C H A P T E R 2
The Face of Your Business
It’s People, Not Software, That Build Customer Relationships
CUSTOMER SERVICE HORROR STORIES are legion, and my wife and I have certainly had our share. Airlines are frequent offenders. United Airlines changed the scheduled departure of a flight to Seattle from 7 a.m. to 6 a.m., and I was never notified. I missed the flight, took an Alaska Airlines flight instead, and haven’t flown United again on this route. Virgin Atlantic’s check-in desk in San Francisco, staffed by contract employees since 2005, refused to solve a problem with a connecting flight to Denmark because we had the temerity to fly on their code-share partner Continental’s ticket—we actually had to call Continental from Virgin’s check-in desk to resolve the problem and almost missed our flight. And retailers—don’t ask. It’s difficult to find sales help in many stores, and if you do, the odds of the employees being able to actually answer your questions and resolve issues are almost infinitesimal. As an old cartoon once lamented, if we supposedly live in a service economy, how come there is so little service?
These experiences and, more importantly, the systematic survey data on customer service and its consequences ought to disturb businesses because of the implications for companies’ economic success. A 2002 Pew Charitable Trusts survey reported that 46 percent of consumers had simply walked out of a store during the preceding year after encountering bad service, with higher-income respondents (people earning more than $75,000 a year) particularly likely to walk out. Eighty-one percent of those surveyed believed the stores they were patronizing were cutting corners on hiring—only because they are.1 In a 2005 survey of more than 2,000 consumers in the United States and the United Kingdom, 49 percent of respondents said poor service caused them to change service providers in at least one industry during the preceding year.2 Poor customer service or product quality were the leading reasons why customers switched their choice of vendors, exceeding even price as the explanation for why companies lost customers.
A United Kingdom survey published in the spring of 2006 found that fully one-quarter of customer service experiences during the preceding year had been negative.3 The same report noted that 65 percent of the people studied had taken their business elsewhere after a bad service experience, with more than one-quarter claiming that their business, once lost, would be lost forever.
Ironically, even as customers suffer poor service and abandon businesses in droves, the prevailing rule of thumb is that it’s “seven to ten times more expensive to generate a new customer than it is to sell to an existing customer.”4 Meanwhile, books and entire consulting practices have been built on the importance and profitability of customer loyalty.5 Talk about a knowing-doing gap: companies seem to “know” that customer loyalty is important but they don’t “do” much, if anything, to act on that knowledge.
And when companies do decide to act to build stronger relationships with their customers, they mostly emphasize the wrong approaches, seeking their salvation in technology instead of in their people. What companies appear to be doing in an attempt to increase service and improve customer retention is investing ever larger amounts in customer relationship management and automated customer service software, even though it is far from clear that such actions are going to make things better.
CRM is the technology that tracks customer activity and tailors marketing pitches accordingly. Estimates of the size and growth of the CRM software market vary considerably, in part because of what specifically gets defined as being related to customer relationship management and whether it is just software or maintenance and services that also get included in the expenditure estimates. Nevertheless, there is little doubt that the investment in this technology is both substantial and growing and an important focus of companies’ investments. The Gartner Group estimated that worldwide spending on CRM was already $23 billion in 2000 and would grow to $76 billion by 2005.6 Another report forecasted compounded annual growth of 11 percent between 2004 and 2014.7 Spending on CRM dominates investment in categories of software. Retailers are particularly enamored of CRM technology, with one survey in 2003 finding that already 65 percent of retailers had implemented at least one CRM application and some 80 percent of those surveyed saying that investments in CRM were a good way to build their business.8 Ironically, much of the investment in CRM software has been oriented toward reducing the costs of servicing customers, not building new or stronger customer relationships.9
But before you can manage a customer relationship, you first need to build or create that relationship. And customer relationships are not really built by fancy data-mining and statistical-analysis packages that track people’s behavior, nor by the now-ubiquitous automated phone systems that basically just irritate people. (The Pew Trusts study reported that 94 percent of those surveyed—virtually every single person—said it was “very frustrating” to call a company and hear a recording rather than a human being.) Rather, relationships and their quality are determined by what happens to customers when they actually make contact with the organizations that have so avidly sought their business through advertising and other promotions.
Call Southwest Airlines and instead of hearing a “menu of options” you talk to a real person, often on the first or second ring, who actually seems to enjoy his or her job, has a friendly attitude, and appears to be happy to provide information and try and sell you a ticket. Following the 2001 attack on the World Trade Center and the catastrophic fall-off in the economy and air travel, Southwest maintained its perfect record of never having laid people off. With adequate staffing levels of engaged and loyal employees, the company can actually serve its customers—what a novel idea. Maybe that’s why Southwest is the only U. S. airline that has been consistently profitable over the past 30-plus years. About two decades ago Jan Carlzon led a remarkable turnaround of SAS, the Scandinavian airline, based on the powerful observation that customers’ feelings about a company came from the myriad small, often short, interactions they have with the organization—checking in, boarding the plane, getting served a drink or a meal, calling a reservations line.10 If a company doesn’t get these small experiences consistently right, nothing else matters.
Interactions between companies and their customers are still, even in this Internet age, often conducted by, of all things, real live human beings. That’s why successful organizations in industries such as airlines, hospitality, retailing, and financial services are relentless in their attention to hiring people who will fit into a service-oriented culture; diligent in inculcating—through extensive training—service skills and attitudes; and, most importantly, scrupulous in taking care of their people so they will feel good about and be proud of the company and want to deliver a great customer experience.
So maybe instead of splurging on automated phone systems and software to analyze people’s buying patterns, or even on fancier robotic telephone answering technology, if companies want to invest in technology to actually improve customer service and retention they might be better served to first invest money in software that helps them hire better people who are more likely to stay. Unicru (now part of Kronos) and Kenexa, for instance, are both organizations that sell systems that not only automate the hiring process, thereby saving money through enhanced efficiency, but also offer predictive models to select employees who are less likely to steal, less likely to quit, and more likely to provide great customer service experiences. Widely adopted in the grocery industry by companies like Whole Foods Market and Raley’s and by retailers such as Nordstrom and the home improvement chain Lowe’s, the evidence is convincing that these selection systems reduce turnover and turnover costs and help select better employees.
For instance, one grocery store compared 756 employees hired using the Unicru selection system with 1,273 hired using the traditional paper-and-pencil tests and subjective interviews over a three-year period. Involuntary terminations were 44 percent fewer and retention was 35 percent higher for the people hired using the Unicru system.11 Such results are not that surprising, as selection science has been a focus of industrial psychology for literally decades. When coupled with a system that matches hiring data to subsequent retention and performance so there can be ongoing statistical analysis, there is the possibility of steadily improving company-specific selection processes and learning from experience.
Bill Clarke, a consultant to retailers with over three decades of experience, has made this perceptive comment about the importance of people to delivering customer service: “Many years ago I worked with a retail CEO who had an interesting way of viewing the interaction between the customer and the sales associate. He referred to it as ‘the final 3 feet,’ or the distance between the customer and the sales associate during a sales transaction… This space is the most valuable piece of real estate in a retail company… In over three decades of consulting, there is one recommendation that never, ever failed, namely, the answer is always on the sales floor. Wars are won on the battlefield, not in offices and boardrooms.”12
It should be obvious that building and maintaining customer relationships begins with the customer experience. And that experience depends mostly on the interactions with the company’s employees, who truly are the “face of the business.”