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Is Bad Customer Service More Profitable Than Good? (hbr.org)
Two associate professors of marketing recently shared research in the Harvard Business Review about how customer service is structured at at tech, travel, and finance companies:
[O]ur research suggests that some companies may actually find it profitable to create hassles for complaining customers, even if it were operationally costless not to.... We found that these companies screen complaining callers by using a hierarchical organizational structure. This structure, we argue, keeps a lid on the amount of redress customers are willing to seek. In other words, by forcing customers to jump through hoops, the organization helps curb its redress payouts.
As part of our research, described in a forthcoming article in the journal Marketing Science, we interviewed managers of call centers to understand how their customer service organization is structured, and the way it contains redress payouts. We found that most involve at least two levels of agents. The Level 1 agents take all incoming calls and hear each customer's complaint first. These agents are typically limited in the amount of redress they are authorized to offer to the caller...
So what about the idea that frustrating customers has consequences on customer retention and long term reputation? For example, some experts advise companies with upset customers to reach out to them directly to win them back. But, some companies have little regard for their reputation, especially those who control a large market share... companies with few competitors may find it worthwhile to alienate angry customers in order to save on redress costs.... This may help us understand why some of the most hated companies in America are so profitable and why customer service, unfortunately, remains so frustrating.
At one company "Any caller insisting on a refund was told to call the U.S. headquarters during normal business hours, generating additional tasks for any customer seeking more compensation...
"This design relies on the fact that some consumers are not willing to incur this hassle. When this happens, the company is off the hook for the additional payout."
As part of our research, described in a forthcoming article in the journal Marketing Science, we interviewed managers of call centers to understand how their customer service organization is structured, and the way it contains redress payouts. We found that most involve at least two levels of agents. The Level 1 agents take all incoming calls and hear each customer's complaint first. These agents are typically limited in the amount of redress they are authorized to offer to the caller...
So what about the idea that frustrating customers has consequences on customer retention and long term reputation? For example, some experts advise companies with upset customers to reach out to them directly to win them back. But, some companies have little regard for their reputation, especially those who control a large market share... companies with few competitors may find it worthwhile to alienate angry customers in order to save on redress costs.... This may help us understand why some of the most hated companies in America are so profitable and why customer service, unfortunately, remains so frustrating.
At one company "Any caller insisting on a refund was told to call the U.S. headquarters during normal business hours, generating additional tasks for any customer seeking more compensation...
"This design relies on the fact that some consumers are not willing to incur this hassle. When this happens, the company is off the hook for the additional payout."
you'll probably find that just 7 companies made 80% of the stuff you own. We gave up on enforcing antitrust laws and let companies merge whenever they wanted.
You can no longer "vote with your dollars". At this point the only thing holding them back is a (very mild) threat of government regulation. Even that is viewed as just another minor expense buying off politicians.
I've said it before and I'll say it again, we can change this whenever we want. But it involves some trade offs. People have to become more politically active and their politics have to be more focused on economics.
Also, people have to band together and agree that _nobody_ gets screwed over. One of the chief problems we have is that folks want gov't regulations to protect them and their interests but lose interest (or become actively hostile) to anything that might impose the slightest cost on themselves.
This is encapsulated the the phrase "I got mine, fuck you". That shit needs to stop.
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Doesn't work if there company provides a service you require and has no competition. They'll just refer you to collections.
Profit = (sales) * (profit margin)
so is a function of two variables.
At some point along that scale, profit is maximized The company is happy because it's making lots of profit. The customers are happy because they're getting stuff for cheaper because the company isn't wasting money on excessive customer service.
If you're a naive businessman who thinks you should make sure 100% of your customers are satisfied*, then yes having worse customer service will increase your profits Likewise, if you're a naive businessman who thinks cutting customer service expenses will always increase profit, then no, at some point having worse customer service results in decreased profits. Pretty much everyone who has run a business understands this. These professors would too if they'd spent some time running a business instead of only theorizing about them.
* (The phrase, "the customer is always right," doesn't mean you should give the customer whatever they demand. It means you're better off selling the customer what they want, rather than what you think they should get. In other words, what the customer thinks they want is always right. The phrase has unfortunately been appropriated by abusive customers trying to justify their excessive demands for service from businesses.)
the companies that you see having the worst customer service often have little to no competition. The worst offenders here being Cable TV/ISPs. Often there is one or two providers available for a given address, so the Cable provider is of the opinion that the customer has to come to them if they want service. So treating them like crap doesn't lose them anything.
On the flip side, you look at the larger internet sales companies. There are fifty people selling the same product, and normally within fifty cents of everyone else. So if you get a crappy customer sales experience, you will take you next purchase down the road to someone else.
Good customer service is about triage and customer retention. If a customer has called customer service, you have already lost money on the sale because you have to pay a service rep to help this customer out. That help could be anything from hand holding, an exchange, refunds or gift cards. If the customer walks away from the customer service experience saying "This company fixed the problem in a pain free way and didn't complain or make my life difficult. I'd try them again." then you have a chance at another sale. If the customer is thinking "I got my refund but I had to pull teeth and sit on the phone for an hour", then that customer is going to reduce their shopping at that store and tell their friends about it.
In environments where the customer service rep is instructed to stymie or frustrate the caller: The short term goal of keeping the customers money is fulfilled. The long term goal of getting more of the customer's money fails. This adds to the fact that the customer service rep does not bring any perceived value to the customer.
So in a low competition environment, customer service sucks, because it is seen as not needed. In a high competition environment, customer service helps retain customers. Improved customer service takes a long time to see results; it can take months or years to see the results of a loyal customer base that is willing to pay an extra quarter on a product because they trust that customer service is not going to screw them if the product is wrong.
Architectural plans are like computer source code with a couple of differences: You only compile once.
Wasting your time on bad customers drives away good customers. I am not going to wait 20 minutes while you deal with some entitled asshole before you deal with me. I am in the service industry and I will not deal with companies that waste their time trying to make happy those customers who are always whining in hopes of getting more stuff for free. If you want to waste time on the 5% of customers who will take up 95% of your time, if allowed, feel free. I just want a cashier who can ring me through.
Wasting your time on bad customers drives away good customers. I am not going to wait 20 minutes while you deal with some entitled asshole before you deal with me. I am in the service industry and I will not deal with companies that waste their time trying to make happy those customers who are always whining in hopes of getting more stuff for free. If you want to waste time on the 5% of customers who will take up 95% of your time, if allowed, feel free. I just want a cashier who can ring me through.
Wish you hadn't posted AC so this was more visible.
Neglecting good customers to deal with bad ones is bad customer service. Letting a shitty customer make your good ones feel uncomfortable or irritated is bad customer service. Asking your good customers to oblige a bad one is bad customer service.
Some people are just toxic, and will poison everything they touch. Good customer service is understanding that and not letting them touch your business.
A pub I frequent occasionally has a homeless guy come in and have a few drinks. He smells a little, but is quiet and his money is as good as anyone else's. Dude never gets asked to leave until he starts falling asleep on the bar. But the bachelorette party pre-gaming their night out? After they cleared half the bar with their yelling and screeching, they got asked to leave. Sure, they were going to spend a lot more money than that homeless guy, but it wasn't going to make up for the people who couldn't stand being in the same room as them. It also wouldn't be worth losing potential customers coming in for the first time and getting the impression that it's always a deafening madhouse and deciding not to come back.
Firing customers occasionally often is the best business decision to make.
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