There are at least 10 marketing and service clichés that most executives accept as fact that, when put into practice, cause disaster or at least leave huge amounts of money on the table. Think about all the nutritional fads and diet fads that were considered gospel at the time and had broad support that you’ve subscribed to and how many of them ultimately led to more damage than good not to mention wasted money. Don’t make that same mistake professionally.
Recently, a well-known business author spoke ahead of me at a large marketing conference in Buenos Aires. His whole speech was story after story about exceeding customer expectations to “surprise and delight”. I then got up and, with solid data, demonstrated that the money invested in many “surprise and delight” heroics could get at least double the return via cheap delighters like a 40 second interaction talking about a customer’s pet on the phone. Systematically producing heroic delights is often a WASTE OF MONEY when compared to competent service with simple emotional connection.
This list of dangerous beliefs and conventional wisdom includes:
- the customer is always right, you can never say no – they’re not and you can say no!
- continuously exceed customer expectations – often a waste of money!
- focus mainly on your gold customers -- there is probably more incremental profit to be made in you silver and bronze customers!
- service will always be a cost center – not true – read below.
A few of the above have some empirical basis, but have been carried too far. Others are just wrong.
Why should you care? Because accepting these myths causes extra cost, leaves money on the table and puts you at professional risk during the next performance evaluation. On the other hand, if you reject them, you are positioned to outsmart the competition (both internally and externally). Over the next few months, I’ll debunk all 10 of these myths and clichés.
Companies that see beyond common misconceptions can use this to their advantage to deliver better service at lower cost and outsmart the competition. Let your competition waste money trying to delight every customer while you develop a smarter segmentation strategy and providing just the right level of service every time.
Myth 1: Service will always be a cost center.
Fact: In every organization where the customer produces more than $100, or in most cases even just $10, in annual revenue, service can and should be a revenue generator and profit center.
In the original study I directed for the White House Office of Consumer Affairs in the 1980s, I developed the often-quoted principle, “ It costs five times as much to win a new customer as to keep one with service.” In fact, for many companies with valuable customers, it can cost ten or a hundred times as much to win a new customer. Think about the costly efforts of a sales rep to win a new client when the old one was lost due to denying a $500 warranty claim.
Companies spend a fortune in marketing winning a new customer but then allow them to encounter problems and leave. Marketing attempts to increase market share (filling the bucket) while holes in the bucket (problems) lead to attrition and leaks. Great service plugs the holes and reduces the job marketing must do. Further, great service can produce word of mouth that results in your customers doing your selling for you. At Harley Davidson, USAA, and Chick-fil-A, more than 70% of new customers are “dragged in” by an existing customer who says you have to try this.
Based on hundreds of studies including those for over 40 of the Fortune 100, I have found that, fixing a problem raises willingness to repurchase (loyalty) an average of 20%. This means that for every five customers whose problems you fix, at least one of those customers will be retained who otherwise would have been lost. You retain the revenue equal to wining one new customer.
Similarly, preventing a problem via education can raise loyalty by 25-20%. Also a great transaction produces positive word of mouth to at least two people. Between 20 and 75% of all new customers are attracted by word of mouth.
So customer service has 2-fold benefit:
- Retaining a customer through increased loyalty that leads to revenue down the road
- Increases free “word of mouth” marketing that increases market share
- But is that enough? Still not convinced? Let’s look at the math in a way the CFO will accept.
Let’s look at three scenarios at a company where the customer is worth $200.
Lesson: Service does cost money, but expending money doesn’t mean it’s a cost center. The revenue and word of mouth payoff of improved service is usually 10-20 TIMES the invested cost, so if you only look at the cost, you’ve completely missed the boat! You need to show the CFO and CMO the revenue payoff of service investments.
The math shown above is important but, just as important, is tying the impact of service to the CFO and CMO’s personal experience. Ask them about the last good and bad service experiences and how they reacted. They will confirm that their loyalty will have gone up for the good experiences and plummeted with the bad experiences. Then point out your customers react the same way – the light bulb will almost always go on.
What you can do: Quantify the loyalty and word of mouth impact of service, education and emotional connection. Apply it to the formula above for your company and your industry. Make sure you’re measuring what you get from service not just what is costs you.
I’ll show more examples next blog on how service data can be used to win the support of the CFO and CMO.
Next month I touch on two more myths:
Myth 2: We have few complaints and even that small number is going down, therefore everyone is happy.
Myth 3: Service is nice but price wins customers–look at Wal-Mart!
You’ll be surprised to hear what reality really is. Stay tuned as we unravel the biggest myths that have plagued customer service organizations over the years.