Service not included: Customer relations: loss of business is costing UK companies as much as pounds 100bn a year

Customer service is such a well-worn management credo that it really is no surprise that 85 per cent of 200 leading UK companies believe it is important to retain existing business.

Why, then, is British industry estimated to be forfeiting pounds 100bn a year in lost business, and similar sums in marketing, sales and distribution expenditure aimed at winning replacements?

Never mind the staggering 15 per cent that do not seem to subscribe to the 'customer is king' thinking. The answer appears to be that, even among the converts, there is little sign of the theory being translated into practice.

Despite the huge costs of replacing lost business, fewer than 10 per cent of companies measure the number of customers they lose every year, according to a survey by management consultants at Price Waterhouse.

Only about half the companies questioned said they made efforts to establish the needs and concerns of their customers, while more than 60 per cent said they seldom or never compared their customer management practices with those of rivals. And 45 per cent admitted their sales forces were ill-suited to the present needs of their customers.

The companies that did not know how many customers left them every year suggested that the defection rate was between 10 and 20 per cent. It is on this basis that PW has based its estimates of the cost to industry.

Glen Peters, head of the firm's market and customer management group, said: 'The cost of acquiring new customers is up to five times the cost of maintaining existing ones, so you only have to improve retention by a couple of percentage points to get substantial improvements in profitability. Yet organisations seem bent on using head-count reductions, rather than customer service, to lift their performance.

'You can end up producing a Trabant with robots, but if you don't get quality, distribution and after-sales service right, no- one is going to buy it.'

The survey is a follow-up to a forum PW held earlier this year on the issue of customer service. It plans to carry out annual reviews to assess progress.

Mr Peters cited the examples of London Underground and British Rail, which have long been the butt of disgruntled commuters. Although they were still some way short of perfect, they had made great efforts to improve their handling of customers and their complaints.

He has identified a number of ways in which other companies can match or better these improvements.

Most important is to get the whole organisation thinking about customer service. In this the lead must come from the top executives. Such companies as Virgin, where Richard Branson is seen frequently on flights, and Marks & Spencer, where senior executives visit stores to check on quality, are seen as leaders in this respect. 'There is no point in running ads telling people you value customers if it doesn't translate into action,' Mr Peters said.

Secondly, managers must be active in comparing their performance with the best in their class. This was not just a fad but a useful method of ensuring that a business was keeping up with competitors, he added.

Thirdly, companies should think about changing the way they deal with customers. Many put up barriers between themselves and customers, and they should re-examine their methods of doing business in an effort to bring them down.

Part of the idea behind the forums is giving credit to organisations that have improved their customer relations.

Mr Peters drew attention to ICL, the computer company, which at the end of the 1980s was having great difficulty hanging on to customers.

A declaration of intent to concentrate on the problem, by the chief executive, Peter Bonfield, had contributed to a dramatic return to profitability.

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