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I read a good Harvard Business Review blog post that discussed when customer loyalty can be a bad. The article is worth perusing, even though the authors have missed the point of loyalty. Customer loyalty is never bad.
The argument the authors ought to start with relates to unprofitable customers. Mr. Keiningham and Ms. Aksoy write:
“If typically most loyal customers in a firm aren’t profitable, how exactly does a customer loyalty strategy ever generate a positive return on investment? Instead asking whether you have enough loyal customers in your customer base, you need to ask yourself three more complex questions: 1) which loyal customers are good for the business, 2) how do we hang onto them, and 3) how do we get more customers like them.”
Ah ha! The important issue is customer profitability.
“Unprofitable loyal customers tend to be loyal for one of two reasons: 1) they are driven by unprofitable pricing or exchange policies, or 2) they demand an excessive amount of service that they are not willing to pay fairly to receive.”
If customer loyalty stems from #1, your company has a straightforward sales problem. If loyalty comes from #2 then your company should stick to its guns and deliver a level of service that is profitable. And if your company encounters #1 or #2 consistently you can be sure you have either an unviable business model or a management team that requires a wake-up call.
Mr. Keiningham and Ms. Aksoy definitely get one point right – some customers can damage your business. (In fairness, the reverse is also true well – some businesses damage customers!)
The pivot point: don’t start by asking which loyal customers are profitable; start by understanding which customers are profitable. Then either make profitable customers loyal or make loyal customers profitable.
Newsflash! The White House has consulted with industry leaders to help government improve its ability to deliver customer service. I’ll generally endorse any efforts to improve service but forgive my skepticism regarding the White House’s chances of success. As a monopoly, they have little incentive to deliver customer service. Here’s what’s missing:
- Competition – We the people, can’t switch governments if we don’t get good customer service. Without competition, what compels any company to deliver the type of service people want/need?
- Culture of Change – With no competition, market forces are meaningless so a monopoly favors the status quo. Monopolies encourage inertia, not innovation.
- Accountability – If a battery bomber can walk onboard an airplane and no one is held responsible for the security failures who will be held accountable for poor customer service? And if no one is accountable, who will sponsor and drive the change?
- Extrinsic Rewards – Even on the off chance a customer-centric culture takes root, the government, in its quest for ultimate equality, has its hands tied when it comes to rewarding excellent performance.
As encouraging as it is to learn that the government wants to deliver better customer service, you’ve got to conclude that this initiative isn’t likely to garner results. Too bad really. Indirectly, we all pay for the poor service. And now we’re paying for the analysis, studies, position papers, etc. Since the government’s track record in tackling big issues is so mixed, what makes us think they’ll handle customer service any better?
The pivot point is simple – competition improves customer service. And even if the government does figure out how to improve service it still won’t make our annual pilgrimage to the altar of the IRS to file our tax returns a better experience.
When seeking ways to cut costs from your business the easiest way is to short-change your customers. After all, you can’t really skimp on creating the product, because if you did no one would buy it to begin with. But once you have your customers’ money, there’s no easier way to increase profitability than to limit customer service expenditures. Support costs too high? No problem:
- Outsource – There are loads of up-and-coming markets where laborers are willing (grateful even) to work for 50% the wages.
- Decrease support hours – If you can’t find cheaper labor, have your team work fewer hours, or days. (See article: USPS reducing number of delivery days.)
- Fire your qualified representatives and replace them with unqualified service representatives – Not as obvious as other options, this one guarantees that your internal metrics like ASA (average speed of answer) remain pristine while you cut costs.
April Fool’s! If you’ve read any of my previous posts, you know that I do NOT endorse this approach. Cutting costs is not the same as saving money. Yet companies quite often resort to twisted logic like this when they seek ways to boost bottom line performance.
Is there a way to improve bottom line performance while outsourcing, for example? Definitely. The key is to keep the customer experience in mind. Outsourcing itself isn’t bad. The company to which you outsource service must understand your goals and must have incentives when they perform and penalties if they don’t. If one service goal is to pick up calls quickly, it makes sense to track ASA. But if your goal is customer satisfaction, measuring NetPromoter scores makes more sense. (Ideally, your company has already identified how strongly ASA and customer satisfaction are related.)
Are there legitimate ways to cut costs in the methods above? Absolutely but only if your company keeps customer needs foremost in their minds. Otherwise, expect heavy losses in customer trust, loyalty, and business. And expect customers to be [negatively] vocal about your products and services.
The pivot point(s): (1) cheating customers eventually harms the enterprise and (2) the key to implementing cost-cutting measures is to continue to deliver a quality customer experience.
April Fool’s aside, which companies have you worked with who were willing to cheat customers out of their hard-earned money to satisfy their demand for short-term profitability?
It’s no secret that customer service departments, like all others, are asked to do more with less. The secret (shhh), is companies that do a few things with focus, are better able to satisfy their customers than companies that do many things with mediocrity. On the other hand, Google who recently launched their Nexus One phone, proved something entirely different; if you fail to do something important (in this case, customer service) you satisfy absolutely no one.
A recent study of cell phones and driver distraction conducted by the Virginia Tech Transportation Institute indicated that texting while driving, increases the likelihood of a collision by over twenty (20) times. Our hubris is so great that we still think we are the exception. We believe we are uniquely able to drive, talk, drink coffee, change lanes, etc. Yet our confidence plummets while our NYC cab driver texts while driving to our next destination? Now we might want a little more focus, a little less multi-tasking.
This same premise applies to organizations. When studies show one person has a limited capacity to multi-task what makes us think that hundreds of people are capable of doing so? It must be hubris talking again. It is absurd to think we can successfully engage many individuals in simultaneous multi-tasking when we can’t get one to do so. At some point the law of diminishing returns kicks in.
Companies who hope for the greatest gains must de-prioritize as aggressively as they prioritize. They must choose the most impactful/profitable projects at the expense of other projects. In short, they must choose to either drive or text.
The pivot point is that people (and organizations) can adapt to a limited amount of change. This year, when you’re deciding to implement a new CRM technology, institute a new process to handle customer complaints, or even rolling out a revolutionary new cell phone, focus on doing a few things and resolve do them well. Doubt this will work? Consider the alternative. Better yet, ask Nexus One customers if they wish Google had focused just a bit more on customer service.
Barely a year beyond one of the worst economic slowdowns in recent history I was struck by the familiar disclaimer “past performance doesn’t guarantee future results.” This statement is as true for fund managers as it is for customer service professionals.
But it begs the question; just how good does your current performance have to be?
With March Madness upon us I was reminded of John Calipari’s book Bounce Back: Overcoming Setbacks to Success in Business and In Life and liked the spirit of a quotation: “strive for perfection and settle for excellence.” As a personal credo that makes sense. For a business, that sentiment sounds expensive! Businesses need only concern themselves with winning … not winning convincingly. Spending time/money on perfection is costly… so is spending it on excellence. Spend it on winning – beating the competition.
Unfortunately, the things that make good business sense don’t always measure up as motivational creeds. Being just better than the competition isn’t much of a rallying cry which is why Calipari will never tell his teams to “be good enough”. But in customer service, as in other aspects of business, it makes sense to be just better than your competition.
Old joke alert: if a bear is ever chasing you and a friend through the woods, remember that you don’t have to be faster than the bear, you only have to outrun your friend.
The pivot point in business is that continual improvement in our people, processes, technology eventually stops yielding noticeable value to customers. Perfection and excellence are good goals and even better rallying cries, but all we have to be is better than our competition.
What do you think? Is it good enough to just beat the competition, or does it make more sense to run up the score?