Customer Service has been a buzz word in retail for years – manufacturers, retailers, consumer groups and academics have sought to measure it, survey it, report it and improve it. Whole industries have grown up around improving and measuring ‘customer satisfaction’ scores – hundreds, probably thousands of books have been written, training programs, computer programs and personal coaching businesses now exist. Why is it so important? Research suggests that with increased ‘customer satisfaction’ comes improved customer loyalty, higher customer retention and more likelihood of future business transactions. The research also suggests that happy customers generate higher income and gross margin, and the cost of retaining these customers is significantly lower than continually attracting new customers. From a business point of view, it is a win/win situation, so it’s easy to see why it is such an important management function. But……
I remember hearing about the story of the first time a hotel left a fruit basket in a guest’s hotel room – very quickly the idea was adopted by the Hotel Industry, and just as quickly something else happened, guests came to expect the fruit basket. A whole new area of complaints started – “Where is my Fruit Basket”, “Last time I had two bananas & a peach – why have I only one banana this time?” It didn’t take long for customers to see this ‘extra’ as an expected part of the transaction – I’m not wise enough to know why that happened, but it’s interesting to reflect. Was it because it became an industry norm (one I notice has disappeared) or was it that it wasn’t ‘sold’ to customers in a way that improved the overall transaction.
For most businesses, the cost of keeping a good customer is significantly lower than the cost of attracting and retaining new customers – in fact, the likelihood of a happy customer repurchasing from the same business is said to be as high as 3 – 4 times as likely as a new customer. Excellent customer service can lead to high customer referrals, and these happy customers become our Business Ambassadors telling their family & friends about the excellent service experience they had at our businesses – just as inevitably the opposite is true. It is human nature that we have all come to expect exceptional service; especially in premium businesses and therefore we don’t necessarily tell our good news stories as much as we tell the stories of bad or poor service.
It is not just at the family picnic that these stories get shared, in today’s multi-media world these word of mouth referrals are quickly shared on Facebook, Online Consumer Forums and Review sites and they spread quickly and are often permanent. These opinions matter – research shows that we take much more notice of the opinions of our friends and family than we do of all the advertising content regarding products – research from Forrester Research shows that 70% of consumers trust brand recommendations from friends but only 10% trust advertising, so obviously getting the customer transaction right is paramount to business success. Marketing Departments are changing the way companies & brands advertise as they try to leverage these results to their advantage.
Customer Service is not easy in today’s Retail Environment – modern consumers are changing all the time, levels of service that were once acceptable, even good or great, now don’t measure up. All this at a time that a lot of businesses are struggling with tighter margins, dropping profit levels, increased competition and the rise of online transactions. There is no doubt Customer Service costs and the associated budget required to provide excellent customer service is considerable. You need to spend a significant amount of money maintaining systems & staff to train, monitor and improve customer service levels, so the challenge today is to balance the cost of customer service against the known rewards of customer retention.
A while ago, I read some research A New Paradigm for Understanding Customer Retention, http://rockresearch.com/a-new-paradigm-for-understanding-customer-retention/, which identifies other behavioural and personality traits that affect customer loyalty. They suggest that some people are very brand loyal and will continue to purchase that brand regardless of a bad service experience while some people are more likely to be tempted to try new products and irrespective of the level of service they have received they will not be loyal to brands or businesses. As with most things, there is a human factor; however, I am still of the opinion that high levels of customer service do improve your brand or business profile and this, in turn, can contribute to higher levels of customer retention; however, there are other factors at play.
Now I am going to go out on a limb and propose this opinion.
I’m a great believer in the Pareto Principle, the 80-20 rule, this suggests that for business 80% of your income comes from 20% of your customers – 80% of your complaints come from 20% of your customers – 80% of your profits are generated by 20% of your customers and 80% of your sales come from 20% of your sales staff and the list goes on. Loyalty programs are geared around identifying these high-value customers and rewarding their return business, regardless of the research on brand loyalty; these are our high value 20% now. These are the customers that give us return business, referrals and recommendations and contribute 80% towards our bottom line. My anecdotal observations suggest that these customers have also really bonded with the culture of the business and therefore dealing with them is a pleasure, and it takes up very little time or resources of the business to ensure a fantastic customer experience. In fact, in small business, these people become more than just customers – almost like a ‘friend’ of the business.
On the other hand, there are the 20% of customers that are responsible for 80% of our complaints. Perhaps their expectations are never going to be met by the product they purchased or the services that the business provides, and I wonder would it be safe to assume that they are unlikely to be loyal customers regardless of the efforts the business makes to satisfy their expectations? At the moment our staff and our systems are stretched looking after this 20% of our customers that generate 80% of our complaints, and the other customers are being short-changed. What would happen if we jettisoned this 20 % of our customers – if we just stopped trying so hard? Before you do anything you need first to ensure that the business does have a customer-focused culture and it is dealing ethically and honestly with its customers, and then I would like to suggest that if all of our own house is in order; ‘Are these customers just too much trouble?’
Firstly you would need to accurately identify these two groups and then if you follow through with my suggestion you would jettison the 20% who are responsible for 80% of your complaints. Stop trying so hard. Now if you have followed this formula all the way through – this 20 % are the most demanding customers in the 80% of customers who contribute only 20% of the bottom-line however they are taking up 80% of the companies resources of customer care and follow-up. I am suggesting that these resources would be better spent by actively working with our high value 20% – perhaps working to ensure that we are getting even more referrals and rewarding these customers appropriately for their loyalty. What would happen if the business actually tracked these high-value customers and then worked on the principle that for these customers, nothing was too much trouble!!! I’m sure that a lot of high-end business do just this for their very wealthy customers; however, I believe that it would pay dividends if a broader cross-section of companies adopted this approach.
I have a personal opinion on customer service systems and processes, I believe that they must have the ‘customers’ firmly at the heart of them – that is, they should take into account the reality of the majority of customers, however, the process should be flexible enough to cater to a few with special needs. Customers have the right to feel valued by the businesses they patronise, and they should feel respected and have their needs listened too. They should be treated in a friendly and transparent way that seeks to ensure that the transaction is the start of a long term business relationship.
I genuinely believe that most people are reasonable and just want to be treated with respect – they want to have their needs taken into account when making purchases, and they want to have the people they are in business with show them friendliness and kindness. An easy way of gauging whether your current customer service policies are doing this is to ask staff to consider how they would personally feel like if they encountered this type of customer service!
I also believe that most of these people (dare I say 80%) are willing to pay a fair price for the goods and services they are purchasing, and then there are some people (again, dare I say 20%) who are just never happy either with the price, the products or the business. We often try to turn ourselves inside out changing everything to see if we can make them happy – unfortunately usually this fails. I would always prefer to use my time wisely.
JUST MY PERSONAL OPINION.