How to Profit From Customer Service Recovery?

• Service & Complaints Guides
• A Practical Guide to Handling Consumer Complaints
• Best Practices in Handling Customer Complaints
• A Guide for Consumer Complaints Management
• 6 Steps to Achieve Customer Service Excellence

Service policies that assume customers are honest and that only the occasional crook must be caught set the appropriate ethical standard.

First-request service

A customer should only have to contact a business once to have his or her problem solved or question answered. Ideally, this can be done immediately. If this is not possible, the business takes on the follow-up burden and should use complaint management software of some kind to track and manage follow-up.

Manage customers' expectations

When follow-up is necessary, telling the customer what to expect can significantly increase his or her satisfaction. When the service investigations department in one Citibank branch instituted this particular procedure, specifying time frames for next steps, customers' satisfaction increased by 40 percent.

Companies should train employees to listen to customers and change fundamental attitudes so that complaints are viewed as opportunities for positive change, not as reasons to be defensive.

British Airway's customer-relations department can now claim to be a true champion of the customer. The retention rate among those who complain to customer relations has more than doubled, while the department's return on investment (the value of business saved plus increased loyalty and new business from referrals relative to the department's total costs) has risen 200 percent.

In training its employees, British Airways tried to help staff understand several things:

• If the company replies to a customer and claims that events did not happen as the customer suggested, then the customer perceives the company to be calling him or her a liar.
• If, after investigating, the company reports back to the customer that events indeed took place as the customer claimed, then the customer can become even more agitated, inferring that the company did not believe him or her at first.
• If the company relays information to the customer that he or she did not know, the customer may think that the company is trying to make excuses for poor service.

To deal with these issues, British Airways' customer-relations department developed a four-step process that it incorporated into all its technical and human systems.

1. Apologize and take up the problem. Customers do not care whose fault the problem was; they want an apology and they want someone to champion their cause.
2. Do it quickly. Aim to reply to the customer the same day, and if that is not possible, certainly within 72 hours. British Airways research showed that 40 to 50 percent of customers who contacted it with complaints defected if it took company staff longer than five days to respond. A speedy reply demonstrates a sense of urgency; it shows that the company really cares about the customer's feelings and situation.
3. Assure the customer that the problem is being fixed. Customers can be retained if they are confident that the operational problem they encountered will truly be addressed.
4. Do it by phone. British Airways found that customers with problems were delighted to have a customer-relations person call them.

I am all for service recovery, but at what cost?

Measurement precedes management. This is especially true for service recovery - managers often underestimate the profits lost when a customer is not satisfied and, therefore, they undermanage ways of avoiding such losses. They concentrate on attracting new customers that may actually represent unprofitable business and do not take steps to retain more valuable existing customers.

Errors have certain costs associated with them. Some take the form of money-back guarantees, warranty work or replacements, which fall on the company. But dissatisfied customers almost always get stuck with certain costs - the money they spend for phone calls, the time they spend making their cases, and the aggravation they must endure throughout. The customer left stranded on the highway because his or her car was not repaired properly might miss an important meeting, have to pay for a tow truck, and spend time waiting for the repair to be made. Many service companies conveniently overlook these hidden costs, but the customer surely will not. Companies known for excellent service will go the extra mile to cover all the costs a failure incurs or, if the inconvenience is so great that the company cannot completely compensate the customer, respond in a tone that signals the company's regret.

A study done for the White House Office of Consumer Affairs found that in households with service problems that could potentially cost more than $100, 54 percent would maintain brand loyalty if their problems were satisfactorily resolved. Only 19 percent would repeat their purchase if they were unhappy with the problem's resolution. For less expensive problems (one to five dollars), 70 percent would maintain brand loyalty if their problems were resolved satisfactorily; only 46 percent would repurchase if the problem was not fixed.

Considering how much it costs to lose a customer, few recovery efforts are too extreme. At Club Med, one lost customer costs the company at least $2400; a loyal guest visits the resorts an average of four times after the initial visit and spends roughly $1000 each time. The contribution margin is 60 percent. So, when a Club Med customer does not return, the company loses 60 percent of $4000, or $2400. It also has to replace that customer through expensive marketing efforts.

According to British Airways data, for every £1 invested in customer-retention efforts, the company received £2. The return has three components. First, expanding the number of customers whose problems were resolved up-front reduced the amount that British Airways had to spend overall on retaining customers. Second, those people customer relations retained then gave British Airways more of their business. Finally, those customers brought additional business to the airline by actively promoting it to others.

Even though a good recovery service costs time and money, a badly performed service also incurs costs. No business can afford to lose customers, if only because it costs much more to replace a customer than it does to retain one - five time more, most industry experts agree. In a recovery service, you shift the cost from constantly courting new customers to cutting customer defection. A company's effort to ensure that its customers are satisfied over the long term is rewarded by an increase in profit through repeat business, referral sales, decreased customer maintenance costs,and reduced exposure to price competition.

Table of Contents

1. Secure Customer Loyalty?
2. Maximize the benefits of Customer Feedback and Word of Mouth?
3. Address the needs of Dissatisfied Customers?
4. Profit from Customer Service Recovery?
5. Fulfill an Unconditional Service Guarantee?
6. Establish a Refund and Exchange Policy?
7. Adopt a Quality Management Program?
8. Entire Guide

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