The era a customer service dates back to the beginning of commerce when owners recognized its importance for their profitability. Huffington Post reports a whopping 61% of customers will go to a competitor if they get poor service.
Here’s what Zendesk says about customer service:
There was a time when customer support meant you told a shop owner your issue with what they sold you, and they either decided the problem was for them to fix or your own damn fault. But then the telephone was invented and everything changed.
While the channels for providing customer service changed, we didn’t know much about what “good customer service” looked like. Then, in 1988, PZB (Parasuraman, Zeithaml, and Berry – featured at right in 2016) wrote a paper introducing a scale to measure service quality and things started to change. Recently, PZB were reunited at the Winter AMA conference in Las Vegas.
While that paper caused an uproar among academics, it showed the importance of customer service to a firm’s bottom line.
Attention to efforts to retain customers introduced the term ‘customer relationship management’ to our lexicon. Frederick Reichheld of Bain & Company shows that increasing customer retention rates by just 5% increases profits by 25% to 95%. And, good customer service is one of the most important aspects of retaining customers.
Good customer service economics
On a gut level, most businesses accept that satisfying customers is important, but fail to provide an environment where customers are satisfied — or even delighted — with their products and services because of other, seemingly more important things to worry about. The New York Times, Jay Goltz, sums up the problem this way:
On one hand, business is not that complicated. Take good care of customers and they will come back and send their friends. The complication comes when you add ever-increasing health insurance costs, an over-abundance of competition, and a customer base that has less time and higher expectations. Smart companies are refocusing on customer service because they can see the value.
I think we can all agree, some pretty serious economic conditions contribute to poor customer service by increasing wait times, slowing checkout lines, or other factors related to having sufficient staff to manage customers. I’m not an economist and I won’t attempt to address these problems.
But, let’s look at how quickly costs add up when your firm provided poor customer service unrelated to having enough staff.
Let’s start with the cost to acquire a customer: $10 (According to Entrepreneur, this is about what online retailers pay to acquire a customer. Cell phone providers spend over $300, while professional service firms spend nearly $200).
Value from a customer comes from: recommendations, lifetime spend, and efforts that reduce your costs.
Every customer who recommends you to a friend, who then uses your service adds $10 to that value because you didn’t have to spend money to acquire that customer. Let’s say each customer brings in 2 more, that’s $20.
Customer lifetime value (CLV) refers to the amount of money your firm makes from a customer over the length of time they stay with your business. Let’s say your make $2 every time a customer walks in your store (probably a grocery store), but they shop there 120 times per year. That’s $240 per year and let’s say they shop with you for 5 years. The CLV of that customer is $1200.
Customers also reduce your costs. Using our grocery store example, let’s say a customer helps another customer find a product. That saves your staff time trying to help the searcher. Or, let’s say a customer isn’t sure they should buy a particular product because they don’t know how to cook it. A fellow customer offers suggestions for preparing a product. Again, that saves you having to demonstrate preparation or taking up room on the sales floor with material like recipes. Let’s say that’s another $10.
For a $10 investment, you’ve got a revenue bump of $1230.
What happens when you piss off a customer
- Customers go to a competitor
- Generates negative word of mouth
- Consumer sabotage
- Poor employee morale
Customers go to a competitor. Piss-off that customer and you’ll need to replace them, by investing $10, and possibly lose some of the revenue they generate as new customers often don’t provide the same revenue as older ones.
I’ve always argued it’s more important to measure ‘customer piss-off’ than satisfaction. A satisfied customer might continue buying, a pissed-off customer is likely to leave. Check out the infographic at the bottom, from our friends at Salesforce Desk, which shows that 78% of customers left after poor customer service.
I had a customer experience that caused me to reevaluate my shopping choices. I like shopping at Target because they usually have what I need at a reasonable price. On a recent trip, I was overcharged for items I bought. I had to wait a long time for someone to check the prices listed on the shelves to charge the right price. Now, you might see the problem as a human one — too few staff available to check prices. I see this as a computer problem — someone didn’t update the computer with new prices. Target needs a better system for matching prices with bar codes, so I reviewed my options and started buying many of these products from Amazon — as a prime member, I get them pretty fast and can shop in my pajamas.
Negative word of mouth. Pissed-off customers also talk more about their experiences than satisfied customers. I still tell the story of buying my first car and how the salesman was a total jerk, implying I should go get some man to help me buy a car. That was 35 years ago. Not only have I never bought a car from them (Datsun, now Nissan), but my story probably impacted other potential buyers to cross them off their list. In studies, we see that negative word of mouth travels faster and 5X farther than positive word of mouth.
In today’s social media world, pissed off customers have a stronger voice than ever.
Consumer sabotage. Pissed-off customers have other options. We call one of these sabotage, even though it’s perfectly legal, such sabotage increases costs or customer piss-off for the firm. One example is taking a handful of napkins from a fast-food restaurant or spilling food on the floors. Another is paying for items with pennies — technically, a firm can refuse to complete an exchange involving more than a reasonable number of pennies, but that just increases piss-off.
Poor employee morale. The inherent tension involved in poor customer service also leads to high turnover and lower productivity among employees who have to deal with the complaints. Disagreements occurring in public spaces contribute to poor perceptions of service among customers who’ve not even experienced poor customer service themselves.
Improving customer service
While I agree with all the recommendations from the infographic below, I have a few of my own to add.
- Listen and be proactive
- Make the customer whole
- Act quickly
- Implement changes to reduce future problems
- Have a contingency plan
Listen and be proactive. Don’t wait for customer complaints to arise. Manage by walking around is a term referring to a management style where managers walk around, literally or figuratively, to listen to customer feedback. Listen for online complaints over social networks, listen in your stores, listen to employees, listen to your data.
Sam Walton was a master of managing by walking around and he was hugely successful. His kids only listen to the data and the shine is off the business with declining year-over-year revenue in many stores.
If you find a customer complaint, own it, then fix it. You may want to take complaints offline, but sometimes it’s better to solve complaints in the sunshine.
Make customers whole. That doesn’t stop with just giving me what I paid for in the first place (and waiting 10 days for the refund on my credit card account). Make it up to me.
I used to teach of a case involving Club Med where they used a service failure on the flight to the property to build community and turn the bad situation into a fun experience.
Marriott, a leader in customer satisfaction, uses a system to ensure customers are made whole. They start by empowering employees to resolve problems on the spot and escalating unresolved complaints to upper management quickly. Satisfaction is a part of employee compensation.
Act quickly. Taking too long to resolve a problem allows the problem to escalate, causes more harm, and gives the customer more time to generate negative word of mouth. Make a complaint at a Marriott front desk, receive immediate compensation in the form of lowering your bill or a gift basket full of wine and cheese.
I once waited for a manager to authorize the replacement of my unacceptable meal. By the time he got there, everyone else had finished eating, so I never got my meal. Taking the charge off wasn’t acceptable compensation.
Implement systematic changes. No one can provide 100% perfect customer service, there will be failures, sometimes beyond control. Analyze factors resulting in service failure and put changes in place to reduce future customer service problems.
For instance, Disney knows that poor customer service is more likely on weekends in the summer when parks are filled beyond capacity. They instituted a pricing plan to encourage visitors on less crowded weekdays.
Contingency plans. Shit happens. No one expects perfection, but they do expect you to act professionally by providing options. Airlines are my biggest complaint when it comes to contingency planning. While they don’t control the weather, airlines should have plans for when weather impacts travel, since it happens frequently. Instead, they often act as though it’s the first time weather ever grounded a plane. They scramble trying to figure out how to handle 1000s of folks stranded in the airport.
Developing a contingency plan might involve creating scenarios for likely events that might cause failure, then figuring out ahead of time how to handle them.
Communication is key to avoiding poor customer service and implementing successful contingency plans. For instance, bad weather forecasts should trigger a series of communication events to both passengers and management so if bad weather, equipment failure, or other event appears likely, everyone knows what to do. Calling passengers to alert them to the potential for delays means they’re better prepared should they arise and less pissed-off. In last year’s winter storms season, for instance, passengers learned the airlines were waiving their fees for schedule changes that avoided stranding passengers during the storm.
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