Why customers switch vendors suddenly

During vendor selection, customers are expected to compare and negotiate terms. But what might lead them to switch to a new vendor, even if the current one is a good fit?

Why it matters: Factors like the quality or value of the product, the customer experience or the terms offered can drive a sudden change. Ensuring these elements meet customer expectations is critical for vendor retention.

Here’s a list of reasons why customers might seek new or competing vendors:

#1 Quality or value of the product

A vendor’s worth is determined by the quality of their products or services. High-quality offerings attract customers and contribute to organizational success. On the other hand, low-quality vendors can create hidden costs, such as legal fees, unqualified candidates and poor service, leading to wasted time and money. These reasons alone would influence a customer’s decision to switch vendors.

#2 Customer experience

Customer service can influence whether a customer stays, regardless of product or vendor quality. One or more negative customer service experiences can drive away customers and have them look for more suitable vendors.

#3 Terms offered

Current economic conditions have many companies holding onto cash longer. If one vendor offers net 90 terms while others offer net 45 or 60, the vendor with net 90 will likely be chosen. “We shouldn’t accept changes to the terms without negotiating a compromise,” said Chason Dancer, CBA, credit manager at DXP Enterprises, Inc. (Houston, TX). “Since the Supreme Court ruled that terms are part of the pricing, if we end up agreeing to their terms, we should adjust our margins to cover the cost of DXP approving extended payment terms. But always check if the terms extension request is non-negotiable.”

#4 Insolvency

A sudden switch of vendors might suggest that the customer is experiencing financial difficulties and is no longer supported by their current vendor. “Maybe they’ve bought from other vendors but didn’t pay their bills, so they go find a new vendor for a similar product who may not know about their delinquency,” said Terry Tucker, A/R supervisor at Peag, LLC dba JLab (Carlsbad, CA).

Examining a customer’s financial status is a reliable method to determine if their change is driven by insolvency. “Their credit report will reveal if they have slowing payment trends, suits filed against them or new UCC filings with nontraditional banks,” Dancer said.

#5 Fraud

Sometimes, vendor shopping can be an indication of potential fraud. For example, a customer facing insolvency might create a new account to continue using a vendor’s services. “They can change their company name slightly so that they look like a brand new account,” Tucker said. “This way, there is no history of delinquency.”

The bottom line: Ensuring high-quality, positive customer experiences and favorable terms can help retain customers and prevent sudden vendor switches.