New Customers and Poor Service
By Tom Ryan
James Surowiecki, the author of Wisdom of Creeds, believes
a fixation on new customers is ultimately the root cause of poor customer service
levels across corporate America. But he also said it’s a natural tendency
for management to do so.
In his column for The New Yorker, Mr. Surowiecki
tackled the topic of customer service as Jet Blue flight attendant Steven Slater’s
temper-tantrum a few weeks ago drew widespread attention to stressed-out service
workers. At the same time, the shabby treatment of customers was underscored
last year by Dave Carroll, whose guitar was broken by United Airlines luggage
handlers. A song by Mr. Carroll about the incident has generated more than
nine million views on YouTube.
Mr. Surowiecki said most companies have a “split
personality” around
treating customers. Many execs describe customer service as “essential to
success.” They are also aware of how the internet can cause widespread damage
to a firm’s reputation. Ultimately, however, the return on investment around
customer service is often lagging.
“Customer service is a classic example
of what businessmen call a ‘cost center’ — a division that piles up expenses
without bringing in revenue,” wrote
Mr. Surowiecki. “Most companies see it as tangential to their core business,
something they have to do rather than something they want to do. Although some
unhappy customers complain, most don’t — one study suggests that
only six percent of dissatisfied customers file a complaint — and it’s
tricky to quantify the impact of good service.”
Part of the problem is
the challenge of measuring and quantifying customer service improvement. And
with an overall push for greater efficiencies and savings, managers often trim
front-line staffs and take other steps to minimize costs in serving existing
customers. At the same time, more marketing dollars are allotted to reach new
customers to drive top-line growth.
“The consultant Lior Arussy calls this the ‘efficient relationship paradox’:
it’s only once you’ve actually become a customer that companies
put efficiency ahead of attention, with the result that a company’s current
customers are often the ones who experience its worst service,” wrote
Mr. Surowiecki.
Economically, Mr. Surowiecki said focusing on the new makes
little sense since it’s more expensive to acquire a new customer than
to retain an existing one, especially as customers are showing less loyalty
to sticking with businesses.
Discussion Questions: Why do you think so many companies fall short in the
customer service area despite a stated commitment to it? How does a company keep
a healthy balance between addressing new and existing customers?
So many companies have a fixation on getting new customers, all the while neglecting to do what it takes to maintain the quality of customer service for their existing customers. In fact, some companies online, for example some popular ISP’s, are so busy trying to attract new customers that their web sites often neglect to offer a click somewhere for existing customers needing service.
Companies’ shortfalls when it comes to customer service are a function of leadership, first and foremost. That leadership drives the strategy of the business and that, in turn, drives where customers fall in terms of prioritization.
While investments in CRM and loyalty marketing are continuing to grow, the marketing mix continues to be dominated by advertising spend — paid media which even in our digital age is largely non-personal — which reflects a disproportionate investment against prospects. At a minimum, it is a typically less than efficient way to reach existing customers.
The flip side is that there are incredible opportunities for companies with customer-focused leadership to differentiate themselves in the minds and hearts of their customers. This is where incremental profits are and, given the prospect-focused mindsets out there, these profits are almost always easily attained with the right strategies.
An excellent article. Delighting customer service needs to be a significant component of a company’s marketing strategy, not an add-on nor an expense item as viewed by many companies. This churning of customers, besides being expensive, makes no sense. Consider a fisherman who catches a big fish. What’s the likelihood of throwing it back in search of another fish? However, the action of most companies in the pursuit of new customers to the exclusion of delighting existing customers is analogous to our fishing example.
I am reminded of the words of the late Sam Walton, “A customer is not a customer until he becomes a repeat customer.” Customer delight is a function of a good interaction and a good outcome. It is more than smiles and answering the phone on the third ring. It is a system that regularly and routinely delights customers, providing a significant differential advantage. Done correctly, current customers will recruit new customers and everyone wins.
Excellent article. The fixation on the new has only added fuel to the Groupon phenomenon. CMOs are allowing their core trade area to be at risk pursuing the deal while ignoring where the money is coming in to pay for the discounts to the new. Crazy.
I had a long, dull 20-minutes to ponder this issue while standing in a queue at the bank yesterday. One teller was on duty, working furiously to shorten the line stretching towards the door, while around the bank, numerous account people milled about with their coffee mugs, occasionally pitching new credit cards and college accounts to the (increasingly irate) waiting customers. It’s a sad day when the best customer service you can offer is handled by your ATM.
Nothing wrong with expanding your customer base, but not at the expense of your existing — and potentially most profitable — customers. As other panelists point out, investment in CRM is still relatively modest despite its proven benefits: understanding the shopping patterns of “best customers,” and catering to their needs in order to drive more merchandise per transaction. Smart retailers need to focus on trial when they are expanding into new markets, but need to make a fast turn toward building and maintaining loyalty, almost from day one.
Customer service should be the heart and soul of a company. As the article mentions, the problem is most see customer support as an expense center, not revenue center. Some ideas to help change this way of thinking.
1) Customer service starts at the top. The rest of the organization will follow management’s lead. If management says customer service is important, but a cost center, you won’t get your best people involved in customer service. If management says customer service and retention are the heart and soul of the company, your best people will want to contribute and find ways to make it better.
2) Strong training programs – If you don’t train your people on the importance of customer service, they may not be able to deliver the results you or your customers expect. Stew Leonard’s and Zappos are two great examples of outstanding customer service training and results. When Stew Leonard lost a customer over a disagreement related to sour milk, he realized it was not the cost of the milk (25 cents), but that person’s shopping basket for the rest of her life ($2,600 per year). Needless to say, he now has the store rules etched in the front of the store. “Rule 1 – The customer is always right. Rule 2 – If the customer is wrong refer to rule 1”.
3 )Customer service as a marketing tool. What so many companies miss is the opportunity to attract new customers through current customers and rewarding both for their efforts. Instead of offering a 10% coupon to everyone in the city through an FSI or advertisement, why not offer your active customers a 20% coupon for them and 2 friends? Current customers most likely have friends that would enjoy your store as well.
4) Never claim great or even good customer service if you don’t plan on backing it up with actual results. That is a recipe for disaster. You need to live it if you are going to advertise it.
The writer of this article makes some good points but also misses the main points. Great customer service is great customer service no matter whether it is a new customer or an old customer. Once you begin to differentiate between who gets service and who does not you beginning to erode your customer service culture.
Yes, your best customer should get priority, just as the airline and the car rental companies make is easier for their best customers to rent and make reservations. But when you don’t provide good service to the new customer, they will never become your best customers.
Most retailers don’t even know what percentage of their business comes from new customers and from old. Yet studies show that a typical mall specialty store loses 40% of its customers every year.
You would think that customer retention would be the number one metric to track. How many new? How many old? How many reactivated? What is the trend in each? By store? By merchandise category?
Integrating customer data with merchandise data is the most important job ahead for retailers. The more shopping options they create, the more vital it is to know what is actually going on.
This isn’t just a retail problem. I’m constantly surprised at how many companies in the business services arena (legal, accounting, consultants, etc.) sell their wares at a high level and then deliver at a much lower level. Consultants who pitch new business with their top players and then have the new recruits struggle to complete the assignments. Lawyers who say their top minds are on the case and then assign paralegals to do most of the work (probably still billing at the lawyer rate). In retail, you see similar examples like when the salesman drops out of sight when the customer returns for service.
The bottom line should be treat customers well and they will act as your business development team.
I don’t see any data to support this idea. In fact, I see my clients in restaurants, retail and banking thinking hard about current customer retention.
I think the real root of customer service difficulties is that service is just very difficult to execute in a retail environment. New customer marketing programs are controlled and executed by a few people, while service falls to thousands of people distributed across the country or the world. Those people are often paid poorly – and have to be paid poorly to fulfill the number one desire of customers in most businesses: low prices.
For the same reasons, it’s probably even harder in the example used in the article, the airline business.
I’m with Ron. Striking the balance between business development and client service is a universal challenge. I found it interesting that Jeff Bezos makes a clear and unapologetic distinction between customer service and customer experience. To him, customer service is an exception situation that kicks in when customer experience fails in some way. Of course, he then went on to buy Zappos which just as unapologetically plastered customer service phone numbers on its site and relished the opportunity to have voice-to-voice contact with customers both happy and discontented. The phone numbers are still there, but you might notice that they’ve gotten quite diminutive.
Customer service is defined in how the customer that is right in front of you is serviced. One on one, one customer at a time by the front line people. If genuine customer service is practiced here, the happy customer will tell their friends about it and you will gain new customers from the recommendations of the existing happy customers that you have provided with good customer service. Seems pretty simple to me, just take care of the customer that you are in contact with in the best possible manner. In this social networking world that we exist in today, the word will get out… both good and bad.
This is going to be very dependent on the type of business you are in, but customers are fundamentally NOT AS LOYAL as has been thought for years. Often, of those customers identified as “hard loyal” (good for the long haul), within one year, 50% will have moved on. This raises serious questions about just what “hard loyal” means. The fact is that your most loyal customers are not very loyal. See Byron Sharp: “How Brands Grow.“
Senior management at publicly traded American companies report results QUARTERLY and Wall Street expects to see profit increases each period. The team is awarded for upward progress and punished if there is more than the very occasional blip. Such short term thinking drives strategy. There are, of course, only two ways to achieve those increased profits: 1) cut costs, and 2) sell more.
Gaining new sales from new customers is exciting and highly visible in most organizations. Those responsible for such sales get the glory, internal recognition and compensation, and are supported with the marketing programs. Increasing sales to existing customers (capturing a greater share of wallet) is sometimes difficult to quantify, requires good customer service, and when it happens is taken for granted.
Thanks to inertia, purchase cycle length, and real and perceived difficulties in switching brands, etc., many corporations can boost quarterly profits by cutting those customer service costs without immediately losing customers. Depending on the category, reductions in spending to serve existing customers can be a successful strategy for a matter of quarters or even a number of years. Ultimately, however, customer attrition, the missed opportunities to increases share of wallet spending to existing customers, and the negative word of mouth generated will have its impact on the bottom-line. But in our short-term business world, by then, it might be the problem for an entirely new management team.
There is a two-fold issue here. The first is with how customer service is viewed. My colleagues, above, have rightly addressed the issue of customer service being a “cost center”. In accounting terms, it is called overhead. And of course every company’s objective is to reduce overhead.
But customer service isn’t overhead. It is part of the product offering. Customer Service is every bit as important to the product as the ingredients are. As part of the product, managers would be asking themselves, “How do we make it better” rather than, “How do we make it cheaper?”
Making customer service better would have the same return as making the product better. And, likewise, making it cheaper would have the same consequences as making the product cheaper. Certainly customer service in the product mix varies with type of business and generally becomes a greater part the closer the product requires personal interaction (airlines, banks, retail stores) versus those less so (breakfast cereal, detergent, clothing).
That leads directly to part two, new versus existing customer. There is no doubt that the tools for generating new customers are more fun and exciting than the tools for keep existing customers. But few activities are more expensive than generating new customers. And every dollar spent getting a new customer at the expense of an existing one adds another hole to the old “leaky bucket” theory.
Gordon Bethune, former CEO of Continental Airlines tells the story of how his marketing people wanted to add leather seats to all their planes (in response to JetBlue). He asked how much more per passenger it would cost. The answer, about $5. He then asked, “How much more would the customer pay?” The answer was “no more”. He then asked, “What does the customer want?” The answer, “To leave on time, to fly comfortably, arrive on time, have their bags arrive as well and, if anything goes wrong, to have it taken care of smoothly and quickly.” He said “no customer will trade off that for a leather seat, and the one who might, will leave us as soon as we lose his luggage.”
To go to an extreme, if a company spends 100% on existing customers and nothing on new customers, new customer will come, if only by hearing from satisfied existing customers. If a company were to spend 100% on new customers and nothing on existing ones, those new customers will ultimately be dissatisfied and go away. It is very tough to fill a leaky bucket.
I don’t think I agree with the premise implicit in the daily question that new vs. old is an “either/or” proposition: many things (advertising, maintaining inventory, hours of operation, etc.) obviously relate to BOTH existing and new customers. Of course, it’s possible management might so fixate on gaining newbies that they forget their existing customer base (for example, extending hours and moving existing employees into that time period) but there are many areas incompetence can manifest itself…and eventually it will.
The trouble with retail customer service is the short term mentality that drives it. It’s much easier for management to cut payroll to improve EBITDA now than it is to invest in their people and improve their businesses over the long term. Wall Street is a big part of the problem. Analysts herald retailers who cut costs (read payroll) in a downturn. Yet, they’re the first to scream about the lack of top line growth when they deem it time. The retail winners in the long run know who they are and what they’re customers expect, and implement strategies that deliver their brand promise consistently across all channels. And, most importantly, they stay the course no matter which way the economic winds are blowing.
I think these are really two separate (though perhaps related) issues. The effort and expense that goes into acquiring new customers versus leveraging existing customers is a marketing consideration, at a very high level. The issue of poor customer service is one primarily of corporate culture, as manifested by the quality of operational execution.
To take crappy customer service first, my belief is right there in the way I framed the point. The quality of customer service flows out of the culture created by senior management. If management places a high value on the quality of interactions between all stakeholders, customer service as a value will flow organizationally to the customer experience. If on the other hand, management is fixated primarily on sales and quarterly earnings, it’s not hard to see how a culture of cutting corners is continually reinforced. For these retailers, concerned as they are about the bottom line, store level spending is not considered the cost of generating sales, it’s considered strictly as an expense. The sales will make themselves.
The question of focusing on new versus existing customers is, in my judgment, only indirectly related. A retailer with poor customer service may be focusing on existing customers by concentrating their efforts on dollars and units per transaction, being sales focused. They can just as easily be focusing on bring new feet through the door. On the other hand, a retailer which places a high value on the quality of their customer’s experience will be rewarded whether they are pursuing a strategy of thrilling their existing customers or wooing new customers.
Companies fall short on customer service because they only pay it lip service. A corporate statement on the website about providing excellent service falls to pieces pretty quickly when interacting with sales associates every day on the store floor.
For me, the key issue plaguing customer service has always been that it’s defined by the individual consumer, not the brand. And that means what is and is not good customer service is going to differ from one consumer to the next, from one product category to the next, etc. That doesn’t mean brands should throw in the towel. Rather, brands should be more vigilant about ensuring patrons understand how the brand defines great service. To be honest, vague statements like, “We promise to exceed your expectations” doesn’t communicate anything tangible about the shopping experience. But telling shoppers that, “When a product is out of stock, we’ll ship it to the consumer for free from the warehouse” is a hard definition of what will and will not be done.
I’d add that it wouldn’t hurt to begin to educate consumers about what’s expected from them as far as customer service. Customer service is a two-way street, meaning the best service available will always fall flat if the customer isn’t a willing participant. For example, it doesn’t seem to be too much to ask that patrons put their cellphone calls on hold when being served by associates.
Customer service is my passion, focus and sole driver both in my business and personal life. I coach, train and consult on the subject.
I am a firm believer and advocate that more attention should be given to the subject. Customer service is the offensive line (in relation to a football team since the season is beginning this weekend). Without customer service there will be no future sales. Word gets out very quickly and is widespread when poor service is received. (Word takes longer to get around when good or outstanding service is delivered.)
It takes five or more times the investment to get a new customer than to retain an existing customer. Even when something bad happens, you have a chance to stand tall and retain the business by delivering the corrected action necessary to satisfy the client. Remember, it is just as hard for the client to make a change as it is for the service provider to replace the lost customer. So put your best foot forward and work diligently to keep commitments and obligations.
This is not a retail industry specific concern. I do not know of any company in any field that does not have a need to deliver outstanding customer service. But I do know of companies that simply don’t get it. I also know of many companies who absolutely do get it. Those are the keepers.
I agree with the panel. This goes well beyond a retail problem. The problem seems so obvious to me: the best companies all have a Chief Executive Officer (CEO), Chief Marketing Officer (CMO), Chief Financial Officer (CFO) and Chief Technology Officer (CTO). Where is the Chief Customer Officer (CCO)? Imagine some of today’s companies without their CEO, CFO, CMO or CTO…and we arrive at today’s issue. Hard to believe that we even have to debate balancing the two (new vs. current customers). We know how important ALL customers are to driving business, but until absolute focus is placed on this you will continue to find the virtues of a positive customer experience relegated to just a mention somewhere in a performance review, part of a motivational speech or a line or two in a mission statement.
This article speaks directly to one of my core beliefs. It is difficult for many companies to realize that not only is it less expensive to retain a customer than to acquire a new one, but also that often new customer acquisition programs trade down in customer quality. What I mean by that is when you lose an existing customer, you often require several lower spending new customers to make up the difference.
It is very clear that companies with high customer attrition rates lag in profitability, and that their most senior management often finds their jobs at risk.
The companies with outstanding commitments to customer service, whether it is Zappos or Ritz Carleton, are often the most successful in their industries as well.
Customer service is not simply address problems that customers have; rather, they reinforce the commitment of the organization to establishing and maintaining a conversation with their customers over time. That is the real benefit of customer service. Yes you can solve a delivery problem over the phone, but what are really saying is that I’m willing to talk with you when you need.
That commitment conversation is the fundamental platform to build customer relationships which provide the company with a stable revenue model, consistent growth, and increase in overall profitability.
Start with excellent service on existing clients and your business will grow. Do not try to expand your business without knowing that your current clients are well pleased. As you grow, make sure you have a system in place to ensure that client satisfaction remains.
There are some businesses that are inherently driven by customer churn, and new customer acquisition has to be THE key performance indicator.
However, I’m hard-pressed to think of an example in the retail sector that would be that way. Retail is a business driven by retention of customers: hooking the customers is only the first step. Earning their loyalty (stickiness to the store), getting a higher share of their wallet for the store, and having them “sell” your store to other customers is the way to sustain and grow a retail brand.
I found Joseph Jaffe’s book (“Flip the Funnel”) really useful in describing the principles to be followed, to shift the business focus from customer acquisition to advocacy. Here’s a review I wrote that may be interesting to RetailWire readers as well.