“Customers don’t expect you to be perfect. They do expect you to fix things when they go 
wrong.” So says Donald Porter, vice president and director of customer service quality at British Airways.
Many business owners assume that price is the critical factor affecting a consumer’s choice, and they focus accordingly on squeezing costs as much as possible to gain an advantage in the marketplace. However, in a world where the price differential between competitive products and services is often insignificant, business owners are increasingly recognizing that superior customer service is the primary driver of purchasing decisions.
What is customer service?
The goal of every successful business is to provide what some refer to as “maximum customer satisfaction.” Why? According to Jerry Gregoire, former CIO of Dell Computers, “customer experience is the next competitive battleground.” Jerry Fritz, management consultant, tells his clients that they may “never have a product or price advantage again,” which is why their customer service must be stellar. Fritz says that while innovative products and low prices can be duplicated, a good customer service culture cannot.
While customer satisfaction has many facets – product quality, availability, and price, for example – customer service has an exaggerated impact upon clients’ feelings about your business. Psychologist Daniel Kahneman, author of “Thinking, Fast and Slow,” explains, “We do not make decisions or feel emotions based upon real experiences, but our memories of those experiences… As an example, a lovely meal, good companionship, and a pleasant evening overall is more likely to be remembered for its five-minute bad ending, such as receiving a bill higher than expected or the waiter spilling a cup of coffee on your lap, than the three hours of relative pleasure preceding the end of the event.”
Failing to resolve your customers’ problems invariably leaves a bad taste in their mouth and colors their impressions of your company, no matter how much they enjoyed their experience prior to the problem. By the same token, though, a gap in expectations – a bad experience – can be moderated with the appropriate service response.
For example, customers seeking to buy a particular product only to find it’s out of stock may be unhappy. Offering to call them when the new stock arrives or applying a sales price to a comparable product demonstrates that the company is willing to go the extra mile to satisfy them. Excellent customer service is essential in today’s business environment where customers are continuously bombarded by choices and promises.
Best measures of customer service
One of the biggest mistakes a small business owner can make regarding customer service is to pigeon-hole its practice into a specific department. Businesses don’t just need a friendly voice on the phone, or a couple of people trained to deal with complaints – they need a complete and consistent customer service package.
Leo Gorman, former CEO of the family-owned L.L. Bean, which is noted for its great customer relations, explained that excellent customer service requires a culture embedded into the DNA of the company – “a day in, day out, ongoing, never-ending, unremitting, persevering, compassionate type of activity.” How valid is Gorman’s advice? Under his leadership, L.L. Bean grew from a $2.5 million catalog company with a single store in Freeport, Maine to a multi-channel marketing behemoth with more than $1.5 billion in revenues, 5,000 employees, and a global brand.
There are a number of metrics used to measure different aspects of customer service. The following six should provide a comprehensive view of your efforts to exceed customer expectations.
1. Repeat customers
As W. Edwards Deming advocates, “Profit in business comes from repeat customers; customers that boast about your product and service and bring friends with them.” The most representative measure of the customer experience is the number of repeat customers you get. Although there are no universal statistics comparing the costs of keeping a customer to attracting a new one, studies often suggest the cost of a new customer ranges from three to thirty times the cost of retaining an existing one, depending upon the industry.
According to a Bain study reported in the Harvard Business Review, increasing customer retention rates by 5% boosts profits by 25% to 95%. The author of the study, Frederich F. Reichheld, confirmed the economic value of customer loyalty in two subsequent books, “The Loyalty Effect” in 1996 and “Building Loyalty in the Age of the Internet” in 2001. According to the Pareto Principle, 80% of your business comes from 20% of your customers.
In order to determine your ratio of repeat customers, you must identify existing customers and quantify their activity. Many companies create a “loyalty program” which offers special advantages – price discounts, special sales, favorable financing – to repeat customers. Some even offer bonuses to those customers who recommend new prospects. If you do not have a customer tracking system in place, initiate one and start mining for potential repeat business now.
2. Returns and refunds
The ratio of returns and refunds to sales is an indication of customer satisfaction, and while every business has some disgruntled customers, spikes in this ratio can indicate a problem that needs to be rectified. Paradoxically, according to studies by professors J. Andrew Petersen of the University of North Carolina and V. Kumar of Georgia State University, higher return rates lead to higher sales because buyers “who know they can return anything they buy for a full refund are likely to buy more than shoppers who are afraid they might get stuck with something they don’t want or lose money on the return.” Those customers are also more likely to refer new buyers.
It is important to identify customers who frequently return products and develop strategies to influence their behavior. For example, it is usually easier to return products purchased from a physical location. By offering discounts on products from an online alternative, the customer is likely to return less while buying more – helping you reduce returns and keep the customer.
Dissatisfaction with a service requires a different analysis to determine why the gap between expectations and experience has developed. Causes can range from excessive marketing hype, over-zealous or uninformed salespeople, or a service deficiency. Unlike returned products which can usually be salvaged to return some costs, a service failure is more costly since labor cannot be recovered.
Nevertheless, correcting the problem to the customer’s satisfaction can help protect future sales. In addition to solving the immediate issue with the customer, though, an astute business owner also corrects the underlying problem that created the incident.
3. Customer complaints
Bill Gates says that your most unhappy customers are your greatest source of learning. Lee Resources, a marketing consulting firm in South Carolina, is credited for the much quoted statistic, “For every customer complaint, there are 26 other unhappy customers who remain silent.” And, Jim Barnes, author of “Secrets of CRM,” claims, “A typical business only hears from 4% of its dissatisfied customers – the other 96% leave, 91% for good.” Whatever the actual number of customers who are unhappy with your business, complaints provide an opportunity to look at things from a different perspective.
Tracking the number of complaints and their cause allows a business owner to identify customer satisfaction gaps. It is difficult to objectively analyze any company’s operations, but customers aren’t burdened by that difficulty – they’re not afraid to tell the emperor he has no clothes. That’s why Ross Perot advises companies to spend a lot of time talking to their customers face to face, actually listening to what they have to say.
Monitoring complaint levels can serve as an early warning system for the overall health of your business. As with returns and refunds, comparisons from one period to the next are essential if you want to manage the process effectively. An upward spike can signal a specific problem, just as a decrease can indicate improvement.
4. Satisfactory resolution of complaints
Customer complaints represent opportunities to turn dissatisfaction into loyalty and repeat business. Resolving a problem demonstrates that your company cares about its customers and it allows you turn a bad experience into a favorable memory. Dr. Kahneman’s memory studies suggest that a good ending is one of the most important factors in a customer’s recall and feeling of an experience. Successfully resolving a complaint demonstrates that you care about your customers’ happiness.
The way client complaints are handled has a strong effect on how the disgruntled customer may behave in the future, according to a study by BeyondPhilosophy. In the study, the “customer effort” required to resolve an issue was more impactful than the solution. The less effort required from the complainant, the more likely the dissatisfied party remains a customer and recommends the company to others. Examples of excessive customer effort include the following:
Having to contact the company a number of times to get a complaint resolved.
Having to repeat information as a result of being switched from one department to another.
Having to send physical documents by mail after contacting a company by phone or email, or simply having to communicate via both email and phone.
The successful resolution of complaints does not mean that customers automatically get what they want. In fact, quick resolution by refunding money or providing a discount on the next purchase often confirms that a company doesn’t care about the customers and is simply taking the easy way out. A better strategy is to minimize the customer’s effort needed to reach a resolution. This requires empowering front line people with authority to resolve complaints and respond empathetically with the customer’s situation.
5. Length of time to resolve complaint
While the method of handling complaints is just as important as the resolution, excessive time spent resolving them is expensive, especially if coordination of different departments is required. Tracking complaints by type and resolution allows you to identify systemic problems as well as design individual processes for the most efficient resolutions.
For example, many companies establish tiers of responsibility for customer service employees. While a front line employee might be empowered to resolve issues up to a $500 cost, the front line supervisor can resolve a $2,000 dispute, and the owner can be in charge of all complaints over $5,000. This way the appropriate level of employee is immediately involved and the customer isn’t subjected to an endless number of transfers and negotiations.
6. Customer ratings
The obvious way to discover how your customers feel about your service is simply to ask them. Many companies provide a feedback form with every transaction, while others take regular polls over the Internet or via email.
While the results of such polls or feedback are not scientifically precise, they do provide valuable information. Furthermore, polls give you an opportunity to make additional contact with your customers and show them they’re not being taken for granted. SurveyMonkey and Polldaddy are examples of online polling services available for free or low cost.
When questioning your customers by polls, feedback forms, or emails, just make sure to leave room for expanded answers. You may be surprised by the suggestions you get.
Final thoughts
In a 2013 Gallup report, State of The American Workplace, only 30% of the 100 million people in America who hold full-time jobs are “engaged and inspired at work.” One out of five is actively disengaged, and almost half are doing only what is necessary to keep their jobs. The challenge for many small business owners is to actively recruit, re-inspire and retrain their employees with the skills required to deliver superior customer service. Howard Schultz, CEO of Starbucks Coffee said it best, “You can’t expect your employees to exceed the expectations of your customers if you don’t exceed the employees’ expectations of management.”
How do you measure customer service at your small business?