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The Consequences of Poor Service in the New Economy

Guest post by: Ray Miller

Article Overview: This article examines current research on customer behaviour and discusses the consequences of this research for your business. It also offers several actions you can take to determine how your organization’s service performance compares.

The Consequences of Poor Service in the New Economy

Economists are talking about a new economy which has evolved as a result of the financial turmoil of the past couple of years. Evidence of this new economy may not be blatantly obvious to everyone, but things are different and you can see signs of this if you look carefully. Nowhere is this more obvious than in current customer behaviour. Consumers want more for their hard earned cash and their intolerance of poor or mediocre service is growing. Recent research is very clear: Customers consider their overall service experience to be more important now than ever, and they are willing to switch their loyalties to a different brand or provider in order to find companies that prove they value their business.

The latest Amex Global Service Barometer (May 2011) reports that:

• one third of customers are loyal due to consistent, positive service experiences with their provider
• 22% refuse to do business with any business that does not provide excellent customer service
• 60% include the service experience when making buying decisions
• 70% are willing to pay an average of 13% more for consistent excellent customer service
• 60% of customers are willing to switch brands in the hope of finding a service provider who values their business.

The 2010 survey reported that only one-quarter (24%) believe companies value their business and will go the extra mile to keep it. Most feel businesses can do more to retain their loyalty.

Given that more and more customers (7 out of 10) consider the service experience important, what are the real consequences of poor or mediocre service?

Most customer will complain if they have a problem with the product or service they have purchased. What is alarming is that when it comes to the service experience, MOST CUSTOMERS DON'T COMPLAIN. They will simply take their business elsewhere. Let's put this in numerical terms:

• If you receive one complaint about poor service, studies reveal that 24 other people also received poor service but did not make a complaint. Why? Because they don't think it will do any good, or they can't be bothered, or they don't want the hassle.
• Out of these 24 people, 22 will simply take their business elsewhere.

So what if you had 10 complaints or more? The numbers can be pretty scary.

There is one ray of hope. If customers are reasonably satisfied with their overall service experience but they encounter a poor service experience once, some may return one more time. However, if the service they experience on their second visit is also poor, they are gone for good. So in the service game it's "Two Strikes and You're Out!"

What are the consequences of this? A large number of customers are silent about poor service experiences and this silence is deadly for your business. These customers simply defect to your competition and you don't find out about this until it's too late to do anything about it.

The 2011 survey also reported that 26% of customers believe companies do not focus on the service experience and 29% of customers feel their expectations are not being met.

This means that three out of ten more customers are primed to go elsewhere at the first sign of trouble, no matter how insignificant it might seem.

The consequences: No matter how you spin the numbers, if you are not pro-actively maximizing the customer experience, there is a lot of lost revenue and/or potential revenue at stake.

A customer's silence is deadly not only because of the loss of the lifetime value the customer brings to a business, but because of the impact he or she has on potential new customers.

Customers are only silent with the offending service provider. A host of highly regarded research groups suggest that each unhappy customer will tell 10 to 16 friends, colleagues, and/or family about their bad experience. And human nature being what it is, these people embellish their bad service stories, thus making the situation sound even worse. This kind of catharsis undoubtedly makes the customer feel better but it's not good for business.

Given the number of customers who do not complain about poor service as I mentioned at the beginning of this article, for every bad service complaint received, there are 352 embellished bad service stories circulating about a business.

To make matters worse, this does not even factor in the internet and the proliferation of stories which have the potential to go viral. Maybe you have seen the Airline Lost My Guitar song that went viral on You Tube and was viewed by millions, or the Airline that charged service men for their extra bags that was plastered on every news channel.

More and more customers are also using the online postings of others' opinions about their service experience when making buying decisions.

Consumers in some countries rely on this resource more than others, but there is a clear trend occurring. It appears that customers in India (80%), Italy (68%), Japan (61%), Mexico (60%), Spain (58%) and USA (48%) are the most likely to always or often use a consumer review, blog or online posting to get other consumers' opinions about a company's reputation for customer service. If the markets you serve are global in nature, this information should not be ignored.

Research suggests that postings that describe a poor experience are significantly more influential in customers' decisions to do business with a company than a posting describing a good experience. This rating averages out at approximately 60%.

The consequences: Word of mouth (including tweets, blogs and postings) is more powerful than ever. People are more inclined to tell negative stories than positive ones and your customers will believe stories told in detail by a wide range of sources and never visit your business as a result.

There is one other critical piece of information that you should know about. According to a survey prepared by WIF sponsor Avaya, 80% of companies think they have good service, but only 8% of their customers agree.

This is an enormous disconnect. We believe that one of the reasons for this is that while many organizations try to provide their customer-contact staff with service training, many overlook the fact that the customer experience is not just the responsibility of the frontline. It is all employees' responsibility because the work they do will impact on the customer in one way or another. The vast majority of customer problems and complaints are the result of systems, processes, policies and procedures which have been created for organizational convenience and protection, and the vast majority of these are not particularly customer-friendly. Non-customer contact employees force the frontline to ensure that customers follow the rules which leads to customer and frontline frustration. Additionally, because support or back office employees do not recognize how their work affects the customer, they tend to focus on their day-to-day routine rather than recognize the urgency of customer problems which might require their support. The solution is to provide customer focus training to more than just your direct customer contact staff.

If what you have been reading has left you thinking, "What should I be doing?" or "How does this apply to my Organization?" here are a key actions you can take.

1. Find out what your customers think about the service you currently provide.

How? Ask your customers. Survey your customers, but don't ask them if they are "satisfied". Find out what they like and don't like about the way you treat them. Determine what they value when it comes to the service experience. If the majority of your customers speak favorably about how they are treated and valued, keep doing what you are doing.

If not:

• evaluate the feedback and determine the cause of the disconnect
• examine what your customers like and don't like about the way you do business
• evaluate your systems, process and procedures from your customers' points of view.

Based on your evaluation, develop a plan for how you will change the way you do business to reflect what your customers value.

2. Determine Your Defection Rates

Your current defection rate represents the number of customers lost during the last year. Compare this to previous years and determine if the trend is positive or negative. If you don't know how to calculate your defection rates you'll find a simple formula on page 10 of our book That's Customer Focus.

Determine the cause of these defections. Is it:

• The quality of your product or price?
• The result of a poor service experience?

If your defection rates are high but your overall number of customers remains constant this actually means that it is costing you more to do business. It costs at least 5 times more to get new customers than it does to keep the ones you have.

3. Analyze your complaint policy and complaints

Review the nature of the complaints you have been getting. Isolate the complaints that refer to the customer experience. Then:

1. Determine if these complaints are on the upswing.

2. Identify the root cause(s) of each complaint.

3. Find out if the service complaint is the result of:

• the way the customer-contact employee handled the complaint

• a lack of support from other individuals or departments internally

• inflexible rules or policies

• a combination of the above

4. Determine if these complaints were resolved to the customers' complete satisfaction.

5. Ascertain whether the volume of complaints about service is on the rise.

6. Determine if any actions were taken to ensure similar problems would not recur.

Based on the result of your analysis, your next steps should become quite clear. Keep in mind that if your customers' complaints are being resolved to their complete satisfaction, and your service complaint numbers are on the rise, this may actually be a good sign. It may be a sign that your customers want to stay with you and feel comfortable giving you feedback.

On the other hand, if complaints are on the rise about the same types of situations and nothing has been done to correct the root cause of problem or if your numbers of service experience complaints are on the decline, there's a good chance these customers are long-gone, but bad mouthing you as they move on.

Based on what you uncover in each of these actions, you have two choices:

1. If your analysis reveals positive trends in each of these areas, KEEP DOING WHAT YOU'RE DOING!

2. If your analysis in any of these areas is negative, give serious consideration to developing and implementing a comprehensive customer focus strategy as soon as possible.

If you determine that you need to provide training to your staff in how to build and strengthen their customer focus and service delivery, let us know. We have a number of proven training programs which can be customized to reflect your Organization's specific situation.

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Article Tags: customer behaviour, customer research, customer retention, impact of bad service, new economy, poor service consequences



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