Luring Customers with Local Call Centers

Finding that the cost savings of offshoring are offset by losses in client retention and satisfaction, British companies are moving support operations back home

by Mark Scott

It's no secret that there's something of a consumer backlash against offshore call centers. Some companies, including Dell (DELL) and US Airways Group (LCC), have even pulled some of their call center work back to the U.S. after complaints from customers about everything from foreign accents to the quality of support.

Now some British companies are taking it even further. To woo consumers frustrated with overseas customer service, companies such as energy supplier Powergen and Royal Bank of Scotland (RBS.L) subsidiary NatWest are running advertisements highlighting the fact that they use only call centers based in Britain. They're betting that the substantially higher cost of operating call centers in Britain will more than pay for itself with better customer satisfaction and retention.

The strategy makes some sense. According to a recent survey by pollster YouGov (YOU.L), a mere 4% of people have a favorable experience dealing with call centers of all sorts and 44% say their biggest gripe is contacting offshore call centers. Such low satisfaction rates can hurt business: Call center advisory Merchants Consulting, based in Milton Keynes, England, says one in five Brits has changed suppliers due to a bad call center experience, costing companies an estimated $4.5 billion each year in lost business.

Round-Trip Ticket

A growing number of British companies are warming to the idea that paying higher wages to local call center employees pays off. "Foreign call centers feed into the perception that companies aren't interested in their customers," says Rita Clifton, chairman of London-based brand consultancy Interbrand. "Firms will have to spend more money on U.K. centers so customers feel taken care of."

That's what motivated Powergen, a subsidiary of German energy utility E.on (EONG.DE), to rethink its call center policy. After offshoring almost 10% of its customer service work to India, the power company saw a decline in customer satisfaction rates, and by June, 2006, had returned all of its call centers to Britain. A company spokesperson declined to say how much business was lost due to Powergen's offshoring adventure. But after Powergen began bringing the work home, complaints to regulators fell 75% year-over-year as of April, 2006.

The marketing value of the trend toward Britain-based call centers shouldn't be underestimated. According to Martin Dove, managing director at Merchants Consulting, it costs companies almost five times as much to attract a new customer as it does to retain an existing one. British call centers can thus be cost-effective if taken as part of a company's overall business strategy. For instance, total global spending on call centers last year amounted to $34 billion, compared to $454 billion spent on advertising worldwide, according to media consultants Zenith Optimedia (PUBP.PA). Yet money shifted from advertising to improved call center operations can be a more efficient way of attracting and holding on to customers, thanks in part to word of mouth.

Cheaper, But Not Cost-Effective

A famous study in 2004 by consultancy ContactBabel in Sedgefield, England, made the point even more vividly. It found that British call center employees could answer 25% more calls per hour than their Indian equivalents and resolve 17% more of the customer problems on the first call.