chapter 10

Customer Service: Reward the Best

Overview

A manager said, “We do whatever it takes to keep complainers from switching to a competitor.” Speechless from her flawed logic, I thought, “That’s why you’re going through a difficult time.” Aesop implies complainers cannot save us in the time of trouble.

Most sales people neglect people when they become key customers, but we should reward them as they reward the business.

Complainers seek what the business does not offer. Let us learn how to discourage complainers and to reward your best customers by stratifying its customer service policies.

Vignettes

Accounting for Failure

I sat next to the manager of a Certified Public Accountant (CPA) firm at a luncheon and mentioned the 80/20 rule. She said, “Long ago we realized the 80/20 rule predicts our sales so our sales reps seek prospects who are similar to our most profitable clients.” I asked, “How do you describe them?” She replied, “Many CPA firms are chasing the same ­clients.” “What special benefits do you provide your top clients?” “We treat our clients equally.”

I asked her, “What about complainers?” “We’re going through a difficult time so we don’t want to lose any clients. We do whatever it takes to keep complainers from switching to a competitor.” Speechless from her flawed logic, I thought, “That’s why you’re going through a difficult time.”

Can a Soldier Ride a Donkey?

An Aesop Fable

A soldier feeds his horse well on barley when they are at war. The horse says, “We share our adventures.”

When the war is over, the horse complains, “You make me work like a slave. I must carry heavy loads and get nothing to eat but chaff.”

The trumpet sounds the call to arms. The soldier bridles the horse, arms himself, and mounts him, but the horse has no strength.

Stumbling at every step, the horse says, “You better go join an infantry regiment for I’m no longer worth riding with the cavalry. You changed me into a donkey. How can you expect to change me back into a horse?”

Aesop notes that a soldier cannot ride a donkey into battle to “save us in the time of trouble.”

Which Customers Do You Neglect?

Aesop warns us against neglecting an important asset like a soldier’s horse. Similarly, most sales people wine and dine prospects during the sales ­process, but neglect them when they become key customers. When a business raises its prices, neglected customers may lose interest and switch to a competitor. “I’m no longer a customer since I’m buying from a ­competitor. How can you expect me to return?”

A wise business rewards its key customers so they will remain loyal when they raise their prices. Key customers deserve a reward because they produce 80 percent of your profits and refer key prospects to the business.

Does your business reward key customers or neglect them? Most ­businesses neglect their key customers and attend to complainers, but your business can increase its profits by doing the reverse.

Complainers produce little profit, yet are hard to satisfy. As my ­grandmother said, “The squeaky wheel gets the grease.” They complain because the business does not fulfill their requirements. Dissatisfied ­customers seek what the business does not offer. Maybe a competitor ­specializes in serving people just like them and can better meet their needs. Encourage them to switch to a competitor that can better satisfy them.

Discourage complainers by stratifying the customer service policies according to relevant criteria. The business is not discriminating against complainers if the business is being consistent with its policies. Provide benefits to key customers, but limit benefits to other customers. Reward key customer as they reward the business.

Jeff Bezos¹

The best customer service is if the customer doesn’t need to call you, doesn’t need to talk to you. It just works.

Jeff Bezos [Jeffrey Preston Jorgensen], founder of Amazon.com, investor, and technology entrepreneur.

How Much Trouble Do Complainers Cause?

My Condominium Suffered from Complainers

In 2004, the Pendleton Condominium suffered from a time of trouble when four hurricanes, Charley, Frances, Jeanne, and Ivan, slammed into Daytona Beach, Florida. Originally, the 127 condominium units had screened balconies, but most owners had installed windowpanes in flimsy frames that were built for screens. The hurricanes buckled the frames, sucked out windowpanes, and pierced the ground with shards of glass.

A few years later, the president of its board of directors wanted to enclose our balconies with hurricane-proof glass, but some owners complained about this assessment. (The amounts in this example are estimates.)

About 25 households made 80 percent of the complaints and five households made 64 percent of the complaints. For several days, these five couples protested in the office of the chief building code ­official of ­ Daytona Beach, “The condominium cannot force us to pay the assessment!” One couple made 51 percent of the complaints and ­threatened to sue the ­association (Figures 10.1 and 10.2 and Table 10.1).

Figure 10.1 Comparison of complainers

Figure 10.2 Distribution of complainers

Table 10.1 Complainers

The president of the board of directors waited for everyone to quit complaining before starting the project. For over a year, condominium owners could not rent their units or obtain building permits to prepare their unit for sale. During the delay, the housing bubble burst and many owners lost a fortune.

The impasse was resolved when the chief building official decided that the building code did not allow glass in screen frames. His decision silenced the complainers and the board assessed the owners for the project.

Once the project was completed, all owners were delighted. Each unit gained over a hundred square feet of air conditioned living area and a window wall overlooking the Halifax River.

View from my new windows wall²

Key #10: Reward the Best

Mr. Iocco Starts a Business

For many years, Mr. Robert Iocco, CPA, Certified Insurance ­Counselor (CIC), was a regional executive vice president of Brown & Brown ­Insurance, one of the largest independent insurance agencies in the United States. At Brown & Brown, Mr. Iocco was responsible for ­hundreds of sales executives who collectively produced more than 500 million dollars of insurance premiums per year in the northeastern region.

“Brown & Brown taught its sales representatives to focus on personally servicing the most profitable 20 percent of its customers.” As directed, Mr. Iocco stratified the customer service policy for offices in his region by automating routine interactions with the other 80 percent of customers. Although this policy seemed capricious to some sales executives, Mr. Iocco noticed that the top 20 percent of his customers consistently ­produced 80 percent of his region’s sales and profits.

Throughout my years of selling and servicing insurance, the results were exactly as Dr. Kruger predicts in her book. In both the large and small businesses, 80% of our revenue and business profit came from the top 20% of our customers.

Learn from Mr. Iocco how to reward your most profitable customers and discourage complainers by stratifying your customer service policies.

Mr. and Mrs. Robert Iocco³

Step 1

Mr. Iocco became tired of traveling throughout his region, left his ­position, and decided to launch a business from his home. He consolidated insurance agencies in Bristol, Norton, Richland, and Salem, ­Virginia, into Trustpoint Insurance. These four branches offer personal auto, ­homeowners, business, and benefits insurance. Initially, they treated their customers equally.

Step 2

When Mr. Iocco consolidated them, he stratified their customer service policies like offices of Brown & Brown Insurance (Table 10.2).

Table 10.2 Sales commissions

Step 3

The sales representatives complained that taking away 80 percent of their customers would lower their personal income. Mr. Iocco obtained their “buy in” by increasing their sales commission pay rate from 20 percent to 25 percent.

Step 4

The sales representatives discovered that they could earn the same commission from one-fifth of their previous customers. “We need to work only one day a week.” On the other four days, the sales representatives went hunting—for new customers to replace the customers they had lost. The sales representatives identified prospects who were similar to the most profitable 20 percent of Trustpoint’s customers. They converted most of these key prospects into highly profitable new customers. Just like the key customers, their new customers produce fourfold commissions.

Further Steps

Some sales reps focus on the top 4 percent of Trustpoint’s customers and seek prospects just like them. These customers produce 16-fold commissions. A few sales representatives focus on the top 0.8 percent because they expect them to produce 64-fold commissions.

Summary

Most sales people ignore people when they become key customers. These neglected customers may switch to a competitor.

Dissatisfied customers seek what the business does not offer. According to Pareto’s law, the top 0.8 percent of complainers spews over half of the complaints.

The solution is to discourage complainers by stratifying your customer service policies. For example, automate routine interactions with the ­bottom 80 percent of customers or redefine the target market to exclude customers whom the business does not satisfy.

Reward key customer as they reward the business. Options are to ­provide better products, value-added services, volume discounts, ­automatic reordering, and prestige.

Stratify the Customer Service Policies

Decide how the business will reward the best:

1. How will your business reward its best customers?

   □ Automatic reordering

   □ Better products and services

   □ Faster service and shipping

   □ Free insurance and guarantees

   □ Free training and support

   □ Influence over future business decisions

   □ Personal value-added services

   □ Recognition and prestige

   □ Reports, autographs, and trinkets

   □ Volume discounts

2. How will your business discourage less profitable customers and complainers?

   □ Automate routine interactions with them

   □ Establish other rigid procedures that discourage less profitable ­customers and complainers

   □ Only accept returns with a receipt or in exchange for a similar item

   □ Redefine the target market to exclude customers with these traits