirm the link between failing to deliver and customer retention.  Brands that continue to make mistakes or fail to deliver, are going to have problems retaining customers.

How far can an apology reverse the damage done and help retain disgruntled customers?

The economics of an apology

A field experiment conducted in September 2018 on 1.5million Uber customers who had experienced late rides suggested there was a financial impact.  Their analysis found that “absent any apology, a rider who experienced a late trip spends 5-10% less on the platform than can otherwise be expected.

Apologies matter. They have an impact on customer retention and future spend. People are more than likely to forgive a company that says sorry. A financial incentive may help sweeten the deal, but in many cases that may not be necessary. An apology recognises the pain or frustration the customer has felt. If the pain felt is minor, financial compensation is most properly unnecessary.

But an apology is also a promise that things in the future will be better. If the customer continues to experience the same problem, they will become far less forgiving after each incident.

The Uber field experiment highlighted the following insights:

  1. It depends on how the apology is made.  If it’s not managed it may in fact backfire.
    The logic is pretty simple: if you promise to improve, and then don’t, the apology is worth less than zero.  If you overuse them, it can be worse than no apology.  And in some cases, admitting you are wrong and apologising can seem like a weakness.
  2. Money speaks louder than words – the best form of apology includes a discount or a voucher.   In the Uber experiment, when they included a $5 coupon for a future trip, that actually worked to reverse some of the bad effects of a bad trip. To put it in perspective, a bad trip, the person spends 5% – 10% less on future trips. If you give them a $5 coupon, there was an increase of 2% in net spending.
  3. In some cases, sending an apology is worse than sending nothing at all, particularly for repeated apologies.  Again, the logic is simple: an apology is basically making a promise.  When we apologise we are basically accepting being held to a higher standard relative to somebody that did not apologise.  When customers received multiple apologies, they found that these customers actually punished the company more than customers that never got an apology at all.

When customers enter into a commercial arrangement they are trusting the business to deliver on their promise.  When something goes wrong, an apology can restore trust.  The absence of an apology can message:

  • we haven’t realised what we’ve done
  • we don’t care, we are not committed to holding up our side of the bargain
  • we are hoping the customer hasn’t noticed

There is a saying in large organisations “Don’t poke the bear”.  We hope the customer hasn’t noticed we have stuffed up.  The fear is that if we admit our mistake and reach out to service the customer, it will be the catalyst for them to leave us. 

But if we don’t apologise, in psychological terms, what message does it send to the customer?  It says either we hadn’t realised we failed them, or that we didn’t care and they’re not that important to us. 

This fits with the Forbes study that says 68% of all people leave a business because of a perceived indifference.  Could this be related to a poor service experience and no recognition, apology or compensation?

With technology now, most large businesses can detect when something goes wrong for individual customers. 

Apologies, to be truly effective and not simply saying sorry, are often difficult.  An apology is due when trust is broken, and to restore trust the apology is the first step. No apology increases the potential of losing a customer. The apology is a promise that a problem will be rectified and will not happen again. If you fail to deliver on that promise than the consequences are likely to be more costly than if you never apologised in the first place.