I’ve been to a couple of pubs over the last few weeks. One was dark and dirty with morose customers and a bored barmaid. The other was bright, full of customers and a few hardworking staff, but I couldn’t get a drink. So which one do you think that I’ve been back to? Trick question. The answer is neither. Both experiences disappointed me.
Your customer makes up their mind about you whenever they make contact with you. Customer service conferences tell you that this is what makes or breaks your success – so invest more and more in customer service. Should you?
The customer interface is any point where the customer is in direct contact with your company: on the web, by phone, in a store, anywhere. All of these interfaces affect customer satisfaction and loyalty. In fact good after-sales service can have surprising effects. Both British Airways and Citizen Watches found that customers who have had problems resolved quickly are more loyal than those who haven’t had any problems at all. It could be thought that more contact with the company gives more opportunity to build loyalty, but I do wonder whether it is part of our expectations that things will go wrong: so when problems are resolved quickly we feel more confident in buying from that supplier.
Manchester Business School found that satisfied customers are 65% loyal but the very satisfied are 95% loyal. So investing in customer service seems a good idea. On the other hand, American automobile manufacturers typically have satisfaction rates of close to 90%, but repurchase rates of 30% to 40%. And some customers of big software companies are very dissatisfied - but very loyal as they can’t move away from their commitment.
Loyalty can be dangerous. Just like the maverick salesman who can always meet his quota by giving massive discounts, it’s easy to buy loyalty by underpricing your products and services, offering massive levels of service or many other things that cost you money.
There’s nothing wrong with loyalty, but think who you want to be loyal to you – customers who make you money. Think of all those cafés that you walk on by: they have very loyal customers – customers who don’t spend anything and who keep you away. Is your business like that sort of café?
The good news is that there are lots of methods to provide the appropriate level of service to mirror the profit that you make from your various groups of customers. It’s also good news that your most profitable customers are those are in contact with you less. The margins that most companies work on are so low that any customer service has a massive impact on profit margins for that customer. It’s so low that one express parcel company reckoned that one call about a package wiped out the profit from the next six deliveries for that customer.
There isn’t just one way of handling customer contact, there is a line stretching from full-service to self-service. The trick is to find where to put people.
So group your customers according to their profitability - and I mean profitability, not revenue, how much they talk to you, degree of politeness or whatever.
Then look at the contact channels that you have: telephone, email, web-site, personal visits and so on. These all have different characteristics as below:
Channel Real-time Needs staff Individualised
telephone ü ü ü
Internet page ü
Personal ü ü ü
Having to provide individualised responses is more expensive than needing staff, which again has a higher cost impact than real-time provision. The more ticks and the further to the right, the more running that channel costs. Large companies can reduce the amount of staff intervention needed by sensible automation of channels, but the volumes don’t always make it worthwhile for smaller organisations.
Before we all rush off to contact web-site designers, higher costs channels do also have a higher potential for profit from the right customers.
What you don’t want to do is spend lots of money on people who won’t give you any back: one of my clients runs a specialist car service operation and is besieged by people asking for advice, but who never actually buy anything. Recommendation: put all the common questions in the shop area of the web site and steer people to that. The basic game is to provide the level of service that puts you at the point where there is a maximum gap between profitability and customer service cost.
You can also provide parallel channels for different customers – priority phone lines, additional services via the web site and so on. Don’t spend more money on them than they spend on you. If people are being dealt with effectively, then they will be happy. Because they are confident that they can get what they need
This is why customer loyalty is better for companies who get complaints than those who do the job right first time. Sounds bizarre, but of the customers who register a complaint, between 54 percent and 78 percent will do business with the organisation again if their complaint is resolved. The figure goes up to 95 percent if the customer feels the complaint was resolved quickly. Satisfied complaints also tell an average of five people about the good treatment they received.
So the message is that you can drive up customer profitability from the same revenue and delight your customers at the same time. That’s got to be good.
John is Director of Thinking at Profit Per Minute Limited. If you’d like to discuss the article, he can be contacted by phone on 01865 771329 or by email at email@example.com