Will consumers finally pay for service?

Discussion
Photo: RetailWire
May 02, 2017
Nikki Baird

Consumers have been motivated almost exclusively by price since the Great Recession. And yet despite their demand for the lowest price possible, consumers have minimum expectations for service. The question for retailers is: How do you determine the ground floor?

In the airline industry, that minimum now firmly includes the idea that once you’ve taken your seat on the plane, you’re not going to be asked to get off. There is still a lot of angst over whether access to overhead bin space is part of the minimum consideration set for the price of a plane ticket.

But until the blowup in response to United’s uncaring policies and behavior, I never thought about the damage that might happen along the way. Retailers might think they’ll know when they reach the point where consumers say, “Enough! I will pay for better service,” but I think the reality is, there’s a lag between when consumers have had enough, and when retailers figure that out. And we may be in that lag space right now.

Take, for example, all of the punitive posts on social media every time there is a customer service failure. Facebook and Twitter are chock-full of consumers posting either about companies behaving badly or rants against perceived injustices.

Consumers seem to be getting angrier and angrier about how they’re treated, and when brands aren’t providing good customer service (because they believe that consumers don’t want to pay for that service) then we end up in a vicious cycle. Consumers won’t pay for service, retailers won’t provide it, consumers get mad, and then retailers don’t have the capabilities in place any longer to handle consumers’ ire, so consumers get even angrier.

For industries that are about helping customers — whether retail or travel or anything else consumer-facing — the fact that someone can get physically harmed over customer service should be a warning to all. The value equation for retail is out of whack. It needs to be fixed, and it’s not just retailers who need to do the fixing — consumers have a role to play too.

DISCUSSION QUESTIONS: At what point do you think consumers are willing to pay for service? Have retailers gone so far in pursuing low price that they are failing to provide good service?

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"I have a hard time believing in a shopping experience where I would have to pay extra for meaningful customer service."

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27 Comments on "Will consumers finally pay for service?"

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Bob Phibbs
BrainTrust

A timely reminder of a post I did, Is It Time To Start Charging Customers For Browsing?.

You can’t afford high-touch service at bargain prices. Other professions don’t get service and hope for a return — think contractors or CPAs. I think the only way it would work is if the employees were paid substantially more, like a percentage of store increases over last year. But that too has pitfalls. And how would online add to the compensation model?

Until humans are valued over gadgets and discounts, I see few willing to step up to the plate from their “let’s just get through this month and offer another sale” mentality.

Dick Seesel
BrainTrust

To answer the question, you have to define “customer service” differently for different kinds of retailers. Customer service at Nordstrom means “high-touch” and the SG&A cost of providing it is covered by high merchandise gross margins (or it should be). Conversely, expectations of “customer service” at Target are totally different — shoppers expect store shelves to be well-stocked and checkout lines to be efficient. Again, this lower-expense model is reflected in tighter merchandise margins.

My point? Customers are already paying for the customer service they seek in the stores they choose, based on the cost of goods sold that they are willing to pay. Any surcharge imposed by retailers to meet or exceed these expectations (hidden or otherwise) would be a bad idea.

Cathy Hotka
BrainTrust

I’d argue that the Great Recession changed many people’s attitudes. Big banks that wrecked the economy were bailed out while the American citizens who bailed them out were rewarded with 0 percent interest on their bank balances. There’s a growing frustration among people that things are stacked against them. Retailers should keep this in mind when interacting with customers.

Adrian Weidmann
BrainTrust

Brick-and-mortar retailers and brands can’t blame shoppers pursuing lower prices for their inability to provide civil, polite and informed customer service. Target CEO Brian Cornell, took home $9.1 million in compensation in 2016 while the stock price slipped by more than one-third. Customer service is one advantage the physical store experience has over the online alternative. If brick-and-mortar loses that advantage it will simply drive more shoppers online. I have a hard time believing in a shopping experience where I would have to pay extra for meaningful customer service.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Retail is in that transition from including service in the purchase price (e.g. the dispensing fee at the pharmacy or a running analysis at a shoe store). My water bill now includes a line item for “delivery” of electricity, and line-item charges by airlines are teaching consumers that additional benefits have a cost. I believe that consumers will pay for the time savings and better expertise in their shopping experience.

Sunny Kumar
BrainTrust

With all the new ways to interact with a brand and their services, consumer expectations have naturally shifted. In fact I’ve described this as expectation transfer, where a consumer’s point of reference is the last, best experience they had. With this in mind perhaps brands should be doing more to understand their customers at a personal level and not simply use a one-size-fits-all approach to customer service. They should know who is willing to pay for a “better” experience and who has a lower expectation threshold.

Lyle Bunn (Ph.D. Hon)
BrainTrust

In the book “The Circle” and movie of the same name, staff in the Facebook/Google-styled company are tracked for the number of new customers and revenues they generate for their client advertising firms. The analogy is that the retailer is very much in service to the supplier brand, so a shift to charging consumers for a product selection service could swing the pendulum back to the consumer.

Chris Petersen, PhD.
BrainTrust

When it gets bad enough and when consumers have had enough, they will pay. Using Nikki’s metaphor of the airlines, I will gladly pay a bit more for premier/window seating that has more room for my long legs.

Nikki hits the nail on the head: “The value equation for retail is out of whack.”

Historically, retailers have focused on price and promotions. Relatively few have strategically differentiated on services that the CUSTOMER perceives as valuable. Best Buy is the last national tech retailer in the U.S. in large part because the Geek Squad will install and fix your purchase in-home.

When you think about it, what is Amazon Prime? Eighty-million Americans are willingly voting to pay for a bundle of services not matched anywhere else.

Bob Amster
BrainTrust

Consumers are already expressing their desire (or lack thereof) to pay for service by selecting the retail establishments where they shop. The danger lies in reducing the service that customers came to expect from a specific retailer.

Tom Erskine
BrainTrust
2 months 19 days ago

The growth of specialty retailers, where experience is a significant focus, is an example of younger consumers basing brand selections on the customer experience they receive not just the price they pay. Consumers won’t pay à la carte for service, but retail is proof they will pay for the experience.

Christopher P. Ramey
BrainTrust

The top 10 percent have always paid for service — it’s part of their value calculus. It’s why higher-end brands survive. Media and consultants tend to focus on price because it’s quantifiable over value’s soft metrics.

In today’s experiential retail environment, matching a prospect’s values trumps matching a competitor’s price.

Gene Detroyer
BrainTrust

We trade off “paying” for customer service all the time. But “paying” isn’t always a matter of money out of the pocket. It is time, resources and needs. When I buy a pair of jeans, I don’t need or want “customer service.” If I buy some technology that is beyond my understanding, I will go to wherever has the best customer service and follow-up. Price is not an issue.

If I buy a pair of sneakers or shoes, there is no better customer service than Zappos. If my wife is shoe shopping, that is a completely different story.

Ever go to the very expensive restaurant where the waitstaff falls all over you to the point of absolutely ruining your dining experience? In that case, the “customer service” I was apparently paying for had a negative effect to the point where I would never return to that restaurant.

How much of the idea of “customer service” is just a holdover from times when there was no alternative?

Tom Redd
Guest

Sure, just put it on a smart-device of some kind so customers can use it like addicts and risk neck injuries and they will pay for it. Most people will pay for anything that’s like a smartphone game. Customers are controlled by their devices. They’re electro-addicts. Tap their wallets!

Art Suriano
BrainTrust
There are so many statistics that support the fact that customers will pay more when they receive better service. The question is, how much more? But when you look at many store experiences today retailers have cut back on staff, provide little or no training and then wonder why customers prefer shopping online or at a competitor. Is there anything more infuriating than making the decision to buy something, taking the time to go to the store and then not finding the item or anyone to help you? And if you have questions about your purchase too often the person you’ll ask can’t answer them. What’s changed is how the leadership of retail chains run their businesses. They have cut expenses to the bone to try to remain profitable, but they don’t cut the executive salaries or bonuses. Instead, we cut payroll for store associates and training. Then we wonder why customers complain about the service. The article references the airlines. Years ago, flying was an enjoyable experience. But today we squash as many people on the plane as possible. The airlines charge extra for checking bags, food, movies, etc. and then they have the gall to send them an… Read more »
Doug Garnett
BrainTrust

I continually advise clients to do things that create margin — provide good service, inform consumers of product value, etc. Those retailers who survive will fight against the dash to the bottom in price.

That said, in the United example, consumers are demanding minimum service but also NOT suggesting they’ll pay more to get it. So we need to be very careful in this discussion.

I believe retailers can get a better margin by delivering better all-around service. And I think Nordstrom’s success indicates this — they have always delivered great service and their prices are a bit higher to reflect it.

Price isn’t everything for consumers. The danger is that lower price is a simple tool that retailers can use to get immediate results — without building long-term value or loyalty.

That said, I don’t think we can have a discussion with consumers and win. And that is especially true today with Amazon raising expectations that simply can’t ever be profitable — building consumer perception of service levels at no cost to themselves (paid for by Amazon investors).

Brandon Rael
BrainTrust

I agree with the sentiment that it is an outrageous and unreasonable expectation for consumers to have to pay an additional premium for value-added service. The expectations and perceptions around service levels are essentially defined by the retailer, products, etc. The brands that incorporate outstanding service as part of their mantra and mission statement already meet and exceed customer expectations.

The incremental costs of knowledgeable service professionals are already incorporated in the luxury prices and profit margins. One would expect high-touch, high-quality and personalized/curated shopping experiences when shopping at Cartier, Prada, Saks Fifth Avenue, etc. Luxury-focused consumers demand and expect these service levels.

However, other retail shopping channels such as off-price retail and mass-merchandise department stores have established their own set of expectations. In a winner-take-all, early bird gets the worm, treasure hunt atmosphere the consumer is clearly in charge of their shopping journey, with minimal to no customer service in most cases.

Shawn Harris
BrainTrust

I have been developing a theory: “Frictional Cost in Retail.” Effectively, the idea is that shoppers are willing to deal with more “friction” as prices go lower. Friction can be from needing to hunt for coupons to the cleanliness of a store to the availability of customer service. So think of the a retail spectrum from a bazaar to Bergdorf Goodman. So the theory goes, if a shopper wants less friction then they would be willing to pay higher prices per item, pay a fee to remove the friction at the aggregate level — think Amazon Prime — or move up-market to a higher-tier retailer. High-touch customer service with lower prices is a difficult-to-impossible model. Retailers will have to rethink self-service, leveraging technology to build effective and efficient customer service experiences.

Tom Dougherty
BrainTrust

They won’t. Service is the minimum cost of entry in every category or market. Airlines are as close as we can get to monopolies, so they were relatively immune.

Retail is competitive. What the customer WILL notice is BAD service. Great service, well, that’s seems like a reach in today’s world.

I don’t believe customers will pay for better service. But when faced with BAD service they will choose one of your competitors.

Joan Treistman
BrainTrust

Whoops, we’re back at the cost/value ratio. The variables are supplied by the retailer but the interpretation belongs to the consumer. There are only a few categories where retailers can get away with providing low-cost only.

Deftly described by Dick Seesel, shopper expectations create guidelines for what retailers have to provide if customers are to feel satisfied about their experience. For most retailers relying only on lower cost to secure and retain customers is not sustainable. There is a point of no return visits.

Karen McNeely
Guest

I’d argue that it doesn’t cost any extra to have a positive attitude and a little common sense. It’s often not the amount of customer service (warm bodies) but whether the person there has a smile, looks you in the eye and makes an effort. It starts with hiring people who have a great attitude and management creating an atmosphere that helps maintain it. In my opinion, there is no excuse for poor customer service from an employee at any price.

Ricardo Belmar
BrainTrust
The bar for minimum expected customer service has changed in the minds of consumers in most industries. While some industries have successfully kept this bar low (airlines for example) it only takes one incident (e.g. the United incident) to disrupt this minimum standard. For retailers, it depends on merchandise type and store format. Shoppers have different expectations for everyday low value price brands vs. high-end luxury apparel brands. Increasing the level of customer service is something brands should do if their goal is to deepen their customer relationship and nurture greater loyalty. There is more room to do this for luxury brands than for low-price leaders. However, the incentive for the retailer can be higher conversion rates and increased sales from their more loyal customers. It is very difficult to change the bar in a way that leaves room for charging customers a fee for that service. Airlines have done this in areas such as roomier seats and, while customers do pay, it’s questionable if this does anything to improve brand equity and loyalty in the customer’s mind. In the end, customers view brands providing a service rather than a piece of merchandise with different minimum standards. When buying from… Read more »
Ralph Jacobson
BrainTrust

Service has always been the first place for retailers to cut costs. That’s been true since I worked in stores in the ’70s. Are shoppers willing to pay for service? That depends. If the brand has a truly loyal following, I can think of some retailers where this is definitely possible. I had a discussion with a retail CEO where he stated that in ten years, “We want to be known as a service company, not a retail company.” That was way more than ten years ago, by the way. So this idea is nothing new. Innovators just have to set the example for followers to follow.

Dan Raftery
BrainTrust

A segment of our society has always been willing to pay for service. But not, as some have suggested, a separate charge. Being able to afford buying the same thing for a higher retail in a higher service environment has been a status symbol forever.

The challenge for higher-margin/service retailers is the erosion of this consumer group. Free delivery, extreme promotions, special events like Cyber Monday, Black Friday, etc, etc. bombard us daily. Even the upper crust is crumbling under this relentless message.

Craig Sundstrom
Guest

Though I agree with Nikki’s comments — up to a point — I think a key element is being overlooked. Poor service often has nothing to do with cost. It would have cost United little if any more to have policies in place to correct overbooking before boarding, and it costs no more to have a clerk wait on someone than to have them stand around and “engage” with their cell-phone.

Karen McNeely
Guest

I couldn’t agree more. It’s all about having standards and maintaining them. It may cost a little more to hire a strong manager than a weak one, but the payback of having a high performing staff is worth it. Often times putting one staff member on warning for “engaging with their cell phone” is all that is needed to get the rest of the staff to shape up. Even if management keeps it confidential, word inevitably gets around.

Shep Hyken
BrainTrust

There is always going to be price sensitivity. Even the high-end retailers, where price doesn’t seem to matter is just an illusion. There is a point where customers don’t find the value. The key is balance. I’ve preached for years that customer service makes price less relevant. If you have a big box store, a reputation for discounts, an online low-priced retailer, etc., then low price is one of your chief strategies. But other retailers can offer value beyond price. They may have to be competitively priced, but not necessarily the lowest price.

gordon arnold
Guest

People all over the world look at the U.S.A as the land of the free. Free as in entitlements without obligation or participation of any kind. The retail industry is second only to free market taxpaying citizens in the squeeze to give more for less. Not only do consumers want high level services and expertise for nothing, but they now insist on having it their way. This is something that I have been demonstrating to owners and executives for several years.

A very typical case in point is customers looking at documentation and asking simple questions to associates that are in front of them in several languages. The reasons are simple. Some cannot read to the level of the documentation they are looking at. But most consumers simply do not want to read the instructions and demand that the associates provide the information verbally. The real challenge is for retailers to school consumers to a level of acceptance that recognizes the difference between associate service vs. seeing associates as servants.

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"I have a hard time believing in a shopping experience where I would have to pay extra for meaningful customer service."

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