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."

Comments

Take a look around your house

[rsilvergun]

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.

Customer Service improves with competition

[Elfich47]

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.