Bad customer service threatens $3.7T annually as workers reach breaking point

New research from the Qualtrics XM Institute in Provo finds that globally, organizations are putting $3.7 trillion annually at risk due to bad customer experiences, an increase of approximately $600 billion (19 percent) compared to projections from last year.

Bad customer experiences lead directly to lost revenue, and just one negative interaction can result in losing a customer and their potential spending in the future, the study found. Consumers say they have very negative experiences with organizations 14 percent of the time across 20 different industries, including fast food, parcel delivery services, auto dealers and airlines. And after a negative experience, consumers reduce or stop spending with that brand more than half the time (51 percent of negative experiences). That figure jumps to over 60 percent for parcel delivery providers and fast food restaurants where the cost of switching is very low.

Poor customer service comes with growing costs for businesses while consumer trust in businesses in the U.S. is at its lowest point since 2016, outside of the 2020 pandemic-led crash. While consumers report slightly fewer negative experiences (-2.2 percent points) compared to a year ago, increases in consumer spending mean there is more revenue at risk due to bad experiences. The world’s total household consumption expenditure jumped by over $7.7 trillion compared to last year while a greater share of poor interactions led to reduced spending — an increase of 1.6 points over last year.

“The price tag on delivering a bad customer experience has surged, even as many industries managed to reduce the frequency of bad experiences in 2023,” said Bruce Temkin, head of the Qualtrics XM Institute. “While many industries reduced the frequency of their bad customer experiences, the price tag associated with those mistakes has surged. In 2024, companies need to be more careful than ever not to mistreat customers, or they will dig themselves a long-term hole as customers head to their competitors.”

The research from Qualtrics XM Institute shows that investing in frontline employees pays off with an improved customer experience. However, Qualtrics found that frontline workers, such as cashiers, bank tellers or restaurant servers, have the worst morale compared to other types of employees and they feel a lack of support to effectively do their job. Only one-third of frontline employees who have been with a company for less than six months intend to stay more than three years.

More businesses with frontline workforces are exploring how AI can help reduce the burden on workers and increase productivity. The most common way employees say AI can help is by automating routine tasks so they can focus on more complex work.

As organizations incorporate AI into customer interactions, they must address consumers’ fear of losing the human connection. Nearly three-quarters (73 percent) of consumers are comfortable using a chatbot for simple, transactional activities like checking the status of an order. However, they are averse to using it when the stakes are high. For example, 81 percent of consumers want to speak with a human being for advice on a medical issue.

“Done well, AI can make frontline workers more effective and give customers faster access to the things they need,” said Temkin. “However, with consumer trust hitting record-low levels and fears of job loss among employees, organizations must take measured steps in incorporating AI into their business.”

Companies are also grappling with a growing reluctance among consumers to give direct feedback such as survey responses. Only one-third of consumers give direct feedback every time they have a bad experience with a company, but they are providing feedback in less direct ways, such as in call center conversations, online chat, product reviews and social media posts. AI can analyze these unstructured forms of feedback and help companies build a richer understanding of what customers want and expect by tuning into both direct and indirect sources of feedback.

The data for the Qualtrics report comes from a global consumer study that Qualtrics XM Institute conducted in the third quarter of 2023. The XM Institute asked 28,400 consumers about their recent bad experiences with organizations across 20 industries and how they changed their spending after that bad experience. Responses were collected across 26 countries or regions.