Retail Customer Experience: How Should Retailers Compensate Customers For Service or Product Failures?

Apr 05, 2013

Through a special arrangement, presented here for discussion is an excerpt of a current article from Retail Customer Experience, a website devoted to helping retailers differentiate the shopping experience.

How should retailers compensate customers for service or product failures? This is one of the most common, popular and emotionally fraught questions I encounter. The answer is: It depends. And that variability, in fact, is what’s most important.

Customers have diverse values and preferences, so your people who placate disgruntled customers need to be given enormous discretion. Still, some principles almost always apply:

  • Most customers understand that things can and will go wrong. What they don’t understand, accept or find interesting are excuses.
  • Don’t panic. With most customers and in most situations, customers’ sense of trust and camaraderie increases after a problem is successfully resolved. This make sense, since you now have a shared experience.
  • Avoid assuming you know what solution a customer wants or "should’ want. Ask. If a customer makes a request that sounds extreme or absurd, don’t rush to dismiss it. There may be a creative way to make the requested solution happen.
  • Don’t strive for "fairness’ or "justice.’ The archetype for successful problem resolution — the doting Italian Mama — doesn’t investigate whether her bambino obeyed the sidewalk speed limit before comforting him, and a customer’s warm feelings for a company aren’t about fairness. They’re about being treated especially well.
  • Learn from customer issues, but don’t use them as an opportunity to discipline or train your staff in front of your customer. While seemingly obvious, this happens quite often. Watch out for this flaw, especially when you’re under stress.
  • Don’t imagine you’re doing something special for a customer by making things how they should have been in the first place. Recreating how things should have been is just a first step. You need to then give the customer something extra. If you aren’t sure which "extra’ to offer a particular customer, just make it clear you want to offer something. If the customer doesn’t like red lollipops, she’ll let you know. You can decide together on a different treat.

And always, always, keep an eye on the lifetime value of a loyal customer Studies in my experience frequently determine the lifetime value of a loyal customer to be up to $100,000 — and occasionally even more. Perhaps in your business this number is a few thousand dollars, or possibly it is half a million. It is well worth figuring out that number and keeping it in mind if you ever feel that temptation to quarrel with a customer over, say, an overnight shipping bill.

How should stores determine the “extra” incentive to make up for a service failure? What common missteps occur in such situations?

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12 Comments on "Retail Customer Experience: How Should Retailers Compensate Customers For Service or Product Failures?"

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Max Goldberg

Great article. Retailers need to let customers know that they are heard and that they matter. Sometimes this alone is enough. Other times, especially with loyal customers, more compensation is needed. Too often retailers are “penny wise and pound foolish.” Doing something extra for a consumer will not only defuse the situation, it evokes loyalty and positive word of mouth.

Nikki Baird
There should also be some kind of apology, even if the retailer or employee did nothing wrong. “I’m sorry you had a bad experience” as a prelude to “Now let’s make it right.” I’ve definitely seen more times where things go completely off the rails when a store employee tries to make the customer see where the customer did something wrong too. The hardest thing to learn in dealing in customer service is that it just doesn’t matter what happened. Focus on how to make it right. That said, there is something to also be said about knowing when to cut your losses. If a customer is verbally abusing an employee, a manager needs to step in and draw the line. It’s not an employee’s job to be beat up by an angry customer. If that customer can’t move on to what it takes to make things right, it’s time to re-weigh the lifetime value of that customer. If high lifetime value comes with a heavy emotional burden on your employees, it’s time to cut bait. It’s a really easy way to demonstrate how much you value your employees when you tell them, “I don’t want you to have to… Read more »
Gene Detroyer

Micah Solomon’s list, above, is the best guidance I have ever seen published on this issue. When something goes wrong, the retailer has a choice to lose the customer forever or keep the customer forever. Note, I did not say the customer has the choice. It is the retailer that makes the decision.

In the last few days, we have discussed loyalty programs. There is not a more loyalty building activity than trust. And nothing builds trust and loyalty more than the shopper knowing that, if they have a problem, it will be solved.

Should there be a little “extra” in the solution? Of course. The problem doesn’t revolve just around the product or service. The problem has caused the customer inconvenience or stress and that should be compensated for.

Richard J. George, Ph.D.
The last bullet point is most critical. Returning a defective product and receiving a new one does not fully reflect what the customer paid for. The customer paid the first time for the working product. The seller of the defective product or the provider of a deficient service failed to deliver the first time. Think about what the customer had to give up getting it right. The product did not work as promised. In addition to having a product that was not able to perform as expected, the customer had to make another trip to the retailer or visit to the Internet to get someone to repair or replace it. By the way, never return a repaired product for a recently purchased new product. At a minimum, deliver a new product. However, fixing what the retailer failed to do the first time does not dignify the customer. In order to balance the value equation, the seller needs to be proactive in offering some form of compensation (not simply monetary) to the customer ‘recover’ from the fact that the seller or service provider needed at least two occasions to get it right. Give the customer some options that fit his or… Read more »
David Zahn

Great list. I think asking and not defending is paramount. Ask what is wanted/needed/expected (don’t assume). Then, do not defend, excuse, explain (remove, “yea, but…” from the conversation).

Ken Lonyai

Micah’s suggestions are very good and show the need to look at situations and customers individually. The two things that I can add are:

1) It’s really important to determine who resolves customer issues. Often an experienced manager can make better judgements, has more brand buy-in , and more authority to do so, than line employees.

2) At least at the local level, it’s a good practice to keep records of not only what issues needed intervention, but exactly what was done to make things right, and if possible, the ongoing result (never see the customer again, customer came back happy, etc.).

Vahe Katros

A very nice list! As service becomes a larger and more important element of the sale – I suppose we will have an escalation of competition around doing the right thing. Services have many stages that relate to finding, understanding, buying, using, returning, etc. Failure at one of these levels has an escalating impact especially if the product is the hub for other items (a consumer electronics item or a core piece of clothing in your wardrobe that you accessorize around.) I suppose there can be a basic level of understanding of the damages related to a failure to serve at each level and those damages can be related to credits.

Shep Hyken

I’m amazed how many retailers “give away” something to take care of a problem. Here’s my take:

I’m not a fan of giving things away to fix a problem. That’s just a band aid. Provided there aren’t a lot of problems, do the following three things:

1. Fix what needs to be fixed.
2. Do it with the right attitude.
3. Do it FAST!

The goal is to not just fix the problem, but also to restore the customer’s confidence. That usually does it.

If a retailer has to give something away, we suggest they try to do it in the form of an offer for the next time they come back, giving the incentive for the customer to return.

Restaurants are famous for comping a meal, buying drinks, etc. That may work in certain situations and industries like the restaurant industry, but always consider a way to get the customer back in for the next time – after you’ve restored their confidence by fixing the problem – with the right attitude and a sense of urgency.

Jerry Gelsomino

I think that retailers should take an honest look at how ‘they’ would want to be compensated for product or service failure, then treat their customers that way.

Christopher P. Ramey

Lingering issues increase the costs. Stores must empower employees to ensure failures are resolved quickly. Time is currency. When a customer has a problem they want to believe they’re talking to a person with juice.

AmolRatna Srivastav
AmolRatna Srivastav
4 years 6 months ago

Realizing that “Most customers understand that things can and will go wrong” is one of the best things that a retailer can do. Saying sorry can be really effective especially if a customer knows that she is being heard. Is there an ROI on sorry? Yes!

Robert Bacal
Robert Bacal
4 years 6 months ago

Some good suggestions by Micah. I just wanted to add that while restitution is not a bad thing, I’ve found that the WAY companies communicate with customers in these situations is a lot more important than the “what” that is offered.


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