Customer Service is Free: Or do You Charge Extra For Smiling?
By Steve Curtin.
Thursday, 16th October 2008
Years ago, there was a best-selling business book authored by Philip Crosby titled, Quality is Free.

The premise of the book was that if a company invested in quality, then its product defect rates would be reduced, its processes would produce higher-quality, reliable products and services, and the resulting increases in customer satisfaction and sales and profit margins would more than offset any initial investments in quality-related training, etc.

The same is true of customer service.

When I worked in New York City during the 1990s, I took the train out of Manhattan to Westport, CT to experience a supermarket named Stew Leonard's. At the time, Stew Leonard's was receiving a lot of positive attention from Tom Peters and other business authors mostly for its employee and customer-friendly practices.

The first thing I noticed when I arrived at the store's entrance was a six thousand pound rock with the creed "The Customer Is Always Right" chiseled into it. There was a single meandering aisle as opposed to a dozen independent aisles and customers were offered a free ice cream cone (with minimum purchase). There was even a petting zoo!

These were all reasons enough for me to visit the store but the fact that really motivated me to hop a train to Westport that July afternoon was a statistic I read: Stew Leonard's supermarket, in an industry that averages just over $200 per square foot per year, averaged $3,030 per square foot, per year more than fifteen times the national average!

Want more proof? Consider the findings below from the American Customer Satisfaction Index, J.D. Power and Associates, and PeopleMetrics:

  • The American Customer Satisfaction Index (ACSI), out of the University of Michigan's Ross School of Business, reports scores for the causes and consequences of customer satisfaction and their relationships to, among other things, financial performance.
  • Claes Fornell, Professor of Business Administration at the University of Michigan's Ross School of Business, oversees the data collection and analysis of the quarterly ACSI results. He's close to the data and his insights are compelling. According to Professor Fornell, a 5 percent improvement in customer satisfaction leads to an increase of over 35 percent of future operational cash flow. For public companies, the improvement in cash flow shows up in earnings as well as stock price.
  • Another customer satisfaction authority, J.D. Power and Associates, looked at ancillary (or supplemental) per day spending of hotel guests as correlated with overall satisfaction. They found that guests who rated their overall satisfaction with the hotel a 10 (or Very Satisfied on a 10 point scale) spent, on average $12 per day more on ancillary services such as room service, recreation, spas, mini-bars, and laundry service than guests who rated their overall satisfaction as an 8 or 9 (or Somewhat Satisfied on a 10 point scale). With an average length of stay of 2.5 nights, that can really add up.
  • In a 2007 study by consumer research firm PeopleMetrics, 1,250 customers were surveyed on their experiences at restaurants owned by nine publicly traded companies with 300 or more units. Customer engagement was measured by four factors: customer retention; the extra effort a customer was willing to make for a return visit; whether a customer would recommend the restaurant to a friend or family member; and passion whether the customer loved the restaurant.
At the end of the study, the restaurants were divided into two groups: those with low customer engagement scores and those with high scores based on the survey results. When year-to-year financial data for the two groups was then compared, these were the results: Restaurants with high customer engagement scores had an average increase of 29% in gross margin versus a12% decrease for those restaurants with low scores. Those with high scores had an average increase of 39% return on equity (ROE) versus a 17% decrease for those restaurants with low scores. And restaurants with high scores had an average increase of 75% in earnings per share (EPS) versus a 50% decrease for those restaurants with low customer engagement scores.

The reality is that investing in a culture of exceptional customer service, in the end, pays for itself in enhanced loyalty, increased referrals, less price sensitivity, and repeat business among other benefits.

So, even though we know it's possible for customer-focused practices to produce positive financial returns, most operators concentrate on P&L statements to guide decisions and determine priorities as opposed to customer satisfaction data (e.g., comment cards, overall satisfaction, problem resolution, intent to return, etc.). These operators seem to believe that business cycles determine customer satisfaction as if reduced customer satisfaction scores are inevitable due to reductions in staffing levels, amenities, and other services related to cost-containment measures.

While business cycles undoubtedly affect the budgets, staffing levels, and services that influence customer satisfaction they don't determine it. In the end, customer satisfaction is achieved not by dollars and cents but by consistently doing the little things that cost nothing and make a positive impression on customers.

Here are several examples of those little things:

  • A smile.
  • Making eye contact.
  • Adding 'life' to one's voice.
  • A nice gesture: "Here, let me get that door for you."
  • A compliment: "That's a nice looking tie!"
  • Unique knowledge/direction: "Sir, if you'd prefer not to wait, there's a set of stairs to the mezzanine level just down the hall on the right."
  • Appreciation: We know you have options. Thank you very much for choosing us.
  • A nice gesture: "Please allow me to make the call on your behalf."
  • A thoughtful gesture: Rather than hold, may I get your number and call you back in a minute or two?
  • Humor: "Could I interest you in a bottle of Pellegrino Mineral Water or would you prefer New York City tap?" (You have to be careful with humor. I thought it was funny.)
  • Recognition: "Mr. Yakely, I can see you've flown with us more than 80,000 miles this year, and it's only September! I have an empty seat in Business Class. Please allow me to upgrade you free of charge."
  • Partnership: "Mr. Curtin, there's no charge for that flat tire repair. Please just keep us in mind when you're ready to buy a new set of tires."
  • Genuine interest: "I noticed you were looking at the store directory. Is there something I can help you find?"
  • Unique knowledge/recommendation: "Do you know what goes really well with that?" (I will almost certainly add to my order whatever the waiter suggests.)
  • Follow up: Mr. Levine, it's Tami from the Front Desk. I just wanted to verify that you received the extra towels your requested.
While fiscal responsibility is necessary regardless of the economic landscape, the real key to sustained rapid improvement is to focus employees to focus on customers. I once worked for a general manager who was fond of saying, If you close your eyes once (e.g., neglect a guest, ignore a spill in the back aisle, overlook a candy wrapper on the carpet in the pre-function corridor, etc.), you've lowered your standards. And he modeled the behavior and held others accountable. Our hotel motto was Absolute Customer Satisfaction and every employee knew it.

Superior service doesn't cost any more to provide than mediocre service. Superior service is the result of the standard companies set for customer service and the choices that are made at every service touch point that either support or undermine that standard. Companies like Stew Leonard's, Nordstrom, Disney, and Ritz-Carlton understand this.

When employees execute the little things, it communicates to customers that their business is genuinely appreciated and that employees truly care that they have the best possible experience. It also demonstrates the company's commitment to customer service while creating more goodwill with customers that will translate into enhanced loyalty, referrals, less price resistance, repeat business, and positive financial returns. And here's the best part: It doesn't cost a dime because customer service is free!

Steve Curtin is a customer service, training, and public speaking enthusiast based in Denver, CO. www.stevecurtin.com
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